Short-Term Accommodation (“STA”) or Short-Term Rental Accommodation (“STRA”) has become a popular option for tourists/visitors looking to find accommodation during their travels. It also is an income platform for hosts who list their properties on websites such as Airbnb or booking.com. The benefits are also felt by the community, bringing about economic opportunities to the area. Yet, STA is not without its downside. Public nuisance issues have arisen from the influx of tourists causing noise pollution, traffic congestion and other manners of disturbance. Residents of stratified buildings (i.e., apartments and condominiums) have also raised concerns regarding the adequacy of the safety and protection of their homes.


In 2023, Penang introduced guidelines to regulate STA on stratified scheme properties. The guidelines impose strict regulation on short-term rentals, particularly for residential properties. Airbnb has also launched nationwide its Guide to Responsible Hosting in Buildings for short-term rental accommodations for strata buildings earlier this year which sets out detailed resources for hosts operating STA in strata buildings, helping them navigate the complexities of local regulations and community expectations.


Penang Short-Term Guidelines

 

To address problems caused by STA, the Penang State Government announced that it will be issuing guidelines to regulate STA. In May 2023, the State Government issued Private Homestay Guidelines for stratified scheme properties in Penang (“the Guidelines”), which came into force on 1 April 2023. The Guidelines are to be used as reference by Joint Management Bodies (“JMB”) and Management Corporations (“MC”) of each of the stratified buildings.


Under the Guidelines, Malaysian premise owners and operators are allowed to apply for STA and must be registered with the Companies Commission of Malaysia (CCM). The owners or operators of stratified premises/units will be required to notify the local authorities, via the Commissioner of Buildings (“COB”) after obtaining approval from the JMB/MC through a special resolution which is supported by no less than ¾ valid votes which are counted at the AGM or EGM or any special meetings under section 70(2) of the Strata Management Act 2013 (“SMA”). Commercial stratified property owners will only need to register the STA with the JMB/MC.[1]


The Guidelines sets out the rates that the owner or operator must pay to the JMB/MC:[2]

•     New registration fee: RM100 – 250 per unit

•     Annual fee: RM250 – 500 per unit

•     Safety deposit: RM1,000 – 3,000 per unit.


A certificate of registration must be issued by the JMB/MC to the owner or operator once approval has been obtained. Owners or operators of stratified property will need to renew their application annually to the JMB/MC. Application will need to be submitted in January of each year. The JMB/MC is entitled to reject an incomplete application or non-compliant application.[3]


Properties that are eligible under the Guidelines are divided according to the relevant district council:[4]


Majlis Bandaraya Pulau Pinang (Penang Island) [“MBPP”]

  • Service apartment
  • Small Office Home Office (SOHO)
  • Small Office Flexible Office (SoFo)
  • Small Office Virtual Office (SoVo)
  • Office suite
  • Office duplex

Majlis Bandaraya Seberang Prai (Penang Mainland) [“MBSP”]

  • Service apartment
  • Flat
  • Apartment
  • Condominium
  • Townhouse
  • Small Office Home Office (SOHO)
  • Small Office Flexible Office (SoFo)
  • Small Office Virtual Office (SoVo)
  • Office suite
  • Office duplex
  • Landed strata

Note: Low-cost housing, Low medium Cost Housing, Affordable Housing (RM300,000 and below) and Projek Perumahan Rakyat (PPR) are not allowed to operate STA.[5] [NN1] 


The maximum annual rental period is 180 days with rental limited to three days a week. Any additional days requires approval from the relevant JMB/MC.[6]


Owners/operators must keep records of every tenant, which must be submitted, along with annual statements, on a yearly basis to the JMB/MC. They must also submit reports for each STRA operation to the COB and local authority (MBPP/MBSP) for data collection and monitoring purposes. A yearly report for the Penang State Local Government must be submitted to the COB and MBPP/MBSP in December every year.[7]

 

Are the Guidelines in line with the Strata Management Act 2013

Section 70(2) of the Strata Management Act 2013 (“SMA”) allows MCs to make additional by-laws to regulate the control, management, administration, use and enjoyment of the subdivided building or land and the common property, including for safety and security measures.

 

The ability of MC to create by-laws restricting the engagement in STA have been clarified by the Federal Court in Innab Salil & Ors v Verve Suites Mont’ Kiara Management Corporation (“Innab”).[8] In Innab, the Federal Court held that management bodies may pass additional by-laws to restrict the use of parcels for STA. The Federal Court suggested that the defendants intended their premises to be utilized like a hotel or lodging facility, which amounted to the grant of a license instead of a tenancy.

 

Further, section 70(5) of the SMA states that no additional by-law shall be capable of operating:

 

a.  to prohibit or restrict the transfer, lease or charge of, or any other dealing with any parcel of a subdivided building or land; and

b.  to destroy or modify any easement expressly or impliedly created by or under the Strata Titles Act 1985 (“1985 Act”).

 

While “dealing” is not a defined term under the SMA, section 3 provides that the Act will need to be read with the 1985 Act as long as the provisions are not inconsistent. Within the 1985 Act, section 5 provides that it shall be read and construed as part of the National Land Code (“NLC”). Naturally, moving to section 5 of the NLC, dealing is defined as “any transaction with respect to alienated land effected under the powers conferred by Division IV, and any like transaction effected under the provisions of any previous land law, but does not include any caveat or prohibitory order”. Section 213 of the NLC (which is contained in Division IV), states that a “tenancy exempt from registration” is a dealing.


In the above case, the defendants argued that their transactions were “dealings” as STA constitutes “tenancies exempt from registration” under section 213 of the NLC. As such the house rule prohibiting the use of parcels for STA was ultra vires. On this issue, the court held that when there is no proof of exclusive possession on the part of short-term renters and there is no evidence to suggest that occupancy of the renters is intended to be a tenancy, the said arrangements are nothing more than mere licenses and do not amount in law to ‘dealings’ within the ambit of section 70(5) of the SMA.

 

Guidelines passed by the JMB/MC will be considered as additional by-laws under section 70(2) of the SMA. The ratified by-laws will regulate the administration of the property on matters stated in section 70(2) of the SMA, to the extent that it is not inconsistent with the prescribed regulations under section 150 of the SMA (namely the Strata Management (Maintenance and Management) Regulations 2015) (“Strata Management Regulations”). They will be treated as additional conditions for purposes of regulation. The Strata Management Regulations covers the duties and powers of the JMB/MC, including regulations on matters such as inter-floor leakages, damage to party walls and requirements for the first annual general meeting held by the JMB/MC. Any by-laws passed under section 70(2) of the SMA must not be inconsistent with these regulations to be effective.

Based on this line of discussion, the Guidelines are in line with the current interpretation of section 70(2) of the SMA.

 

Does the Guidelines have any force of law?

 

It should be noted that the Guidelines do not have any force of law unless adopted by the JMB/MC. The issuance of the Guidelines alone is insufficient for the Penang State Government to compel JMB/MC to pass them. Nonetheless, the Guidelines should have a profound impact on the industry and can be used as a reference in improving and streamlining STRA procedures in the state.


The Penang State Government can also consider the possibility of implementing a l icense rrequirement for the Guidelines. Section 102 of the Local Government Act 1976 (“LGA”) allows for local authorities to make by-laws to control and supervise, by registration, licensing or otherwise, including in proper cases by prohibition, a trade, business or industry which is of an obnoxious nature or which could be a source of nuisance to the public or a class of the public.

 

As an illustration, the city council of Kuala Lumpur – Dewan Bandaraya Kuala Lumpur (Kuala Lumpur City Hall, “DBKL”), under its authority via section 102(s) of the LGA, implemented the Licensing of Trades, Businesses and Industries (Federal Territory of Kuala Lumpur) By-Laws 2016 (“2016 By-Laws”), which brought into effect the requirement of a business premises license. Pursuant to paragraph 3 of the 2016 By-Laws, any person who utilizes a premise to carry out a business activity, as defined in the Schedule to the 2016 By-Laws, is required to obtain a business premise license from DBKL. Failure to comply attracts a fine not exceeding RM2,000 or imprisonment for a term not exceeding one year or both. If the offence continues, a fine not exceeding RM200 for each day is imposed during which the offence is continued after conviction.

 

As the operation of STA may be considered as an industry of its own, it is possible for the Penang State Government to pass a by-law requiring STA operators to register with the Penang State Government to operate as STA. The requirements for such licence could mirror the Guidelines, thus bringing the Guidelines into effect.

 

Parallels to New South Wales STRA Code

 

In Australia, the New South Wales (“NSW”) government, in particular the NSW Fair Trading Department of Customer Service, has implemented the Code of Conduct for the Short-term Rental Accommodation Industry (“Code”). The Code lays down the rights and obligations of STRA industry participants and facilitates the oversight of the STRA industry as a whole.

 

The Code implements the requirement of a premises register, whereby premises used as STA must be registered on a premises register. Notably, hosts are required to take reasonable steps to ensure that guests comply with their obligations in the Code, which include not to:

  • create noise that because of its level, nature, character, or quality, or the time it is made, is likely to harm, offend, or unreasonably disrupt or interfere with the peace and comfort of neighbours and other occupants of the premises;
  • act in a violent or threatening manner towards neighbours or other occupants of the premises;
  • act in a manner that could reasonably be expected to cause alarm or distress to neighbours and other occupants of the premises;
  • use or enjoy the premises in a manner, or for a purpose, which interferes unreasonably with the use or enjoyment of common property by neighbours and other occupants of the premises;
  • intentionally, recklessly or negligently cause damage to premises, any common property or any other communal facilities within the immediate vicinity of the premises, or any public property in the vicinity of the premises; or intentionally, recklessly or negligently damage the personal property of neighbours of the premises or other occupants of a strata or community scheme.

 

Guests are also responsible for the actions of visitors that they invite onto the premises during the occupancy period. They must ensure that visitors to the premises comply with the same obligations as if they were guests on the premises.

 

A notable difference between the Code and the Guidelines is that in addition to the hosts, obligations are placed on booking platforms and letting agents as well. The Code represents a comprehensive guideline that regulates the STRA industry in NSW.

 

Treatment from stakeholders


The introduction of the guidelines sparked variety of responses from key stakeholders in Penang. Hotel groups have welcomed the Guidelines and is a good start towards improving the tourism industry. There is hope that the implementation of the Guidelines will create a level playing field as “ [owners/operators] will have to get a proper licence and document before starting to rent their units out on a short-term basis … regular enforcement by the authority … to ensure these owners are following all the rules and conditions as stated in the guidelines”.[9] Nonetheless, there are concerns on enforcement of the Guidelines and there is a need for further discussions on this. This is especially as Airbnb and Booking.com are international companies and it is uncertain how the Guidelines would be reflected on their platforms.[10]


Airbnb has expressed mixed reactions to the Guidelines. While they acknowledge that the Guidelines only regulate STRA, it will also restrict accommodation options for travelers and duration of stay.[11] There are also concerns that the Guidelines will affect the tourism industry as it will severely impact accommodation supply for tourists, leaving them with fewer options for authentic stays and experiences in Penang. For example, digital nomads, under the DE Rantau Programme launched by the Federal Government, will be limited by the number of days they can stay in STA which will make it difficult for them to find places to stay and work in Penang.[12]

 

Airbnb STRA guide

With the growing popularity of STA, the role of hosts has become increasingly important. Recognising this, in June 2024, Airbnb launched its Guide to Responsible Hosting in Buildings (“STRA Guide”) for STRA for strata buildings.[13] The STRA Guide provides comprehensive resources and guidelines for hosts, property managers, JMBs, MCs and developers to facilitate responsible STA for strata accommodations.


The Guide consist of a code of conduct, reference by-laws and neighborhood support line.

 

Code of Conduct

An industry first, the Code[14] provides clear guidelines for hosts and quests emphasizing cleanliness, safety, and responsible behavior. It outlines responsibilities and expectations for maintaining property integrity, respecting neighbours, and adhering to building rules.


Use case: Hosts can share the Code with guests during booking to ensure that they understand the rules. Business management can also reference the Code during discussions with residents to reinforce the importance of respectful behaviour.


Reference By-Laws

The by-laws[15] provide a clear framework for managing STRA activities. It covers aspects such as safety, compliance and guest registration, while empowering JMBs and MCs to adopt and implement these by-laws under SMA.[16]


Use case: JMBs and MCs can adopt the bye-laws to standardise STRA operation procedures. By-laws can be used to address issues like parking management and appropriate use of common facilities.


Neighbourhood support line

A 24/7 hotline has been set up, in multiple languages, to report noise disturbances or other neighbourhood concerns related to STRA​.


Use case: Residents can call the support line if they experience any disturbance, and action can be taken immediately. Hosts can provide guests with the support line to ensure that guests know whom to contact in cases of emergencies or disturbances. 


The launch of the Guide is to help address the growing needs of Malaysia’s STA sector to ensure that there is a balance between tourism benefits and community wellbeing. The launch of the guide serves as a valuable tool in promoting responsible hosting practices, which are essential for the sustainable growth of the STA industry.

 

Commentary

 

The Guidelines introduced by the Penang State Government will significantly alter the STA industry as it will change the landscape of the STA industry in Penang. Penang stratified homeowners may expect an improvement in the quality of living through the increased protection offered by the Proposed Guidelines.

 

In contrast, the effect of the Guidelines on STA platforms such as Airbnb, Agoda Homes, and Booking.com remains to be seen. In complying with the Guidelines, these STA platforms would need to adapt, through creative methods, to remain relevant in the tourist accommodation industry.

 

We believe that the introduction of the Guidelines will improve competition in the hotel industry. STA homeowners and platforms will now be required to innovate to remain competitive with hotels.


If you have any questions or require any additional information, please contact Jeyakuhan S K Jeyasingam or the Zaid Ibrahim & Co. partner you usually deal with. 

 

This article is for general information only and is not a substitute for legal advice


[1] Para 5.1 of the Guidelines.

[2] Para 6 of the Guidelines.

[3] Para 5.2 of the Guidelines.

[4] Paras 4.12 and 4.13 of the Guidelines.

[5] Para 5.1.5 of the Guidelines.

[6] Para 5.3 of the Guidelines.

[7] Para 7 of the Guidelines.

[8] [2020] 12 MLJ 16.

[9] ‘MBPP’s new guidelines on short-term rentals get good response’ (Buletin Mutiara, 29 May 2023) <https://www.buletinmutiara.com/mbpps-new-guidelines-on-short-term-rentals-get-good-response/> accessed 13 August 2024.

[10] Thamini Vijeyasingam and Predeep Nambiar, ‘Hotel groups laud Penang’s ‘bravery’ over curbs on Airbnb, homestays’ (Free Malaysia Today, 29 May 2023) <https://www.freemalaysiatoday.com/category/nation/2023/05/29/hotel-groups-laud-penangs-bravery-over-curbs-on-airbnb-homestays/> accessed 13 August 2024.

[11] Shahrul Shahabudin, ‘No ban on short-term rentals on Penang island, says Airbnb’ (Free Malaysia Today, 20 June 2023) <https://www.freemalaysiatoday.com/category/nation/2023/06/20/no-ban-on-short-term-rentals-on-penang-island-says-airbnb/> accessed 13 August 2024. 

[12] Chris Kerin, ‘Penang’s short-term rental limits will backfire’ (The Edge Malaysia, 26 January 2023) <https://theedgemalaysia.com/node/652963> accessed 13 August 2024.

[13] Airbnb, ‘Guide to Responsible Hosting in Buildings’ <https://www.airbnb.com/e/ppap_hostinginbuildings> accessed 13 August 2024.

[14] Airbnb, ‘Code of Conduct for STRA Industry’ <https://assets.airbnb.com/help/MY-code-of-conduct-for-STRA-industry.pdf> accessed 13 August 2024.

[15] Airbnb, ‘Building Harmony’ <https://www.airbnb.com/e/ppap_malaysiareferencebylaws> accessed 13 August 2024.

[16] The by-laws were developed in collaboration with Zaid Ibrahim & Co.