Renting Out Your Community Scheme Property: Legal and Insurance Implications

Homeowners should think twice before simply renting out their properties in estates or community schemes using platforms like Airbnb, and not just for legal reasons. The insurance implications could leave you severely exposed.

This warning comes following a recent Gauteng High Court judgment that has significant implications for short-term letting (STL) in South Africa, coupled with growing concerns about insurance cover gaps that many property owners are unaware of.

The Legal Landscape

According to Johlene Wasserman, Director of Community Schemes and Compliance at Sandton-based law firm VDM Incorporated, the case of Blyde River Walk Estate HOA & Others v CSOS & Others provided clarity on the rights of homeowner associations (HOAs) and bodies corporate to regulate holiday rentals.

"The High Court's ruling, which is currently being appealed, affirms the right of HOAs and bodies corporate to regulate disruptive holiday rentals while the broader dispute continues," she said.

"The court has delivered a clear message that short-term letting is a commercial activity and that HOAs and bodies corporate have the power to regulate them, provided the rules are properly adopted and approved."

The case arose after some owners at the Blyde River Walk Estate in Pretoria began using their units for short-term holiday accommodation, leading to complaints from permanent residents about noise, overcrowding, and security risks. In 2020, the estate's HOA and developer tightened the conduct rules to restrict STL.

The court provided important relief by partly suspending the adjudicator's order, allowing the stricter 2020 rules to remain in force until the appeal is concluded, and awarding costs against the STL owners due to unnecessary opposition and procedural non-compliance.

The Critical Insurance Gap

Beyond the legal complexities, homeowners need to understand that standard homeowner's insurance policies typically do not cover short-term rental activities.

When you rent out your property on platforms like Airbnb, you're conducting a commercial activity. This fundamentally changes your risk profile and insurance requirements:

What Standard Policies Don't Cover:

• Guest liability claims: If a guest is injured on your property, your personal homeowner's policy may not respond

• Guest property damage: Damage caused by paying guests is often excluded

• Business interruption: Loss of rental income due to property damage

• Malicious damage by guests: Intentional destruction by short-term tenants

• Increased public liability exposure: Higher foot traffic means higher risk

The Rules Connection

The legal requirement for CSOS approval and compliance with conduct rules has insurance implications too. If you're operating an STL in violation of your rules:

• Your insurer may deny claims related to rental activities

• You could face liability for breaching scheme rules

• Your bond may be at risk if you're in breach of scheme regulations

What You Need to Do

If you're considering or already operating a short-term rental in an estate or community scheme:

1. Check your rules: Ensure STL is permitted and understand any restrictions

2. Review your personal insurance policy: Standard homeowner's cover is insufficient

3. Obtain appropriate cover: You need specialised short-term rental or commercial property insurance

4. Increase liability limits: Consider higher public liability cover given the commercial nature

5. Declare the activity: Notify your insurer and obtain written confirmation of cover

6. Understand platform cover: While platforms like Airbnb offer some host protection, these have significant limitations and exclusions

The Legal Principles

Wasserman noted that the judgment underscored several key legal principles:

• STL is considered commercial in nature and can be disruptive in residential schemes, justifying tighter regulation

• HOAs and bodies corporate are entitled to regulate STL under section 10 of the Sectional Titles Schemes Management Act (STSMA), as long as the rules are reasonable, adopted by special resolution, and approved by CSOS

• The court balances the interests of permanent residents' right to quiet enjoyment with property owners' right to rent

"Short-term letting is not an unregulated right and may be limited through properly adopted and CSOS-approved rules," Wasserman noted.

Final word

For residents, the ruling offers reassurance that their concerns are being taken seriously and that stricter STL rules can protect peace, security, and the family-oriented character of community living.

For property owners, this judgment serves as a wake-up call: short-term rentals in community schemes require careful legal compliance and proper insurance protection.

"While the legal process continues, the court recognises the rights of permanent residents to quiet enjoyment that isn't overshadowed by disruptive holiday rentals," Wasserman cautioned.

Don't let inadequate insurance turn a profitable rental venture into a financial disaster. Speak to us about specialised short-term rental insurance that protects your property, your income, and your liability exposure.