EU Top Court Backs France's Authorization Rule for Short-Term Rentals

On 22 September 2020, the Grand Chamber of the Court of Justice of the European Union ruled that a country could require prior authorization before a furnished home was let repeatedly to short-stay guests. It held that a French law of that kind was consistent with EU law, and that combating a shortage of long-term rental housing was an overriding reason relating to the public interest.

The case came from Paris. Cali Apartments SCI and a person identified in the court record only as HX each owned a studio apartment there. The Paris Court of Appeal had held that both studios had been offered on a website and let repeatedly for short periods without authorization, and had ordered each owner to pay a fine of EUR 15,000.

Paris city hall called the ruling a victory. Airbnb, which was not a party to the case, said it would have little to no impact on its operations in Paris, Reuters reported the same day.

How two Paris studios reached Luxembourg

On an application by the public prosecutor, the Paris Regional Court had ordered Cali Apartments and HX to pay fines of EUR 5,000 and EUR 15,000 respectively, and had ordered the studios changed back to residential use. On appeal, in judgments of 19 May and 15 June 2017, the Paris Court of Appeal ordered each owner to pay EUR 15,000, with the proceeds going to the City of Paris.

The owners went to France's Cour de cassation, arguing that the restriction had not been shown to be justified and proportionate under the EU's Services Directive, Directive 2006/123 on services in the internal market. By decisions of 15 November 2018, that court sent six questions to the Court of Justice.

What the French rule required

Article L. 631-7 of the French Construction and Housing Code applied in municipalities with more than 200,000 inhabitants and in three departments next to Paris: Hauts-de-Seine, Seine-Saint-Denis and Val-de-Marne. There, changing the use of residential premises needed prior authorization from the mayor, and the code counted the repeated short-term letting of furnished accommodation to a transient clientele as a change of use.

The authorization could be tied to an offset: converting non-residential premises into housing at the same time. Under the regulation the Council of Paris adopted in December 2008, the offset in areas designated for enhanced offsetting had to be twice the surface area of the home being converted, unless it became rental social housing.

The rule did not reach a host's own home. No authorization was needed for the lessor's main residence, meaning a dwelling occupied at least eight months a year.

Under the version of the code that applied to the two cases, a breach made the owner liable to a fine of EUR 25,000. A court was also to order the home returned to residential use by a deadline, and after it to impose a penalty payment of up to EUR 1,000 per day and per usable square meter.

What the court decided

The court gave four answers. First, the Services Directive applied: letting a furnished home repeatedly for short periods was a service, whether the owner did it on a professional or a non-professional basis. Second, the French rule was an authorization scheme in the directive's sense. Third, the scheme was justified by the housing shortage and was proportionate: it covered one specific letting activity, applied in a limited number of densely populated municipalities, and left out the main residence. Fourth, the conditions could be set locally, and the lack of numeric thresholds defining repeated short-term letting was not in itself a breach, provided local authorities spelled the concept out clearly.

On the main residence, the reasoning was brief: “the letting of such housing has no effect on the long-term rental market, since there is no need for that lessor to establish his or her main residence in another dwelling.”

The court relied on a study sent by the French government. According to the judgment, it showed that short-term letting of furnished premises had a significant inflationary effect on rent levels in Paris and other French cities, especially where a lessor offered two or more entire housing units, or one entire unit for more than 120 days a year.

A lighter system of declarations backed by penalties would not do, the court said, because it would let authorities step in only after a home had been converted, too late to halt the conversions behind the shortage.

What the court left to the French judges

The ruling did not end the two Paris cases. It was a preliminary ruling: the Court of Justice answered questions of EU law, and its press release noted that the court did not decide the dispute itself. That stayed with the French court.

The questions concerned the national legislation, the court said, and not the regulation adopted by the City of Paris. On the offset, it told the French judges to check whether the requirement was an effective response to the local housing shortage, whether its size was compatible with short-term letting given the additional profit that activity generally earned, and whether it could be met in practice on market conditions that were reasonable, transparent and accessible.

Paris claimed a win and Airbnb played it down

Ian Brossat, the deputy mayor of Paris in charge of housing and accommodation, wrote on Twitter on 22 September 2020, in French, that European justice had just validated the French law on regulating Airbnb rentals. The Connexion reported the next day that in a later tweet and an interview with France 3 Paris he said: “We are not fighting a war against Airbnb or short-term tourism accommodation platforms. We are fighting a battle for Parisians’ housing.” The English wording is The Connexion's.

Airbnb's statement, carried by Reuters, read: “We welcome this ruling that will help clarify the rules for hosts who share secondary home in Paris.” The company said the vast majority of hosts on its platform in the city rented out their own or primary homes. Reuters added that the percentage in other cities was not clear, because Airbnb did not provide figures.

Agence France-Presse reported that an alliance of 22 European cities had been pushing for tougher rules on short-term rental platforms, and that the decision might open the way for several European cities to act.

What it meant for hosts

For a host in Paris who let the home they lived in, the ruling changed nothing. The authorization rule did not cover a main residence.

For the owner of a second home or an investment studio, the position in September 2020 was plain. In the municipalities the code covered, repeated short-term letting of a furnished home needed the mayor's prior authorization, and in Paris that could come with an offset. Letting without it exposed the owner to the fine in the code, an order to return the home to residential use, and a daily penalty after the court's deadline.

Such an owner had practical steps to take: read the conditions the municipal council had published, price the offset before buying or converting, and compare short-stay income with an ordinary residential lease, which the court itself pointed to as less profitable but open.

Hosts elsewhere in the European Union had a new reference point: a city that could show a shortage of long-term rental housing could point to the ruling in support of an authorization scheme, provided it was limited in scope and its conditions were clear and public.

Sources

1. Court of Justice of the European Union (EUR-Lex), Judgment of the Court (Grand Chamber) of 22 September 2020, Cali Apartments SCI and HX v Procureur général près la cour d'appel de Paris and Ville de Paris, Joined Cases C-724/18 and C-727/18 (22 September 2020).
2. Court of Justice of the European Union, Press Release No 111/20: National legislation making the repeated short-term letting of accommodation to a transient clientele which does not take up residence there subject to authorisation is consistent with EU law (22 September 2020).
3. Reuters (as published by Yahoo Finance Australia), EU top court backs crackdown on short-term home rentals in setback to Airbnb (22 September 2020).
4. Agence France-Presse (as published by Malay Mail), EU court backs French law regulating Airbnb (22 September 2020).
5. The Connexion, Airbnb rules in Paris upheld by European Court of Justice (23 September 2020).