October 25
2020
Anjum Shabbir
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22nd September 2020
Internal Market

No breach of EU law by national law requiring authorisation for short-term lets of non-residential property to a transient clientele

The Grand Chamber of the Court of Justice has ruled that national legislation requiring an authorisation before accommodation can be let on a short-term basis to a transient clientele which does not take up residence there is not in breach of EU law, namely the Services Directive 2006/123 (in particular Article 4(1)), in joined cases C-724/18 and C-727/18, Cali Apartments and Procureur général près la cour d’appel de Paris and ville de Paris.

The property in the case at hand includes two furnished studios in Paris that were let on a short-term basis via a website (AirBnb) and without authorisation as required under national and local rules, the owners being subject to fines as a result (15,000 euros for one applicant, and 25,000 euros for the other), in particular for not complying with ‘change of use’ of property rules.

Applicability of the Services Directive due to subject matter of national measure

First, the Court of Justice, in agreement with Advocate General Bobek, held that the Services Directive does apply to this situation, and that the activities in question fall within its scope. The Advocate General had elaborated in his Opinion the possibility for rules on property, when property is used for profit, to fall under the Services Directive even when the overall objective was town planning (in this case under ‘change of use’ of property rules), if the specific subject matter concerned an economic activity, supported by the Court’s previous case law that had already made such distinction. The Court of Justice’s reasoning however was based on the the measure being aimed, not as a general measure aimed at all persons indiscriminately, but, more specifically, at those planning to provide certain types of service, such as those relating to the repeated short-term letting of furnished immovable property to a transient clientele which does not take up residence there.

Second, the Court of Justice agreed that the French legislation applied an ‘authorisation scheme’ under Article 4(6) of the Services Directive, under which an individual decision is issued, and not a more general prohibitory, non-individual ‘requirement’ under Article 4(7) of the Services Directive, which was also clear to the Advocate General.

National measure justified by an overriding reason in the public interest: housing shortage

Third, the Court of Justice, like the Advocate General, found that the national measure requiring the authorisation for the service to take place was justified under Article 9(1)(b) and (c) as it was in place in order to address a long-term rental housing shortage, an overriding reason of public interest. The Advocate General in this respect described such overriding reasons of public interest as dynamic and evolutionary.

Proportionality of the authorisation scheme and proportionality of the criteria for authorisation to be granted

Fourth, in assessing whether the national measure was justified by an overriding reason in the public interest and proportionate to that aim, the Court of Justice followed the Advocate General’s division of assessment (the latter nonetheless recognising the substantive overlap) under Article 9(1) of the Services Directive, and Article 10(2) of the Services Directive: the former concerning the authorisation scheme itself, and the latter concerning the criteria and conditions laid down in order for authorisation to be granted.

The authorisation scheme itself was held to be justified and proportionate under Article 9(1) of the Services Directive by the Court of Justice, in agreement with the Advocate General, on the basis that it was limited to a specific letting activity, limited to property that was not the main dwelling of the property owner, to territories of less than 200,000 people. And, there was no less restrictive measure – applying a system of penalties for such temporary lets would not be effective to the aim of addressing the housing shortage. The Advocate General had also considered the possible less restrictive measure of a tax in this respect, but decided that it would lead to its own issues of proportionality and possibly distort the market in other ways. He also considered a cap on the number of short-term stays, but found that the authorisation scheme was an equally if not more effective measure to meet the aims in question.

Turning to the proportionality of the criteria set out in the national legislation for such authorisation to be granted, the Court of Justice decided that it was justified (by the same aim as discussed above), and that the condition in that criteria by which it can be determined locally whether to grant authorisation was proportionate because of the optional offsetting requirement applied, under which other property owned by the property owner could be concurrently converted from non-residential premises into residential housing. However, it added that it was for the referring court to examine and decide upon whether that was an effective response, advising that the local rental market should be taken into account, the additional profitability compared with letting of premises as residential accommodation, and the practical arrangements of offsetting – or whether other alternative offset measures which are reasonable, transparent and under accessible market conditions were available.

This appears to somewhat address the Advocate General’s expression of more of a concern about whether the criteria was proportionate, considering this the ‘truly thorny’ issue of the case. He did not consider that the offsetting requirement in and of itself was disproportionate (as put forward by certain parties in the context of a digital economy), finding it ‘very effective’ to attain the aim pursued to keep the same amount of housing space for the long-term housing market: but, considered that it could prejudice ‘non-professional owners’, such as natural persons owning just one extra property, and their conditions of access to the short-term letting market for furnished accommodation – asking whether they would be obliged by the offsetting requirement to also purchase a commercial premises in the same neighbourhood in order to convert it in the manner required, before being able to access authorisation for short-term lets of their other property. The Advocate General described this as being a possible issue of proportionality with respect to certain social groups, or an issue of discrimination, under Article 10(2)(c) and 10(2)(a) of the Services Directive respectively.

Finally, the Court of Justice found, with respect to the need for the terms in question to be clear, unambiguous, and objective (in this case ‘repeated short-term letting of furnished accommodation to a transient clientele which does not take up residence there’), that there was no need for specific numeric thresholds to be laid down for that criteria to be met, it being sufficient for the terms to be specified, and accepting that the national legislation could lay down arrangements to a local authority for further specification, as long as the aims were set out, as well as objective factors in how to determine the conditions for granting authorisation.

Read the judgment here, and the Opinion here. A press release of the judgment from the Court of Justice is also available here.

We will be publishing an Op-Ed by Diana Calciu on this case soon.

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