Can we carry out short-term rental activities in a stratified development?

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Contributed by Lai Chee Hoe

On Oct 5, 2020, the Federal Court made a significant decision in prohibiting short-term rental activities in the case of Innab Salil & Others vs Verve Suites Management Corporation that:

  1. A Management Corporation (MC) is empowered to introduce additional house rules to regulate short-term rental accommodation activities, and such house rules do not violate Section 70(5) of the Strata Management Act 2013 (SMA 2013).
  2. The house rules in disallowing short-term rental accommodation activities are valid even to a development built on a land with commercial status.

Defining stratified development

A stratified development basically means a building or land intended for subdivision into parcels. 

It includes any building or buildings having two or more storeys in a development area and intended to be subdivided into parcels, and any land on the same lot intended to be subdivided into parcels to be held under a separate strata title or any development area having two or more buildings intended to be subdivided into land parcels.

Given the scarcity of land in urban areas, we see a trend of an increasing number of developments being planned as strata schemes. 

A strata scheme may include multi-storey buildings or landed properties. Regardless it is a mixed development or a single scheme strata (residential only), short-term rental accommodation activities are common in both multi-storey buildings strata scheme and landed strata scheme. 

What are short-term rentals?

Short-term rental is loosely defined as renting a parcel within a short duration. Short-term rental is made popular among various platforms like Airbnb and iBilik. 

The definition of a short-term tenancy varies. In foreign jurisdictions, the definition of a short-term rental refers to any duration of fewer than three months; some defined it as any rental for more than three times a year for less than 30 days at each time.

Closer to Malaysia, the Urban Redevelopment Authority (URA) of Singapore defines short-term accommodation for a period of fewer than three consecutive months and they are made illegal in Singapore. 

URA went further to explain that all residential properties in Singapore are intended for long-term residence and they are not allowed to be used for short-term accommodation. 

In brief, short-term accommodation is when short-term visitors, such as tourists, holiday goers book and stay at the parcels for a few days. 

SOP

SOPs for short-term rental 

There are several SOPs drawn up by the local authorities and DBKL came out with an e-registration process around January 2018, but at the time of writing, the link to apply for a short-term accommodation license is no longer available. 

Around 2019, the Ministry of Tourism, Arts and Culture (MOTAC) came out with a registration form wanting to regulate the unlicensed Airbnb operators.

In Penang, MPPP regulates short-term rental through the Municipal Council of Penang Island (Trade, Business and Industries) By-Laws, 1991

At the time of writing, there is no uniformed legislation governing short-term rental accommodation activities. The closest one we can refer to is the Federal Court decision mentioned above which essentially allows an MC to introduce house rules to stop such activities.

How can one regulate?

You can regulate the short-term rental accommodation activities over the three different periods, depending on the entity, which has a duty or is responsible for maintaining and managing the stratified property. This includes the developer (during the developer’s management period), joint management body (JMB) (from the date the JMB is established until the dissolution of the JMB) and MC (after the 1st AGM of the MC is convened).

Developer - Approval through COB

A developer can do it through either introducing the terms and conditions relating to short-term rental accommodation activities the Deed of Mutual Covenants or by way of additional by-laws by virtue of Section 32(2) SMA. 

Introducing by way of a Deed of Mutual Covenants, however, must be taken with care since Section 148 SMA makes clear that any provisions of the contracts entered into which contradicts the provisions of SMA shall have no effect. 

For prudent measure, the provisions relating to short-term rental accommodation activities should be made by way of introducing them as additional by-laws after obtaining the approval of the Commissioner of Buildings (COB).

JMB or MC – Approval through special resolution

A JMB or MC can regulate it by introducing additional by-laws to the prescribed by-laws set out in the Third Schedule of the Strata Management (Maintenance and Management) Regulations 2015 (SMR).

Items which a JMB or MC can regulate include the control, management, administration, use and enjoyment of the building which include matters relating to:

  • Safety and security measures,
  • Details of any common property of which use is restricted;
  • Keeping of pets;
  • Parking;
  • Behaviour;
  • Imposition of fine

An illustration given in the context of regulating short-term rental would be:

  • Requesting the host to register with the JMB or MC;
  • Requesting the visitor to register at the visitors’ logbook;
  • Identifying particular common facilities for use to short-term rental visitors;
  • Introducing different access cards with limited use of common facilities to short-term rental visitors;
  • Allowing vehicles to be parked at designated areas, or use of car-park of the purchaser;
  • Ensuring that the short-term rental visitors not to behave in a manner likely to cause offence or nuisance to any other person;
  • Imposing a fine of RM200 per offence against the parcel owner and/or the short-term rental visitor.

Ban

Can we ban Short-Term Rental?

Yes. An outright ban is possible as long as the mechanisms in the SMA in stopping such activities are adhered to. This is especially so with the recent decision given in the Federal Court of Verve Suites mentioned above. 

If the JMB or MC wishes to regulate it, they can first propose a motion at a general meeting (either AGM or EGM). 

The motions proposed can be of a single motion or multiple motions depending on the nature and extent of regulations one wishes to push forward, and they must not be inconsistent with the prescribed by-laws made under Section 150 SMA. The motion(s) must be adopted by way of a special resolution.

A special resolution means a resolution, which is passed at a duly convened general meeting of which at least 21 days’ notice specifying the proposed resolution has been given and carried by a majority of consisting of not less than ¾ of the valid votes cast at the general meeting by a show of hands. Or if a poll is demanded, there must be a majority consisting of not less than ¾ in the number of valid votes cast. 

Take note that the ¾ is neither the aggregate numbers of parcel owners or aggregate share units nor eligible votes at the day of the general meeting but valid votes cast at the general meeting. 

Thereafter, the additional by-laws made, after being certified as a true copy under the seal of the developer, JMB or MC, shall be filed with the Commissioner within 14 days (for developers and JMBs) or 30 days (for MCs) from the date of approval of the COB or the date of passing of the special resolution.

This will also allow the developer, JMB, MC or any parcel owner to apply to a court or the Tribunal (depending on the cause of action) for an order to enforce the performance of or restrain the breach of any by-laws or to recover damages for any loss or injury to any person or property arising out of the breach of any by-laws.

What are the benefits?

One of the major benefits is the introduction of the mechanism in regulating the short-term rental accommodation activities as an additional by-law has the force of law.

The SMA 2013 further provides that the additional by-laws bind the JMB, MC, parcel owners or proprietors and any charge, lessee, tenant or occupier of a parcel. These additional by-laws contain mutual covenants compelling them to observe, comply and perform all its provisions.

That means the JMB or MC is empowered to enforce those by-laws on any of the parties mentioned above without fear of it carrying out its duties ultra vires the parent act. Powers to impose fines is allowed against any person who is in breach of the by-laws or additional by-laws and all fines shall be a debt due to the JMB or MC.

If a fine was imposed and not paid in full, a proprietor may not be allowed to vote at a general meeting.

Procedures to introduce additional by-laws

A summary chart is produced below for easy reference.

Chart_to_Regulate_Short_Term_Rental_Activites


Chee_Hoe_1

Lai Chee Hoe is a partner at Chee Hoe & Associates with over 10 years of experience under his belt. He specialises in civil and corporate litigation and is the current chairperson of various JMBs.


Disclaimer

This article is intended to convey general information only. It does not constitute advice for your specific needs. This article cannot disclose all of the risks and other factors necessary to evaluate a particular situation.

Any interested party should study each situation carefully. You should seek and obtain independent professional advice for your specific needs and situation.


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