CJEU backs French restrictions to short term property rental

Out-Law News | 29 Sep 2020 | 11:40 am | 2 min. read

EU member states can limit the short-term rental of residential property via platforms such as Airbnb to battle housing shortages as long as their measures are proportionate, the Court of Justice of the European Union (CJEU) has ruled.

The EU's top court ruled in a French case. In French cities with more than 200,000 inhabitants property owners need the permission of local authorities before they can engage in short term rentals, unless it is their principal residence. According to the CJEU this regulation is a factor in preventing the conversion of flats into holiday apartments. This helps to prevent housing shortages.

Two owners of flats in Paris were fined when they breached this rule. They were ordered to offer their flats on the housing market. The owners said this breached the EU’s Services Directive and took their case to court, where it was referred to the CJEU. The judges asked the CJEU whether the requirements based on the French Construction and Housing Code were in line with the EU’s Services Directive. The CJEU said that they were.

According to the Service Directive services can be made subject to authorisation under certain circumstances, such as when restrictions are "justified by an overriding reason relating to the public interest" and when there is no other way to achieve the desired objective.

According to Dr. Igor Barabash, a technology and e-commerce expert at Pinsent Masons, the law firm behind Out-Law, this ruling will have a massive impact in cities across Europe. Just like in France, in German cities such as Berlin or Munich, in specific cases an authorisation is required if owners intend to let their housings to tourists on a regular basis.

"For a long time it was controversial whether the battle against housing shortage with according misappropriation laws and local statutes really provides for an 'overriding reason relating to the public interest'," said Dr. Barabash. "The CJEU has now clearly and unambiguously confirmed that this is the case."

The CJEU's decision points out that the letting of rentals can not only be restricted by the member states, it can also depend on a prior authorisation – as this was the case in France. "This not only provides the affected municipalities with a subsequent chance to control certain types of housing rental, they are also able to counteract it in advance," Dr. Barabash said.

The CJEU found "that the national legislation concerned is proportionate to the objective pursued" as "its material scope is limited to a specific rental activity". It does not apply to housing "which constitutes the [property owner's] main residence" and "the authorisation scheme which it establishes is of limited geographical scope". It said that the objective pursued cannot be attained by means of a less restrictive measure, in particular because a subsequent inspection "would not enable authorities to put an immediate and effective end to the rapid conversion trend."

"With this, the CJEU provides a 'guideline' that points out how the proportionality of the national restrictions can be preserved," said Dr. Barabash. "The national courts negotiate all sorts of restrictions to the rental market from local authorities at the moment. Accordingly there will be plenty of court decision on national level with regard to this decision.“  

"Whether the decision will have any immediate impact on Airbnb, will depend on the design oft the local restrictions and the authorisation processes. In cities with housing shortages, one can expect that even tough restrictions to the rental market will be in line with the CJEU decision, as they serve the public interest in affordable housing," Dr. Barabash said. "In the long run, hotels might

be the ones who profit most from the CJEU decision, as it might lead to less flats being made available on portals such as Airbnb."

According to Zeit Online, a German newspaper, Airbnb welcomed the CJEU's decision, as it will provide more clarity for hosts. Airbnb also said that most of its hosts in Paris offer their own residential homes, not secondary homes. For this reason, the platform in Paris would hardly be affected by the CJEU's decision, the article said.