Practice areas: Administrative law
Does short-term AirBnB-style rental of residential accommodation fall within the scope of the Services Directive? The Court of Justice of the European Union answered this question in the affirmative on 22 September 2020. National and municipal authorisation schemes for this type of rental are permissible, provided they satisfy the requirements of proportionality and non-discrimination. This article discusses Advocate General Bobek’s opinion and the Court’s judgment, and examines the implications for municipalities seeking to cap the number of permits.
In his Opinion of 2 April 2020, Advocate General Bobek concluded that the Services Directive applies to the short-term rental of furnished accommodation in the sharing economy. The objective of addressing a shortage of housing for long-term occupation can constitute an overriding reason in the public interest capable of justifying a national authorisation requirement — provided this does not amount to a de facto expropriation or a hidden diminution in value.
National and municipal measures are permissible under the Services Directive, subject to compliance with the requirements of proportionality and non-discrimination. AG Bobek considered an authorisation scheme to be a proportionate measure, including where the permit conditions are tailored to local circumstances. He did, however, express reservations about additional requirements taking the form of a compensation obligation — such as the French system requiring the simultaneous conversion of non-residential property into residential accommodation.
In its judgment of 22 September 2020, the Court held that the Services Directive applies to rules governing the repeated, short-term, whether professional or non-professional, rental for consideration of furnished residential accommodation to transient customers who do not establish their domicile there. Such activities are “services” that are not excluded in any way from the scope of the Services Directive.
A scheme subjecting such rental activities to prior authorisation constitutes an “authorisation scheme” within the meaning of the Services Directive. Such a scheme must not operate in a discriminatory manner, must be justified by an overriding reason in the public interest, and the objective pursued must not be attainable by a less restrictive measure. The authorisation criteria must also be justified by an overriding reason in the public interest, proportionate, published in advance, and clear and unambiguous.
The Court confirmed that addressing a shortage of housing for long-term rental — in order to improve access to housing and combat tightening conditions in the property market — constitutes an overriding reason in the public interest. The national scheme at issue was held to be proportionate: it is limited in scope to a specific rental activity, does not extend to the landlord’s primary residence and introduces an authorisation scheme of limited geographical scope. A less restrictive measure — such as a notification system with penalties applied after the fact — would not suffice, as it would not allow the ongoing rapid development causing the housing shortage to be curbed immediately and effectively.
Notably, the Court appears to have little objection to making the grant of a permit conditional on a compensation obligation — such as the French requirement to simultaneously convert non-residential property into residential accommodation. The Court considers this to be, in principle, an appropriate instrument for preventing the housing shortage from worsening and for fostering social diversity.
The national court must, however, verify that the obligation actually provides a solution to the housing shortage identified in the municipality concerned, that it is tailored to the local rental market and that it is compatible with carrying out the rental activity in question. The court must also ensure that the obligation can be met through multiple compensation mechanisms operating under reasonable, transparent and accessible market conditions. Since a national court cannot determine all of this independently, this effectively imposes a heightened duty to state reasons on the municipality concerned.
Closely related to the compensation obligation is the question of how the Services Directive applies to a policy decision to cap the total number of permits issued. The Directive imposes additional requirements on scarce authorisations under Articles 11 and 15. While the Court has found a compensation obligation to be acceptable in certain circumstances, a cap on permits goes further: it temporarily closes off the market, constituting a more significant restriction on the freedom to provide services.
From a proportionality perspective, a less restrictive instrument — such as a compensation obligation — should therefore be preferred. Municipalities that wish to impose a cap on the number of permits will need to demonstrate that the objectives pursued cannot be achieved by such a less restrictive instrument. A compensation obligation, after all, still leaves room for developers to pursue their activities.
Want to stay up to date? Subscribe to our newsletter!