Cyprus Airbnb Bill needs a re­think

By Niko­las Kouk­ou­nis

Financial Mirror (Cyprus) - - PROPERTY -

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

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@coucounis­, +357 24818288

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