Public Consultation Document on Short-Term Residential Accommodation (Update)

On 25 October 2019, we issued an Alert providing a summary of the draft Guideline on Short-Term Residential Accommodation (‘Draft Guideline’), an initiative through the Technical Working Group on Home Sharing Economy.
This Alert provides further details on the Draft Guideline.
The Draft Guideline seeks, inter alia, to provide a general regulatory framework on issues relating to short-term residential accommodation (‘STRA’), and consists of seven main components, namely:

  1. criteria and scope of STRA;
  2. licensing of hosts and agents;
  3. licensing of STRA platforms;
  4. night cap for STRA operations;
  5. safety requirements;
  6. nuisance control; and
  7. applicable taxes and fees.
Types of Accommodation
The Draft Guideline defines STRA as ‘residential accommodation that is rented for a relatively short period of time’. In this context, a residential accommodation refers to any property which is used for dwelling purposes. The Draft Guideline specifies that in addition to typical residential properties such as bungalows, terrace houses, condominiums and flats, commercial properties such as Small Office Home Offices (‘SoHo’), Small Office Flexible Offices (‘SoFo’), Small Office Virtual Offices (‘SoVo’), Serviced Apartments and converted residential properties carrying commercial titles would all fall within the scope of STRA.
“Rented” means making available for rent, and “relatively short period of time” means any period which is reasonably termed as short, typically on a daily basis. While the expression “relatively short period of time” may be intended to provide flexibility, it could also be an area of potential dispute.
Scope of Application  
The Draft Guideline applies not only to the hosts of an STRA, who are typically the owners or tenants of the accommodation, but also to the agents (individual or company) appointed or authorised to manage the accommodation on behalf of the hosts.
In addition, the Draft Guideline seeks also to govern STRA Platforms, which are the digital platforms that provide the service of advertising and online booking of accommodation, such as Airbnb Inc., and  
The Draft Guideline is not intended to apply to innovative accommodation and other forms of regulated accommodation activities, such as ‘homestay’ as defined by the Ministry of Tourism, Arts and Culture (‘MOTAC’), ‘hotels’ as defined under existing laws or by-laws and ‘tenancy’ as defined under the National Land Code 1965.
Under the Draft Guideline, to be eligible to apply for a licence to operate an STRA, the host and the agent (if the latter is an individual), must each be a citizen or permanent resident of Malaysia. If the agent is not an individual, e.g. if it is a business, company or limited liability partnership, the entity must be registered/incorporated in Malaysia to be eligible. It appears from the Draft Guideline that non-individuals would not qualify as a host.
To be eligible for a licence, the accommodation to be used as an STRA must satisfy the following conditions: (i) the Certificate of Completion and Compliance for the accommodation must have been issued; (ii) the category of land use in respect of the accommodation must fall within the permitted category under the National Land Code 1965, for instance Building (residential or commercial) or Agriculture (of which the accommodation shall not occupy more than one-fifth of the whole area of the land or two hectares, whichever is lesser); and (iii) the accommodation must not be a government-subsidised development (unless the moratorium period has lapsed).
The eligible host and the agent have to register the hosting activity with the Companies Commission of Malaysia (SSM), comply with all the rules of the requisite Joint Management Body/Management Corporation (for strata properties), and thereafter, apply for the licence from the relevant local authority. The application to the local authority must be supported by various documents including a public liability insurance policy.
The Draft Guideline suggests that there are four categories of STRA – hosted rental (where the accommodation is occupied by the host or the agent and only part of the accommodation is offered for rental), un-hosted rental (where the accommodation is not occupied by the host or the agent and the entire accommodation is offered for rental), hybrid hosted and un-hosted rental (where the host or agent does not occupy the accommodation continuously throughout the year), and commercial (where the accommodation is categorised as a commercial building, such as SoHo, SoFo, SoVo, Serviced Apartment or a converted residential property carrying commercial title.
It is also provided in the Draft Guideline that the operational licence may be valid for one year depending on the local authority and a renewal application may be submitted to renew the licence. Such licence can be revoked or deregistration may occur in the event of a breach of applicable laws.
The Draft Guideline highlights that the Tourism Industry Act 1992 prohibits any person from carrying on or operating a travel agency business unless it is a company with a valid licence. In the context of the Act, travel agency business includes selling, arranging or making available for commission, accommodation places within Malaysia or outside Malaysia. Pursuant thereto, digital platforms which provide the service of online booking of accommodation or deal with the advertising, booking and payment of the accommodation would have to be registered with MOTAC. It would appear that a foreign incorporated platform operator will have to incorporate a company under the Companies Act 2016 in order to satisfy the licensing requirement under the Tourism Industry Act.
In addition to the registration and licensing requirements, the Draft Guideline also sets out other requirements to be adhered to by the STRA platforms, including ensuring that hosts and agents are duly licensed, sharing data information on hosts and agents with MOTAC and paying applicable taxes, failing which the STRA platforms may be subject to penalty or may lose their rights to operate their platform.
Another important requirement proposed is the night cap which limits the number of days of the operation of an STRA for any one accommodation. The proposed night cap for un-hosted rental is 90 to 180 days over a 12-month period on all platforms. The Draft Guideline appears unclear in relation to a hybrid hosted and un-hosted rental as it is stated that no night cap is imposed for a hosted and a 90 to 180 days over a 12-month period on all platforms. No night cap is imposed for hosted rental and commercial properties.
The above is however subject to the discretion of the relevant local authority, after taking into account the hotels operating in the locality, whether the STRA is located in a tourist area or in an urban or rural area and the development of the area. Based on the Draft Guideline, the local authorities have the power to increase the night cap of the accommodation subject to additional terms and conditions, such as higher operational licence fee.
The STRA platforms are required to report to MOTAC and affirm that they have taken reasonable steps to verify that the licensed host and agent comply with the night cap requirement. In addition, the platforms are also required to maintain business records for each of the hosts and the STRA operation and provide the same to MOTAC upon request.
It has been proposed that all STRA be subjected to the existing fire safety regulations. Additional fire safety requirements have been recommended, including at a minimum, the installation of smoke detector/alarm, the provision of portable fire extinguishers and the provision of a detailed emergency evacuation plan in the property.
To avoid overcrowding, hosts are required to determine the maximum occupancy based on the building plan of the property, which would stipulate the ordinary use of the premises and each room, as well as the requirement under Section 79 of the Local Government Act 1976, which deems a house to be ‘overcrowded’ if any room therein is inhabited in excess of the proportion of one adult to every 350 cubic feet of clear internal space.
With respect to nuisance control, the Draft Guideline lays down the roles of each party in responding to a complaint as well as the duties of a host. To deal with the complaints, it has been proposed that the STRA platforms provide avenues for neighbours to lodge complaints and for the platforms to contact the hosts in relation to such complaints. The hosts and agents on the other hand, are required to ensure that they are reachable and that the guests have access to contact the STRA platforms or local authorities.
In dealing with the issue of nuisance, the host’s responsibilities include providing house rules, highlighting the relevant laws to the guests, complying with procedures and rules laid down by the Joint Management Body/Management Corporation (if applicable), communicating with neighbours and the STRA platforms, and keeping a record of such complaints.
Currently, unlike hotel operators, STRA operators are not regulated, which resulted in reduced taxes collected by the Government. The Draft Guideline stipulates that taxes payable are as follows:

  1. Income Tax – to be paid by the hosts, agents and STRA platforms;
  2. Service Tax – a 6% tax applicable to the hosts, agents and STRA platforms is chargeable for services if any of such persons is required to be registered under the Service Tax Act 2018;  
  3. Tourism Tax – to be borne by tourists at the rate of RM10.00 per room per night (only applicable to operators having more than four rooms); and
  4. Local Government Fee – to be borne by the guests at the rate of RM2.00 to RM3.00 per night.
The introduction of a holistic and integrated regulatory framework for STRA is long overdue. The Draft Guideline should be welcomed by all stakeholders as they clarify the responsibilities imposed on hosts, agents and STRA platform operators. The Draft Guideline should also be commended for specifying fire safety and occupancy limit requirements for accommodations that are to be used as STRAs.
It is unfortunate that the Draft Guideline lacks clarity on several key issues, some of which have already been highlighted above. Another is whether Joint Management Bodies/Management Corporations can ban STRA operations in the premises.
Feedback and comments on the Draft Guideline can be submitted to the Malaysia Productivity Council at on or before 30 November 2019.
Summary prepared by Oon Hooi Lin, Partner, and Seen Qin Ying, Associate, in the Real Estate and Banking and Finance Practice Groups of Skrine.