CJEU Rules that Local Authorities Can Regulate the Repeated Short Term Letting of Accommodation
12 November 2020
Under French law, the repeated letting of furnished accommodation for short periods to a transient client who does not take up long term residence is subject to an authorisation from the local authority.
Under the French Construction and Housing Code, two apartment owners in Paris had been ordered to pay a fine of €15,000 each and to change back the use of their apartments to long term residential lettings. The apartment owners were repeatedly advertising online and renting their apartments for short periods in violation of the national code.
The two apartment owners challenged the authorisation requirement before the national courts as being incompatible with their freedom to provide services under EU Directive 2006/123 on services in the internal market (the Services Directive).
The Services Directive
The CJEU was asked by the Court of Appeal in Paris to decide whether the French Construction and Housing Code was compatible with the Services Directive.
The objective of the Services Directive is to realise the full potential of services markets in Europe by removing legal and administrative barriers. It was a measure introduced to maximise the advantages of the European single market and to promote cross-border competition.
There is nevertheless provision in the Services Directive which permits the restriction of services by way of a prior “authorisation scheme” provided certain conditions are met. Article 10 of the Services Directive sets out the conditions for the granting of an authorisation. It provides that any measures taken that require prior authorisation must be:
Justified by an overriding reason relating to the public interest;
Proportionate to that public interest objective
Clear and unambiguous
Made public in advance
Transparent and accessible.
Questions asked of the CJEU
In order to come to a decision in relation to the Services Directive, the Paris Court of Appeal asked four key questions of the CJEU.
Whether the Services Directive applies to the repeated short term letting of furnished accommodation for remuneration? Essentially, is the short term letting of accommodation for profit to be considered a “service”?
Can national legislation, which makes the letting of residential premises subject to prior authorisation fall under the Services Directive?
Is the objective of tackling the shortage of rental housing an overriding reason of public interest? And, if this is the case, does a prior authorisation for such short term letting constitute a proportionate means of achieving the objective?
Can the Services Directive operate to the opposite effect, and stop an authorisation scheme due to a lack of clarity, a lack of objectivity, and ambiguity?
Rulings of the CJEU
Importantly, the CJEU held that the repeated short term letting for remuneration of furnished accommodation is covered by the concept of a “service” for the purposes of the Services Directive. This includes provision of short term letting on a non-professional basis.
The CJEU also held that national legislation, which makes short term letting subject to prior authorisation from a local authority, can fall under the Services Directive provided certain conditions are met. In this case, the Court was of the view that it was justified and proportionate as the measures were introduced in the public interest to combat a housing shortage and preserve the long-term housing market in certain areas.
In justifying proportionality, the CJEU held that the objective could not be achieved by less restrictive means, and in particular, because a reactive assessment would take place too late to be genuinely effective. A proactive authorisation by the local authority is therefore better placed to achieve the objective.
It was also pointed out that the proactive criteria for authorisation must be transparent and accessible to accommodation owners considering short term letting. The CJEU held that, in this instance, the publication of local authority meeting minutes in the town hall and on the website of the local authority was sufficient to achieve this.
The Court was also of the view that while there was some vague concepts in the Construction and Housing Code, this was necessary to provide some leeway for the relevant local authorities to elaborate on the meaning of those concepts. It therefore concluded that the national code was sufficiently clear and unambiguous.
The CJEU ruling paves the way for local authorities to set down authorisation criteria for short term letting based on the characteristics of local housing markets and housing shortages.
The ruling is timely given the controversy surrounding the effect of short term rentals, facilitated by websites such as Airbnb on property markets across Europe. It is an important decision for many European cities, such as Dublin, where long term rental accommodation and housing are in short supply. The ruling will be seen as a victory for long-term residents of communities, where their accommodation requirements cannot be met and have ended up being pushed further out on the commuter belt.
The decision could be seen as a setback for rental companies. However, short-stay accommodation specialist Airbnb has said it welcomes the ruling as it “will go to help in clarifying the rules”. Airbnb also pointed out that the ruling related to people’s second homes and not people’s primary residences.
Should you require any further guidance about any of the issues discussed in this article, contact a member of our Real Estate team.
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