Airbnb: subleasing of property and the implications thereof

IntroductionAirbnb

The online hosting platform Airbnb has fast become a lucrative source of additional income for many families both in Cape Town and in South Africa in general. However, an increase in regulation in many cities around the world, and no clear position on the matter in South African law has made several Homeowners and Tenants reluctant to sublease their properties. This article will outline where South Africa currently stands on the matter, associated risks and whether one should proceed.

Current law on the matter

Airbnb’s terms of service offer only basic guidelines and states that hosts: “will (i) not breach any agreements you have entered into with any third parties, such as a homeowners’ association, condominium, or other agreements, and (ii) comply with all applicable laws (such as zoning laws), tax requirements, and other rules and regulations (including having all required permits, licenses and registrations)”

As the law currently stands, there is no statute prohibiting the subletting of a property or part thereof such as a room. However, regard must be had to specific Municipal by- laws in the specific jurisdiction. By way of example, no such by -laws currently exist in Cape Town. However, such prohibitions can exist in various other forms namely a) by way of Contract, b) Title Deed restrictions and c) Body Corporate restrictions.

Regarding contractual restrictions, a Lessor or owner of the property may include a clause which limits the ability of the Lessee or Tenant to sublet the premises or any part thereof, allow any other person to occupy the premises or any part thereof, assign the Lease or cede any rights thereunder. Such clauses are commonly accepted to the extent that they arguably have become standard from clauses of almost all Lease Agreements. Thus, it is clear that a Lessee will be unable to sublet for purposes of an Airbnb, or other similar operation at the risk of being in breach of their Contract.

The City of Cape Town by way of example, issued a 2009 policy document which outlines an interesting concession by distinguishing between a Bed and Breakfast and a Guesthouse. The policy document stated that a Bed and Breakfast is a primary or secondary dwelling whose primary purpose remains living accommodation of a single family. By contrast, a Guesthouse does not have its primary purpose as a family dwelling and may include the hosting of business activities. Thus, any free-standing dwelling which has its primary purpose as that of a single-family dwelling will be exempt from Municipal zoning requirements in Cape Town.

Subletting in Sectional Title Schemes

Whilst there may be no Municipal zoning by- laws or restrictions, other restrictions may apply such as in the case of Sectional Title Schemes. While not statutorily prohibited by the Sectional Titles Act or the Sectional Title Schemes Management Act, the latter statute does empower members of a Body Corporate to impose a restriction on short term rentals or the listing of the properties on platforms such as Airbnb by way of a special resolution.

Risks: unlawful occupation, damage to property and tax

An interesting and potentially problematic risk would be, if there exists an express or tacit Sub-lease, would Sub-lessee’s (in this case Airbnb guests) be afforded the protection under Prevention of Illegal Eviction from and Unlawful Occupation of Land Act (“PIE”).? If so, the implication would be that an Airbnb Host would have difficulty in evicting such guests. The protections of PIE will however only apply to unlawful Occupiers or lawful Occupiers who subsequently become unlawful.

Thus, PIE expressly excludes anyone who is a lawful “Occupier” in terms of the Extension of Security of Tenure Act 62 of 1997. It is therefore important and advisable to reduce any Sub-lease Agreement to writing, creating a legal categorisation of guests who are lawful Occupiers, and can thus be evicted without the added protection of PIE.

Another risk is that of potential damage to the lease premises by a Sub- lessee. Caution should be taken to clearly establish what insurance policies adequately cover in terms of various risks associated with the sub-lease, especially where the Lessor is not always physically present.  Examples may include theft, or property damage resulting in loss of income. The best way to mitigate such risk is arguably to provide for a deposit upfront in the Sub-lease or Airbnb agreement, and ensure physical presence insofar as possible.

The final risk is that of tax compliance. If a Lessor owns the property in his/her personal capacity, any income from a Sub-lease or Airbnb, would have to be declared as part of your income tax return. If the property is owned by a business or other juristic person, the corporate tax rates would apply.

Conclusion

Although the obstacles to running an Airbnb in South Africa are relatively minimal compared to other jurisdictions, it is not without its risks. Any party seeking to sublet should first check any relevant by- laws of their municipalities, as well as any restrictions in the Lease Contract itself or in the Title Deed. All Sub-Lease agreements should be reduced to writing, for the sake of clarity, as well as express consent form the Lessor or owner of the property if so required. Contact SchoemanLaw Inc for expert advice on all Lease Agreements and drafting of Contracts.

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