By: Lee and Partners

In the 21st century, besides hotels and hostels, there is an alternative lodging and accommodation offered to travellers i.e. short-term rentals. Airbnb, the most well-known platform and marketplace of short-term rentals has a total of 7 million properties and across 220 countries and regions including Malaysia and the Airbnb operators in Malaysia made a significant contribution to the local tourism industry and economy.

However, even though the market for short-term rentals is rapidly growing in the past few years, there is no specific law that regulates the operation of short-term rentals in Malaysia. Thus, there are some issues that arise due to the growth, especially on the safety and security of all residents of the building and protection of common property.

To tackle the issues, which are paramount importance to all the residents, particularly to those who are living in the building in close proximity to one another, there are Management Corporations/Joint Management Bodies, passed resolutions in Annual General Meeting or Extraordinary General Meeting to enact by-laws to regulate short-term rentals activities in their building. Previously, there was an argument that the management may not prohibit short-term rentals and the prohibition is unlawful.

This article will discuss whether Management Corporations/Joint Management Bodies can enact by-laws to prohibit parcel owners to run short-term rentals based on the Court of Appeal latest decision. Recently, Court of Appeal in the case of Innab Salil & Ors v Verve Suites Mont Kiara Management Corporation (Court of Appeal) [2020] 3 CLJ 480 has affirmed the decision of High Court Judge and ruled, in summary as follows:-

  1. House Rules enacted by Management Corporation to prohibit short-term rentals activities do not violate Section 70(5) of the Strata Management Act 2013 (“SMA”).
  2. Therefore, the house rules (by-laws) which were enacted in accordance to law by the Management Corporation to prohibit short-term rentals activities is valid and enforceable, even in the situation where the building is a commercial building.

The Brief Facts of the Case

  1. The Plaintiff is a Management Corporation (MC) to maintain and manage a residential development known as “Verve Suites” (“the Development”).
  2. The Defendants are the tenants (which run the business of short-term rentals) and parcel owners of the Units in the Development.
  3. MC held an Extraordinary General Meeting (EGM) on 25.3.2017, wherein MC proposed the enactment of House Rules No. 3. to prohibit the use of the residential units in the Verve Suites for business, including short-term rentals.
  4. Subsequently, MC informed the residents of the Development about the implementation of the House Rule No. 3 vide letters dated 20.4.2017 and 21.8.2017. These, however, went unheeded and the Defendants continue with their business of renting out their units on a short term basis to tourists and transient visitors with impunity and in total defiance and wilful breach of the House Rule No. 3.
  5. As a result, MC, vide invoices dated 6.7.2017 and 4.8.2017, issued a fine of RM200.00 per day against those residents who failed to abide the House Rule No. 3.
  6. There are several legal actions taken by parties before the filing of Writ at High Court by MC pursuant to section 70(7) of the SMA 2013 against the Defendants. The Defendants objected stating that the House Ruled No. 3 violates section 70(5)(a) of the SMA 2013.
  7. The main issue to be determined by High Court Judge is “Whether based on the pleadings filed by the parties herein MC’s enforcement of the House Rule No. 3 had violated s. 70(5) of the Strata Management Act 2013 (the 2013 Act).”
  8. The learned High Court Judge allowed the MC’s claims and entered judgment against the Defendants. In allowing MC’s claim, High Court Judge struck down that part of House Rule No. 3 which imposes a daily fine of RM200.00 against the defendants, for each day infringement continues, as it violates section 70(2) of SMA 2013. The Parties, therefore appeal against the Decision of High Court Judge to Court of Appeal.

The Main Issue before Court of Appeal:

The dispute herein is concerning the validity of the additional by-law enacted by MC in the form of House Rule No. 3 so as to control over the alleged unlawful and illegal use of the parcel units in a strata development known as “the Verve Suites” by parcel owners such as the Defendants for business in the form of short-term rentals.

The Ruling by Court of Appeal:

  1. Short-term rentals activities do not fall within the meaning of “any other dealing” of section 70(5)(a) of the SMA 2013.
  2. Section 70(3) of the SMA 2013 provides that the additional by-laws made under subsection (2) shall bind the MC and the proprietors, and any chargee, lessee, tenant or occupier of a parcel to the same extent as if the additional by-laws:
    • had been signed and sealed by the MC and proprietors, and each such chargee, lessee, tenant or occupier respectively;
    • and contained mutual covenants to observe, comply and perform all the provision of these additional by-laws.
  3. House Rule No. 3 is an additional by-law within the meaning of section 70(2), valid and enforceable and not in any way contrary to section 70(5) of SMA 2013. It is to preserve the safety and security of all residents of the condominium and to protect the common property.

The Conclusion

Management Corporation is allowed to enact by-laws to prohibit short-term rentals activities within the stratified building, so long that the by-laws are enacted in accordance with the provision under the SMA and law.

Written by Raymond Choo

Tel No. +603 7728 7001 / +603 7731 1320

Mobile No. +6017 968 1608

Fax No. +603 7728 3001

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