A Landmark Federal Court Decision on Airbnb Residential Rentals

A Landmark Federal Court Decision on Airbnb Residential Rentals

KUALA LUMPUR – A recent landmark decision by the Federal Court in the case of Innab Salil & Ors vs Verve Suites Mont’ Kiara Management Corp has created widespread legal implications for many who are renting strata units out as short-term accommodation (STA) as a business venture.

Generally, there are two types of STA operators; individual and commercial. This landmark decision applies not only to condominiums and service apartments but also to townhouses and landed gated and guarded homes that are stratified.

Last month, the Federal court ruled that management corporations (“MC”) and joint management bodies (JMBs) could ban short-term rentals based on their own house rules. The decision is bound to have an impact on both existing and future investors who are or plan to operate their strata homes as an STA under Airbnb or other similar set-ups.

The case before the Federal Court involved Swedish national Innab Salil, who owned several units in Verve Suites Mont’ Kiara. On various occasions, Salil’s house guests had misused the common facilities at the property and caused nuisance to the residents. This raised concern among the residents regarding their safety and security.

Since management bodies of strata properties are empowered under Section 59 and 70(2) the Strata Management Act 2013 (hereinafter “SMA”) to create by-laws restricting activity for the purpose of safety and security, the management corporation passed a resolution.

In this case, House Rule No 3, prohibits the use of the residential units for business including short-term rentals. The resolution was approved by an overwhelming majority of 96-4 by the residents who were present during an extraordinary general meeting.

Salil continued to engage, however, in the arrangement of short-term rentals in defiance and breach of House Rule No 3, which led to Verve Suites’ initiating legal action.

Salil unsuccessfully argued that the House Rule was in violation of Section 70(5) of the SMA 2013, which in part states that no additional by-law shall be capable of operating to prohibit or restrict the transfer, lease or charge of or any other dealing with any parcel of a subdivided building or land.

On Oct 5, the apex court ruled in favour of the management corporation and held that House Rule 3 was legal and valid in law and did not violate the SMA 2013. It is worth noting that that the decision does not prohibit short-term rentals across the board, as it depends on whether the rules of a property development allow or disallow such an arrangement.