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Total control or exclusive possession?

Total control or exclusive possession?

By Bill Swannie

Courts Judgment Landlord & Tenant 

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A recent Supreme Court decision shows that certain home sharing arrangements may be grounds for eviction under the Residential Tenancies Act, however there is still much uncertainty for tenants and their guests.

In the recent decision of Swan v Uecker (Swan),1 the Supreme Court of Victoria held that a landlord can evict a tenant under the Residential Tenancies Act 1997 (Vic) (RTA) when the tenant has offered the rented premises on the home sharing service Airbnb. The Court found that this amounted to subletting the premises, which is grounds for giving a notice to vacate (NTV) and seeking possession of the premises through the Victorian Civil and Administrative Tribunal (VCAT).

This decision was based on, and seemed to expand, the concept of “exclusive possession” under residential tenancy law. As the Court emphasised, exclusive possession is an essential aspect of subletting under the RTA. Only if a tenant has granted exclusive possession to another person (such as a visitor or guest) can they be found to have sublet the premises.

The concept of exclusive possession has a much greater significance in residential tenancy law, however. More broadly, it determines whether a lease has been created between two parties (even if neither party expected or intended this result). The Swan decision, therefore, potentially extends the scope of the RTA to include many home sharing arrangements which previously were not considered to be covered.

Swan has created much uncertainty for residential tenants, and their guests and visitors.2 Specifically, it is unclear whether subletting will occur if the tenant offers only part of the premises on Airbnb (as opposed to offering the whole premises),and whether there needs to be a specific provision in the written lease prohibiting subletting.

The significance of subletting in the RTA

Subletting without the landlord’s consent is one ground for evicting a tenant under the RTA. If a landlord seeks to evict a tenant for subletting, they must first give the tenant a NTV which allows the tenant 14 days to vacate the premises.3 If the tenant remains in possession, the landlord may apply to VCAT for a possession order (an order that the tenant vacate the premises on a particular date).

VCAT must grant a possession order if it is satisfied that the tenant has sublet the property. VCAT has no discretion to dismiss or adjourn the application (eg, on the grounds that the landlord has suffered no loss, or that any loss could be remedied by the tenant). By way of contrast, where a landlord is seeking eviction on the grounds of rent arrears, VCAT can adjourn the application if “satisfactory arrangements . . . can be made to avoid financial loss to the landlord”.4

The RTA also implies a term prohibiting a tenant from subletting “the whole or any part of the rented premises without the landlord’s written consent”.5 Unlike other duties, however, such as the duty to keep the premises reasonably clean,6 the RTA does not provide for a landlord to give a breach of duty notice (BDN) to the tenant for alleged subletting. The purpose of a BDN is to formally warn the tenant of an alleged breach, and to lay a foundation for applying to VCAT for further remedies (such as compensation or an order that the tenant refrain from further breach), if the alleged breach is repeated.

These provisions provide the background to the issues considered in Swan. They illustrate that subletting is regarded as a serious and in fact irremediable breach of a tenant’s obligations under the RTA (even if there is no term in the written agreement specifically prohibiting subletting).

Subletting is essentially where a tenant enters a tenancy agreement with another person over the premises which they themselves are renting. The tenant becomes the landlord for their subtenant, and the tenancy between the initial tenant and landlord is in itself unaffected by the creation of the sub tenancy.7 The requirements for creating a sub tenancy are examined further below.

The circumstances and proceedings in Swan

The tenants in Swan entered a 12 month lease for a two bedroom apartment in St Kilda. The tenants occupied the premises as their principal place of residence. However, they also listed the property on the Airbnb website. In the listing, the tenants offered the property to guests for stays of between three and five nights. The listing offered two distinct options for guests: one bedroom (for $102 per night), or the entire apartment (for $200 per night). With the first option, the tenant would continue to occupy the premises. With the second option, the tenant would temporarily reside elsewhere (although the tenant’s belongings remained in the premises).8

The listing on Airbnb referred to the guests as “guests”, gave “check in” and “check out” times, and listed the services and facilities provided to guests staying at the property (including use of the tenant’s kitchen, bathroom and lounge room). The listing also advised that the tenant would provide tourist information to guests. Reservations and payment were made through the Airbnb website.

Several months into the lease, the landlord learned of the Airbnb arrangement and immediately issued an NTV. When the landlord applied to VCAT for a possession order, VCAT dismissed the application.9 VCAT held that the tenant had merely given guests a “licence” to occupy the premises, and had not sublet the premises. VCAT held that “the Airbnb guests did not have exclusive possession of the rented premises”.10 VCAT gave four reasons for its decision:

  • the use of the words “guests” (as opposed to “tenants”) and “licence” (as opposed to “lease”) in the online agreement
  • the short duration of each guest’s stay, the terms regarding arrival and departure, and the use of the premises
  • the “tenant’s retention of the rented premises as their principal place of residence before, during and after” each individual guest’s stay
  • the tenant’s ability to access the rented premises during each stay, and to make guests who overstayed leave.11

The Supreme Court decision

The landlord appealed to the Supreme Court, alleging that VCAT had made errors of law in its decision.12 The Supreme Court ultimately held that VCAT had made several errors of law, and allowed the appeal. The Court elaborated in detail on the concept of “exclusive possession”, which it held was the central issue in the case. In contrast to VCAT, the Court held that the tenants had granted exclusive possession to the Airbnb guests, and therefore had sublet the rented premises.

The Court referred to several Supreme Court and High Court decisions regarding exclusive possession and how it is determined. Significantly, the Court held that determining whether a tenancy (or a sub tenancy) is created requires an “objective” assessment of the facts by a court. To determine the “true nature of the grant” a court must look not only at the terms of the agreement, but also the “surrounding circumstances”.13

The Court held that the use of the words “guest” and “licence” in the Airbnb agreement did not prevent the arrangement from being characterised as a lease. The Court held that “self-serving subjective statements” could not be used to “escape the legal consequences of one relationship by professing that it is another”.14 The Court held that it was not bound by such “labels” and it could look at the surrounding circumstances to determine the substance (as opposed to the form) of the arrangement.

The Court also held that the short duration of each guest’s stay was not decisive. The Court referred to statements by McHugh and Nettle JA that a lease could be “for days or even hours”.15 The Court held that the tenant retaining keys to the premises, the tenant’s belongings remaining in the premises, and the tenant offering services to guests (such as providing tourist information) also were not decisive of the relationship being a licence rather than a lease.16 The Court accepted that the premises remained the tenant’s principal place of residence during each guest’s stay and that the arrangement was analogous to a guest staying in a hotel (which is not considered to involve a grant of exclusive possession). However, these factors were also not decisive of the relationship between the parties. Ultimately, and despite all these factors, the Court found that the tenant had “effectively and practically passed [their] occupation [of the premises], with all its qualities, to their Airbnb guests”.17

Swan guidance to VCAT

Ultimately, VCAT members will need to apply the Swan decision in proceedings based on alleged subletting. What guidance does the decision provide?18

In Swan, the Court emphasised that each case must depend on its particular circumstances, and particularly on the terms of the lease.19 The Court expressly based its decision on the term in the written agreement which specifically prohibited subletting.20 In this light, it is unclear how VCAT would treat a similar case where there is no express term in the agreement. As mentioned above, the RTA implies a term prohibiting all tenants from subletting, so the absence of an express term should not result in a different outcome.

The Court also expressly limited its decision to a situation where the entire rented premises were offered for home sharing.21 This is unusual, as the facts in Swan also involved the offering of part of the premises (one bedroom), and the RTA allows an NTV to be given where a tenant has sublet “the whole or any part of the premises”.22 On established principles, exclusive possession is more likely to be granted where the entire premises is offered (and the tenant is absent),23 however, the RTA provides that subletting part of the premises is also grounds for eviction.

The Supreme Court decision was notable in terms of two important matters which were not addressed directly. First, the decision referred only obliquely to the relevance of payment by guests. Payment has traditionally been regarded as highly significant in distinguishing between a visitor (a “licence” situation), and a tenant (under a lease). A tenancy agreement (or lease) is a type of contract for which consideration must be provided.24 The Supreme Court decision did not seem to require proof of any consideration being paid by guests, which seems inconsistent with basic principles of contract law.

Second, the Supreme Court decision does not seem to require evidence of any particular agreement entered with any guest. As mentioned above, a lease (including a sublease) is a type of contract that is binding only if certain requirements are proven. In proceedings to evict at VCAT, the onus is on the landlord to prove that the tenant in fact “sublet” the premises. The Supreme Court decision does not clarify exactly what evidence is required in relation to home sharing situations. The decision seems to accept VCAT’s finding that it is enough that the tenant lists the property on the Airbnb website. In Janusauskas v Director of Housing,25 another recent decision involving alleged subletting, the Supreme Court emphasised the essential elements for an agreement to constitute a lease. These include proof of the commencement date, duration, the parties to the agreement, the premises and the rent to be paid.26

It is arguable that a landlord must prove all these elements at VCAT in order to be granted a possession order for alleged subletting. In Director of Housing v Pavletic the Supreme Court referred to the “serious consequences” for a tenant of being evicted from their home, and the need to interpret provisions in the RTA allowing a landlord to give a NTV strictly in favour of the tenant.27 Applying this principle, a landlord should have to provide evidence to VCAT of a particular sublease (and not merely that the premises has been listed on Airbnb) in order to evict a tenant for subletting.

Conclusion

The Supreme Court decision in Swan has created great uncertainty for Victorian tenants and their guests – and perhaps VCAT members. The decision appears to expand the concept of “exclusive possession”, which is the touchstone for the creation of a tenant-landlord relationship under the RTA. The decision indicates that short-term house sharing arrangements may be caught by tenancy legislation, although this was not intended or expected by the parties. The decision shows that a tenant can be evicted for listing the rented premises on house sharing services such as Airbnb, but leaves unanswered many important questions as to the precise circumstances in which this could happen.

Bill Swannie teaches law in the College of Law and Justice at Victoria University, Melbourne. He was previously principal lawyer at the Tenants Union of Victoria. The views expressed in this article are his own.

1. Swan v Uecker [2016] VSC 313 (unreported, 10 June 2016, Supreme Court of Victoria, Croft J).

2. See for example Patrick Hatch, “Airbnb: St Kilda landlord succeeds in kicking out tenants over home-sharing agreement,” The Age, 10 June 2016.

3. RTA, s253.

4. Note 3 above, s331.

5. Note 3 above, s81.

6. Note 3 above, s63.

7. See Anthony Moore, Commercial and Residential Tenancies: The laws of Australia, 2008, Lawbook Company, at [28.7.2060].

8. Note 1 above, at [19]-[20]. Short stays are typical of Airbnb arrangements: see airbnb.com.au/about/about-us.

9. Swan v Uecker (Residential Tenancies) [2016] VCAT 483 (unreported, VCAT, Member Campana, 24 March 2016).

10. Note 9 above, at [45].

11. Note 10 above.

12. An appeal from a VCAT decision is available only for an error of law: see s148 Victorian Civil and Administrative Tribunal Act 1998 (Vic).

13. Note 1 above, at [37].

14. Note 1 above, at [31].

15. Note 1 above, at [41]-[42].

16. Note 1 above, at [57].

17. Note 1 above, at [46].

18. The Residential Tenancies List is the busiest list of VCAT. It determines more than 1000 matters per week: VCAT Annual Report 2014-15, 39. The need for clear guidance from the Supreme Court is self-evident.

19. Note 1 above, at [80].

20. Note 1 above, at [2] and [75].

21. Note 1 above, at [19].

22. Note 3 above, s81.

23. Note 7 above, at [28.9.560]. In the Swan decision, the Court held that ‘exclusive possession’ means the right to exclude all others from rented premises – including the landlord (at [31]).

24. Note 7 above, at [28.9.570].

25. [2014] VSC 650.

26. Note 25 above, at [38]-[42].

27. Director of Housing v Pavletic [2002] VSC 438 at [18].

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