Short-term rentals and accommodation activities – new directions for legislation

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The popularity of short-term rentals, especially through Airbnb

Short-term renting of apartments is, following the popularity of Airbnb, developing into a significant role in the apartment renting market. This type of accommodation offers visitors an alternative to hotel accommodation and has therefore attracted a lot of interest around the world. Short-term rentals play an important part in society, since they enable efficient use of housing, labour mobility, holidays, hybrid work and change in life situations in general. These can often require spending varying periods of time away from one’s home.

The popularity of Airbnb clearly shows the need for such services, but it has also raised concerns for example in housing companies and authorities. Questions about disturbances, the desertification of areas as tourist resorts, the professionalism of accommodation activities and compliance with various permits and other requirements have been raised with increasing frequency. The current legislation on renting and the use of real estate is not designed for such short-term renting activities, and in these situations different pieces of legislation have been interpreted depending on the circumstances.

In recent years, the Administrative Courts have issued a number of rulings on accommodation activities, including on the nature and typical effects of accommodation activities, the purpose of use of residential apartments and the impact of short-term rentals on the taxation of the transfer of an owner-occupied apartment (KHO 2014:143, KHO 2021:77, KHO 2021:76 and KHO 2021:75). However, the Prime Minister Petteri Orpo’s government programme (2023) also contains provisions seeking to clarify and amend the regulation of short-term rentals over the next few years.

We have summarised below some main features of the current legislation against which short-term rentals are currently assessed, together with guidelines for their interpretation. Finally, we take a brief look into the crystal ball as to what changes in the regulation and their interpretation may be on the way.

Professional accommodation activities or apartment rental?

One of the key questions relating to short-term rental of residential apartments concerns the nature of the rental activity. In the Finnish legislation, activities of this is kind are divided into rental activities (regulated by the Act on Residential Leases (481/1995)) and accommodation activities (regulated by the Act on Accommodation and Food Service Activities (308/2006)). The Act on Residential Leases regulates, for example, rental terms, condition of the rental property and contract termination rights, while the Act on Accommodation and Food Service Activities, on the other hand, focuses on security aspects and the data collected on occupants.

The distinction between professional accommodation activities and short-term renting of apartments is not completely clear under the current regulation. The main problem at present is the lack of rules on when and under what circumstances a residential rental activity is considered to be professional accommodation activity and whether the activity is always classified as only one or the other. It is clear that in the most typical cases covered by the legislation, such as the letting of an apartment for permanent residence use and hotel accommodation, the circumstances are very different and these legislative frameworks are designed to resolve the most typical conflicts or risks associated with these types activities. However, the circumstances, interests and risks involved in renting a short-term residential apartment are often different from those covered by either of these two pieces of legislation. In the absence of more precise definitions, drawing boundaries has been challenging.

Professional accommodation activity is regulated by the Act on Accommodation and Food Service Activities. The Act defines accommodation activities as the providing furnished rooms or other accommodation for customers requiring temporary accommodation in a professional manner. The government proposal for said Act (HE 138/2004 vp) states explicitly that the essential criterion for assessing professionalism is that the activity must aim at achieving an economic result. According to the government proposal, it is irrelevant whether the activity actually generates a profit. The Act does not apply to accommodation activities of occasional nature. According to the government proposal, accommodation activities can be considered occasional if they are one-off or very infrequent. As an example of accommodation activities of occasional nature, situations where a private individual accommodates guests in his or her home in connection with a summer event has been mentioned. On the other hand, the provision of accommodation for an entire whole holiday season or other seasonal period has been considered as professional accommodation activity in said proposal.

The Act on Residential Leases applies to a contract whereby a building or part of a building is rented to another person for residential use. According to Section 2 of the Act, accommodation activities are excluded from the scope of the Act.

The Accommodation and Food Services Act and its preamble therefore place particular emphasis on the frequency with which accommodation or premises are made available to a guest in need of accommodation. However, the legislative material does not take a position on how, for example, the professional nature of the activity should be assessed, and whether professionalism requires, for example, that the activity be carried out in the form of a company, an association or other form of organisation.

How to assess whether an apartment is used for residential or accommodation purposes?

Starting points

The general purpose use of an area and a building in a zoning area is usually defined in the local detailed plan pursuant to the Land Use and Building Act (132/1999). Residential and tourism activities have different impacts on the environment, and the municipality may decide to restrict activities by means of different planning regulations.

In addition, the building permit for each building defines the purpose of use of the building and the separate apartments within it. Under the Land Use and Building Act, the change of use of a residential apartment to an accommodation apartment is a substantial change that requires a building permit from the building control authority (e.g. KHO:2021:76). At present, the legislation and building regulations do not recognise short-term renting of residential apartments as a separate activity, but as a rule the use of the building is considered as either one or the other.

However, municipalities have wide discretion in defining planning regulations, which means that tailored planning regulations may allow for non-typical residential or accommodation uses.

Guidelines in force

Building control authorities in several municipalities have interpreted the existing legislation as not sufficiently guiding or regulating the practice of short-term rentals and professional accommodation activities. As a result, many cities, such as Helsinki (guidelines updated in January 2024),Tampere (published in 2022) and Rovaniemi (published in 2023), have developed their own guidelines for the provision of accommodation services in residential apartments. In addition, the Building Inspection Association (RTY) has produced a Topten-Interpretation Card for accommodation activities, which aims to clarify when the transfer of control of a residential apartment is considered to be accommodation activity for building control purposes, rather than, for example, a short-term or occasional rental. The interpretation card was adopted in May 2023.

The Interpretation Card adopted by RTY sets out characteristics of accommodation which suggest that the main purpose of use of an apartment is for accommodation activities. These characteristics include: (1) the accommodation is furnished, (2) no one is registered to accommodate the apartment in the population register, (3) the accommodation is offered through an accommodation brokerage service, (4) the accommodation is primarily offered for a short period only, (5) the operator provides hotel-like services such as breakfast or bed linen in connection with the accommodation, and (6) the price of the accommodation is quoted on a weekly or daily basis and includes, inter alia, internet, electricity and water. However, the Interpretation Card highlights that the definition is illustrative and that situations should always be assessed comprehensively on a case-by-case basis.

The City of Helsinki’s Building Control Services’ instructions of January 2024 clarifies the differences between renting of residential apartments and accommodation activities. The instructions draw on the case law of the Administrative Courts and sets out general guidance based on the interpretation of the courts. The instructions emphasize the responsibility of property owners to comply with the building permit and obligation to notify the authorities. The property holder is responsible for ensuring compliance with the existing local detailed plan and building permits. Thus, if a residential apartment is used for unauthorised accommodation, the housing company, for example, should take the measures allowed by the Limited Liability Housing Companies Act to stop the unauthorised use. The Limited Liability Housing Companies Act (1599/2009) entitles the General Meeting to decide that an apartment controlled by a shareholder shall be taken into the possession of the housing company if the  apartment is used essentially contrary to its purpose of use as provided in the Articles of Association of the company or contrary to other provisions of the Articles of Association, or, if the purpose of use of the apartment is not defined in the Articles of Association, contrary to the purpose of use approved by the housing company or otherwise established. However, it would ultimately be for the building control authority to assess whether unauthorised accommodation lies at hand in the light of land use and building legislation.

However, the municipal guidelines are not universally applicable throughout Finland, and RTY’s recommendation is not binding. More binding rules on interpretation of the applicable legislation is provided by the case law of the Supreme Administrative Court.

Interpretative guidance from case law

The Supreme Administrative Court has taken a position in a few rulings, based specifically on the Land Use and Building Act, referring to the circumstances in which short-term accommodation in a residential apartment has been considered as accommodation activities.

The case KHO:2021:76 concerned the use of eleven residential apartments for short-term rentals in an area designated as a block of residential buildings in the local detailed plan. The apartments had been marketed for both short and long-term use, but on platforms typical for the accommodation sector, which indicated the conditions for booking and cancellation of the apartments. In addition, the apartments were provided with linen, towels and cleaning services, and users had the possibility to order additional services. A café was located on the ground floor of the building, which also served customers who rented apartments from this operator. The court considered this activity as accommodation activities, contrary to the main purpose of use set out in the local detailed plan and the building permit. The building control authority was entitled to order the operator of the accommodation activity, the housing company and the owners of the shares that entitle to possess the apartments to stop using the apartments for accommodation activities. The Supreme Administrative Court also stated in the decision that the assessment made under the Land Use and Building Act was not affected by whether the activity constituted a sharing economy or a platform economy but was made purely on the basis of the provisions of the Land Use and Building Act by assessing the concrete effects of the activity in the individual case at hand.

In case KHO:2021:77, the Supreme Administrative Court also found that repeated rentals of furnished apartments on short-term contracts was accommodation activities that could not be considered typical of the residential area in question (residential block), and which also did not have the same effects as conventional use of detached housing. In the present case, the apartments were rented as furnished apartments, with no other services included. The owners of the apartments had rented the apartments under residential leases for residential use. Again, the court’s decision was based on the Land Use and Building Act and did not take into account whether the rental was a form of commercial operations or which piece of legislation applied to the rental agreements between the tenant and the owner of the apartments. The Supreme Administrative Court also stated that, in assessing whether a change of use was subject to authorisation, it had to be assessed on a case-by-case basis whether the typical effects of the purpose of use under consideration corresponded to the building permit granted and the general nature of the use indicated in the local detailed plan and the expectations associated with it. What was relevant, according to the court, was the concrete effects of the activities. In conclusion, the court found that the apartments were used for accommodation activities which did not in conform with the local detailed plan in force in the area or the building permits granted for the plots.

In the case KHO:2014:143, the Supreme Administrative Court took a position on accommodation activities in a detached house, which was not considered to be in line with the purpose of use set out in the applicable plan. The municipality’s Environmental Board had prohibited the company from using a plot of land located in a local detailed plan area designated as a block of detached houses for accommodation activities. Again, in its judgment, the Supreme Administrative Court held that the most decisive factor in assessing the permissibility of the activity on the property in the context of the local detailed plan was the typical effects of the activity. The activities in question were short-stay, partly holiday accommodation, atypical of a detached house area. According to studies, the activities carried out on the property in question did not correspond to the main purpose of the plan, which was that of detached housing. The activities on the property were considered to be contrary to the local detailed plan and the existing building permit.

The more continuous and frequent the short-term rental activity becomes in a residential apartment, and the more accommodation is provided primarily for short periods only, the more likely it is to be considered as professional accommodation. In this case, the landlord and the owner of the property must take into account the legal reporting obligations (such as passenger notifications required by The Accommodation and Food Services Act), permitting requirements of the applicable building legislation, as well as potential tax and health protection legislation.

Legislative reforms to be expected

It is clear that, as regards the use of residential apartments, the evolved short-term rental approach is not fully recognised in the current legislation. According to Prime Minister Petteri Orpo’s Government Programme (2023), legislation on accommodation and renting apartments will be clarified to reflect today’s needs and practices. In addition, the government aims to ensure the conditions for short-term rentals, while at the same time enabling better intervention in problem situations. It is therefore expected that the legislation on short-term rental of apartments and on the accommodation business will be amended.

The regulation on housing, accommodation and work premises will be renewed on the basis of the Building Act which will enter into force in 2025. The drafting work on the above-mentioned regulation will also look at the definition of continuous occupancy as opposed to accommodation, which will affect the technical requirements to be met by the apartments. The revised regulation on housing, accommodation and work premises is expected to enter into force at the beginning of 2025.

In addition, the Ministry of Justice has appointed a working group to assess the need for amendments to the Limited Liability Housing Companies Act from the beginning of 2024, which, among other things, should ensure the conditions for short-term rental activities. The Land Use Act will also be reformed, and the government aims to submit a government bill for a new Land Use Act to Parliament in the spring session of 2025. We understand that short-term rental activities may also be addressed in the context of the reform of the Land Use Act.

It is worthwhile for those concerned to follow the development of legislative and decree changes. Our experts will also keep an eye on the progress of these changes and will be happy to discuss them in more detail.

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