The European Court of Justice has decided on 22 September 2020 (joined cases C‑724/18 and C‑727/18) that national legislation requiring an authorisation or permit for the short-term letting of residential properties is consistent with EU law, given that a housing shortage and shortage of long-term housing rentals constitute ‘an overriding reason relating to the public interest’. As a result of this, several mayors of metropolitan cities, amongst others those of the municipality of Brussels, now have a leverage to effectively mitigate the invasion of AirBnB’s on the property markets of Europe’s touristic hotspots.
Is the future of the AirBnB business model at stake?
The facts and the procedure
Cali Apartments SCI and HX are both owners of a one-bed-room flat in Paris. The flats are offered for short-term rental to occasional customers on AirBnB’s website.
In 2015 the municipal services of the City of Paris conducted an investigation and found out that Cali Apartments SCI and HX were letting their flats through AirBnB, without the authorisation from the Parisian authorities to do so. Following that investigation, the Procureur de la République lodged an application for interim measures against the companies.
In first instance the tribunal de grande instance de Paris condemned both companies to pay an administrative fine to the municipality of Paris and to use the premises for residential purposes from now onwards (and not for holiday rentals). The City of Paris intervened voluntarily in the proceedings.
Abovementioned judgment was based on mainly the French Construction and Housing Code that provides that in municipalities with more than 200,000 inhabitants and in municipalities of Hauts-de-Seine, Seine-Saint-Denis and Val-de-Marne, any changes of use of residential properties require a permit. The short-term letting of furnished accommodation to a transient clientele not electing their domicile there, constitutes such a change of use of a residential property.
According to the Construction and Housing Code, the permit shall be granted by the mayor of the municipality in which the property is located. The mayor can even grant a permit for one property on the condition that another property without residential use shall be converted into one with a residential use, the so-called ‘offsetting’ as elaborated on in the conclusion of the Advocate General.
In the event of offsetting, a decision adopted by the municipal council sets the conditions for granting authorisations and determines the offset requirements by neighbourhood and, as the case may be, by district, in light of social housing diversity objectives and in accordance with the characteristics of the markets for residential premises and the need to avoid exacerbating the housing shortage.
In the case at hand, the Municipal Regulation of the City of Paris setting the conditions for granting authorisations and determining the offset requirements in concreto did provide for quota and requirements that must be met in the event of offsetting.
Cali Apartments SCI and HX lodged an appeal against this judgment before the cour d’appel de Paris, who followed the judge of first instance and condemned Cali Apartments SCI and HX to pay fines of EUR 15,000 and EUR 25,000 respectively. Both companies have further challenged the ruling of the court of appeal on points of law before the cour de cassation de France, who eventually requested a preliminary ruling from the European Court of Justice.
The EU Court of Justice’s judgment
The European Court of Justice had to assess in particular whether the legislation in question on an authorisation requirement was compatible with the freedom to provide services, as set forth in Directive 2006/123/EC of 12 December 2006 on services in the internal market (hereafter the ‘Services Directive’). The goal of the Services Directive is to limit barriers on the freedom to provide services in between Member States. Permits or authorisations required for exercising a service activity, can be such a barrier.
On 22 September 2020, the Grand Chamber of the European Court of Justice has ruled as follows:
- The repeated, short-term, professional or non-professional letting for remuneration of furnished accommodation to a transient clientele that does not take up residence there, constitutes a ‘service’ within the meaning of Article 4(1) of the Services Directive;
- The national legislation, together with the implementing municipal regulations at issue, constitutes an ‘authorisation scheme’ within the meaning of Article 4(6) of the Services Directive;
An authorisation scheme must comply with the requirements imposed by Article 9, first paragraph and Article 10, second paragraph of the Services Directive to ensure freedom of services, it being understood that:
- the need for an authorisation scheme must be justified by an overriding reason relating to the public interest. According to the City of Paris and the French Government, the aim of the provisions at issue is primarily to combat a structural housing shortage, to protect the urban environment and social housing policy objectives. According to established EU case-law, these all constitute an overriding reason relating to the public interest and are therefore valid justifications for the establishment of authorisation schemes, especially in those municipalities where rent pressure is particularly severe;
- the objective pursued cannot be attained by means of a less restrictive measure (proportionality criterion). Since the French Republic has incorporated several flexibility mechanisms into the design of its ex ante authorisation scheme, the latter cannot be considered to be disproportionate. The national and local provisions at hand are applicable to a specific kind of rental activities within specific geographical areas. An authorisation is also not needed for the letting of a main residence. Finally, the Court concludes that an a posteriori inspection would take place too late to be genuinely effective;
- the authorisation scheme criteria must preclude the competent authorities from exercising their power of assessment in an arbitrary manner. According to the Court, offsetting in the form of the concurrent conversion of non-residential premises into housing is an appropriate instrument for public authorities to comply with said objectives, since it leaves local authorities the choice as to whether or not to demand compensation and, as the case may be, to determine the quantum of such compensation;
- an authorisation scheme must be clear, unambiguous and objective. The Court of Justice has decided that the national and local provisions in question are all easily understandable for everybody, treat all operators in a fair and impartial manner and ensure that applications are assessed on their own merits; and
- the authorisation requirements must be made public in advance, be transparent and accessible. The minutes of the municipal council meetings at hand were displayed in the town hall and were made available online on the municipality's website, therefore the EU Court of Justice has concluded that also this requirement has been fulfilled.
Shortage on the real estate market can be an overriding reason relating to public interest to curtail the AirBnB business model
It is a fact that metropolitan cities such as Paris have been coping with a scarcity of affordable residential property for many years and even decades. The massive amount of properties that were let through AirBnB to tourists over the past years, has only driven the housing prices higher and higher.
Before the EU Court of Justice’s cases C 724/18 and C 727/18, mayors of no less than 22 metropolitan cities (Brussels, Barcelona, Athens, Berlin, Amsterdam, Firenze, Prague, etc.) had requested the EU to tackle the AirBnB business model more thoroughly, in view of combating illegal AirBnB practices where landlords would rent out their properties without any permit to do so.
As regards Brussels Capital Region’s property market, regional legislation provides for a list of strict requirements so that landlords can legally rent out their property through AirBnB. A building permit to convert a property’s destination from residential into usage for tourist accommodation is, among others, most of the times required. Unfortunately, those strict requirements are the reason why the European Commission on 24 January 2019, has started infringement proceedings against Belgium due to those rules being disproportionate and therefore incompatible with the Services Directive.
Apart from the latter and thanks to the EU Court of Justice’s cases C 724/18 and C 727/18, the alderman for Town Planning of the municipality of Brussels has delightedly stated on 23 September 2020 that, although the municipality of Brussels must remain attractive for tourists, he still aspires to slow down illegal AirBnB rentals through effective administrative measures. He further hopes to structurally decrease long-term rental prices for approximately 1,000 properties so that properties on the long term will remain or become affordable for the average middle-class citizen.
Next to that on two occasions, the Flemish government has already imposed fines on AirBnB for not passing on information to the inspection services about the landlords (and their premises) based upon the registration requirement for anyone who makes (part of) its accommodation available for (tourist) renting.
Future of AirBnB at stake?
AirBnB was not personally involved in the cases C-724/18 and C-727/18. The Court of Justice had decided on 19 December 2019 that AirBnB is not a real estate agent but an online platform (case C-390/18). However, seen the large number of municipal authorities following the European Court of Justice, this movement might result on the long run in strenuous lobby work against AirBnB, measures and penalties against illegal AirBnB practices and most likely, in the AirBnB business model in EU member states being at stake.