Introduction
The sharing economy, also known as the peer-to-peer economy, has transformed many industries. Platforms like Airbnb have created opportunities for property owners to list their residential units for short-term rentals.
In the context of stratified properties, a legal question arose in the Federal Court case of Innab Salil v Verse Suites Mont Kiara Management Corporation(1):
Can the management corporation of a stratified development introduce a new by-law prohibiting parcel owners from using their units for short-term rentals, even when the title expressly states that the building is a commercial building?
Facts
-
The second appellant was a company running a short-term rental business.
-
The first appellant was the majority shareholder of the second appellant.
-
The third and fourth appellants were parcel owners who leased their units to the second appellant for short-term rentals.
-
The respondent was the management corporation of Verse Suites.
On 18 November 2015, the Commissioner of Building Kuala Lumpur directed all joint management bodies or management corporations to address short-term rental issues.
Following this, the respondent convened an extraordinary general meeting where a motion was passed by a majority of parcel owners to introduce House Rule 3, prohibiting parcel owners from conducting short-term rental or homestay businesses.
Aggrieved parcel owners challenged House Rule 3 at the Strata Management Tribunal, but the action failed. The management corporation then sought an injunction at the High Court to prevent the appellants from breaching House Rule 3.
High Court Decision
-
The appellants argued that House Rule 3 violated Section 70(5) of the Strata Management Act (SMA) 2013, which protects parcel owners’ rights to deal with their parcels.
-
The respondent countered that short-term rentals are licenses, not leases or tenancies exempt from registration.
-
The High Court held that House Rule 3 did not violate the SMA, as short-term rental guests are merely licensees, and the activity did not constitute “dealing” under the National Land Code (NLC) 1965.
The appellants appealed to the Court of Appeal.
Court of Appeal Proceedings
-
The Court of Appeal upheld the High Court decision.
-
It emphasized that the purpose of the SMA is to promote communal living within a strata scheme.
-
Since the majority of parcel owners opposed short-term rentals, allowing the appellants to continue would contravene the majority’s wishes(2).
Federal Court Proceedings
The Federal Court addressed two key questions:
- Can the management corporation enforce a house rule to restrict the express land use in the title under Section 120 of the NLC?
- Does House Rule 3 contravene Section 70(5) of the SMA?
First Question
Appellants’ arguments:
-
The title stipulates the building is commercial, intended for service apartments and commercial enterprises.
-
House Rule 3 prohibits usage in accordance with the express condition of the title.
-
The State Authority has powers under Section 120 of the NLC, while the SMA governs strata living.
Federal Court’s ruling:
-
Statutes must be construed harmoniously.
-
Rights granted under one law may be restricted by other provisions for lawful purposes.
-
House Rule 3 did not alter the express land use condition, and its enactment was lawful.
-
The Court referenced Weng Lee Granite Quarry Sdn Bhd v Majlis Perbandaran Seberang Perai(3), affirming that certain rights in land are not unfettered and may be regulated for specific purposes.
Outcome: The first question was answered affirmatively in favor of the management corporation.
Second Question
-
Short-term rentals were held not to constitute “dealings” under the SMA.
-
Rentals were classified as licenses, as guests did not have exclusive possession.
Outcome: The second question was answered negatively—short-term rentals are licenses, not tenancies.
Commentary
-
The Federal Court reinforced that the SMA promotes communal interests within strata schemes.
-
Resolutions passed by the majority of parcel owners are enforceable if they do not contravene the SMA, even if they regulate land use.
-
Short-term rental operators must obtain approval from management corporations, which reflects the majority owners’ wishes.
-
This apex court decision may prompt more robust regulations in Malaysia to govern short-term rental businesses such as Airbnb.
Authors:
Mah Mun Yan
Senior Associate, Gan Partnership
E: munyan@ganlaw.my
Tan Min Lee
Partner, Gan Partnership
E: minlee@ganlaw.my
Endnotes:
- Innab Salil v Verse Suites Mont Kiara Management Corporation [2020] 1 LNS 1131.
- Innab Salil v Verse Suites Mont Kiara Management Corporation [2020] 3 CLJ 480.
- Weng Lee Granite Quarry Sdn Bhd v Majlis Perbandaran Seberang Perai [2020] 1 MLJ 211.
