Cyprus Airbnb Bill needs a rethink

By Nikolas Koukounis

Ink has been poured and time has been spent for the regulation of short tenancies, mostly secured through online platforms such as Airbnb and Booking.com.

This article advocates that the Cyprus Airbnb Bill needs a rethink as it seems to be misfocused, potentially unconstitutional in parts and unnecessarily over-regulates the market for peer-to-peer home rentals.

The Cyprus Airbnb Bill seeks to regulate such short tenancies through an amendment of the Hotels & Tourist Accommodations Law.

The Justification Report proclaims that promulgation of the Bill is necessary to increase the quality of the island’s tourist product. It eyes what are sported in the Bill as “SelfServed Accommodations” (SSAs).

The Bill seeks to achieve the following:

- Creates a Registry in which all SSAs must be registered before they are rented

- Imposes conditions and requirements for the rental of SSAs: (a) SSAs must bear specific technical characteristics; (b) They need to be registered in the aforesaid Registry; (c) They must bear a valid permit issued by the Cyprus Tourism Organization – CTO (or the planned Junior Tourism Ministry which is due to succeed the CTO from the 1st of January 2019); (d) Flat owners planning to short-let their flat are required to secure the unanimous consent of the Management Committee before doing so

- Imposes an array of general restrictions and obligations on SSA owners: (a) SSAs may only be used by persons mentioned in the tenancy agreement; (b) SSA owners must have all the necessary permits and insurance policy in place; (c) The consent of the owner should be secured by tenants prior to sub-letting SSAs; (d) The publication of misleading or untrue information about the SSA is prohibited.

The Bill fails to distinguish between home owners that wish to short-let their spare property for a few days on an ad hoc basis, and owners of a considerable number of properties that operate them as mini-hotels without registering with the CTO (presumably in order to avoid abiding by its strict legislative and technical requirements).

Rather, the Bill’s SSA definition includes the tenancies of generally all establishments not currently covered by the Law and treats everyone advertising their flat, villa or house on an online platform as a tourist accommodation provider, although they are not.

This is evident from the Bill’s definition of SSAs. Contrary to the current definition of “tourist accommodations”, the proposed definition of self-served accommodations does not refer to renting premises by profession. It encompasses almost all tenancies and subjects them to the obligation of abiding by certain conditions.

Given the ability of property owners to rent such properties on an ad hoc basis (i.e. not by profession or consistently) and the wide prospect for tax evasion, the Bill does not provide adequate disincentives against landlords hiding from the Tax Department’s radar. Consider the following example as an illustration: Paul inherited a house from his parents. It is located in the rural area of Agros.

Maria, also a Cypriot, wishes to rent the house to organize a birthday party for a long weekend at a rate of EUR 100 per day. Paul is not regularly renting the house; rather, he has been renting it on an ad hoc basis and he hasn’t yet registered with the CTO.

Assuming that the Bill is enacted into law, Paul will not be allowed to rent the house to Maria, unless he registers the house with the CTO. To do so, he needs to obtain all the permits and undertake the necessary amendments in the house. This will require expenses that Paul is not willing to pay.

The following dilemma arises for ad hoc tenancies the likes of the aforesaid one: What will the property owner do to secure the much (or not so much) needed EUR 300 of rent? At least at the beginning, the answer seems to be obvious: He will take the money, rent the house and hope the CTO won’t notice. Even if they notice, the up to EUR 1,000 penalty provided under the Law doesn’t seem to be deterrent enough to stop him/her from taking chances.

This is especially true given that the possibility of the CTO catching all property owners red-handed is thin (to say the least) and the fact that a time-consuming Court hearing will need to take place in a number of months or years down the road.

From a tax perspective, what a bill regulating such tenancies should include are increased criminal penalties for property owners not declaring all or some of the income received from such short-rentals.

The proposed Bill doesn’t. Given the magnitude of accommodations short-leased on online platforms and the potential to avoid the Tax Department’s range of attention, the i mposition of such penalties could constitute an adequate disincentive or measure to counter tax evasion.

Furthermore, from a sentencing perspective, it is submitted that the Bill’s one-off fine of up to EUR 1,000 for operating an unregistered SSA is unlikely to “persuade” luxury villa owners charging EUR 1500 per night for their villa to register their property in the Registry. Undoubtedly, the sentencing method provided in the Bill needs to be reconsidered, upwards.

The Bill’s justification of “upgrading the tourist product”, combined with treating all homeowners advertising on online platforms as tourist providers, fails to take into account changes in the scene of global accommodation.

Users of online platforms such as Airbnb surely don’t expect the luxury services of a hotel (unless so promised). What they do expect is strictly what is mentioned in the advertisement of the accommodation. They are prepared to pay for what they will get.

Imposing blanket technical requirements to all accommodations (incl. those not rented to tourists), such as to install lights in gardens and verandas (!), does not alleviate the danger of property owners misleading clients as to the standard of the accommodation.

This danger can be alleviated through the rightly-soincluded provision of the Bill prohibiting misleading or untrue information regarding the accommodation. Still, this provision of the Bill has no teeth, since no criminal offence and no strict punishments are provided to adequately deter property owners from cheating.

Potentially unconstitutional

Certain provisions of the Bill are also a cause for constitutional concerns due to arguably unjustifiable restrictions of the right to respect one’s property and the right to freedom of contract. Specifically, the obligation of one obtaining the unanimous (not just majority) consent of the building’s Management Committee before renting a flat constitutes a restriction of the owner’s right to enjoy or use his/her property.

Furthermore, imposing a legislative requirement to obtain the consent of an owner for sub-letting a flat is a cause for further concern, since sub-letting is an issue which regards the contractual relationship between the landlord and the tenant, not the Law.

If sub-letting is allowed in the tenancy agreement, imposing an obligation on tenants to secure an additional consent before exercising their rights may be argued to constitute an interference with the tenants’ right to the freedom of contract.

If sub-letting is not allowed under the tenancy agreement, then the tenant cannot sub-let the property and there is no need for such a legislative provision. In cases where it is unclear whether sub-letting is allowed under the tenancy agreement, the proposed provision in the Bill is likely to find the CTO in the uncomfortable position of mediating disputes between landlords & tenants and interpreting tenancy agreement clauses.

The above is not to suggest that daily tenancies should not be regulated at all; they should, on the one hand to protect short-stayers from misleading descriptions of accommodations and on the other hand to ensure that landlords pay their taxes. Nikolas Koukounis is an advocate and legal consultant practicing in Larnaca, nikolas@coucounislaw.com, +357 24818288