The International Hotel Law Review: Australia

Introduction

The hotel market plays an integral role in Australia's broader tourism industry, which is normally one of the largest in the world. While operators in the hotel market generally derive most of their revenue from the provision of accommodation on a room or suite basis, the emergence of increased competition from modern technology-based service providers including Airbnb and Stayz has forced Australian hotel operators to increase their service offering to consumers to remain competitive. This has resulted in a growing trend of hotel operators resorting to mixed use developments – that is, offering additional services such as on-site restaurant and bar facilities and recreational facilities such as pools and spas.

The hotel sector is a highly regulated area of business in Australia, with each state and territory in Australia having different legislation and policies that apply to the various services on offer.

Although the industry has experienced steady growth over the past three years, Australian hotels have been one of the hardest hit industries by the covid-19 pandemic. As a result of border closures and increased restrictions being imposed on restaurants, cafes and other hospitality venues, Australia's travel and tourism industry has effectively been forced to shut down and the hotel market has accordingly found itself in an unprecedented situation.

Australia's hotel sector is a predominantly domestic market. Accordingly, while a ban on international visitors entering Australia does have a large impact on the tourism industry overall, an international travel ban on its own would not be expected to keep the hotel industry down from a long-term perspective. Conversely, the closing of state and territory borders and banning of non-essential travel had a far greater impact on the hotel industry during the course of 2020, reducing hotel demand forecasts to historical lows.

Throughout 2020–2021, the Australian government, with the support of state and territory governments, introduced a number of initiatives to support the hospitality industry and the economy more broadly. The key government initiatives include:

  1. Jobkeeper Payment – which allows eligible employers (including hotel operators) to claim a fortnightly payment of A$1,500 per eligible employee from the Australian government from 30 March 2020, subject to meeting certain threshold tests. The payments were gradually reduced and ended on 28 March 2021.
  2. National Cabinet SME commercial leasing principles during covid-19 – a mandatory code of conduct was introduced by the federal government that imposes a set of good faith leasing principles on parties to commercial tenancies; the principles require landlords and tenants to (among other things) negotiate rent reductions in good faith and ensure that evictions are suspended for distressed (due to covid-19) commercial tenants , which has been supported by state and territory governments through the introduction of similar legislation.

In 2020, the Australian government announced its desire to achieve higher overnight visitor expenditure throughout 2020. To facilitate such growth, the government proactively sought to foster existing development pipelines to deliver more quality rooms. In the year ending June 2020, following the emergence of covid-19 in conjunction with Australia's devastating bushfire season, overnight expenditure was down 19 per cent at A$63.0 billion.2 In 2021, the figures have rapidly improved with the March 2021 monthly overnight expenditure rate up 58 per cent compared to March 2020 at a total of A$6 billion. While the Australian borders remain closed, Australia will begin to consider the prospect of reopening international travel (subject to global vaccination rates). Currently, an increase in numbers of Australians engaging with the national tourism industry has domestic overnight trips growing with an estimated figure of 113 million by December 2021.3

Market entry

While the Australian government actively encourages foreign investment into Australia, the Australian foreign investment framework has placed limitations on certain types of investments by foreign persons. The foreign investment framework is intended to safeguard Australia's national interest by requiring foreign investors to obtain the approval of the Foreign Investment Review Board (FIRB) on a case-by-case basis to determine whether a particular proposal is contrary to the national interest.

The kinds of proposals examined include both business investment proposals across all sectors of the economy and investments in land, which are both generally subject to monetary thresholds. However, as a result of covid-19, the Australian government temporarily reduced all monetary screening thresholds to nil. As a result, from 29 March 2020 to 1 January 2021, all foreign investment proposals (including land transactions) subject to Australia's foreign investment regime required approval, regardless of the value of the investment or the nature of the foreign investor widening scope for review.

However, new legislative amendments that came into effect on 1 January 2021 impose permanent reduced thresholds for foreign investment transactions that are considered 'notifiable national security actions'.

Australia has a floating exchange rate determined by international supply and demand. Generally, Australia has no foreign exchange controls, with such transactions largely free from regulation. FIRB approval may also be required for inflows of foreign currency, depending on the nature of the transaction and type of foreign investor. Dealings in foreign currency (determined by a threshold) may also give rise to reporting obligations under Australia's AML/CTF regime depending on certain transaction thresholds or circumstances.

Non-residents of Australia (including foreign companies) are subject to Australian income tax on ordinary income derived directly or indirectly from Australian sources. However, foreign-sourced income may be exempt from Australian income tax, subject to the applicability of any double taxation treaty. Withholding tax is imposed on certain payments of interest, dividends and royalties originating in Australia and paid to non-residents.

Legal structures

i Property ownership structure

In Australia, the land and building on which a hotel is located is governed by property law. Although the property legislation and title registration system differs in each state and territory, common property ownership structures are adopted by businesses in the hotel sector. These common ownership structures can be categorised as either 'freehold estates' or 'leasehold estates'.

In summary, a freehold estate can either be a fee simple or life estate. Fee simple (the most common form of Australian ownership) is an estate of unlimited duration. In contrast, a leasehold interest grants exclusive possession of land on a temporary basis whether that is for a fixed term, on a periodic basis or at will.

In Australia, each state and territory has its own legislative and administrative departments for regulating the use and development of land within its jurisdiction. At its broadest level, land use is controlled by the division of land into 'zones'. Depending on the zoning, a development may be permitted without or with regulatory approval, or prohibited. In relation to hotel developments, applications are assessed under different approval pathways depending on land and the nature and scope of the proposed works. Land owners should engage the planning department of the relevant council before commencing hotel development works as local councils apply zoning laws and give development approval and consent.

In addition, it is also important to consider whether any title restrictions (referred to as covenants) impact hotel operations on specific land.

ii Hotel business structure

There are a number of ownership structures that hotel owners may adopt to deal with the management and operation of a hotel business. Most common structures include operations under a hotel management agreement, hotel franchise agreement or hotel management lease.

In recent years, there has been a greater interest in hotel developments where investors acquire vacant sites to develop into mixed-use or strata-titled developments.

Mixed-use developments involve any combination of residential, commercial or retail land uses. Particularly in the hotel industry, investors (and increasingly councils and financers) are considering mixed-use projects to diversify risk, generate higher returns and create synergies for end users. However, mixed-used developments generally involve intricate legal and planning arrangements.

Strata-titled developments by contrast provide flexible funding options outside of traditional debt and equity financing. These developments involve the division of land or property into multiple parcels to permit independent ownership of the divided parcels. Generally, the individual strata units in a hotel are sold to individual investors (and increasingly groups of investors) and leased back to the developer or operator to be managed and operated as a hotel. The legal framework relating to strata-titled properties differs across each state and territory, which can create issues for developers looking to conduct Australia-wide operations.

It is increasingly common for Australian hotel developers to create 'Propco/OpCo' structures. Essentially, the property holding company (PropCo) grants a long-term lease to the operating company (OpCo), which in turn enters into the hotel management agreement (HMA) with the operator. The PropCo/OpCo structure provides certain tax and financing advantages to hotel developers. Usually, the operator will insist on a tri-party non-disturbance agreement (NDA) to be entered into between PropCo, OpCo and the operator (see Section VIII).

iii Other hotel-related issues

In relation to the provision of food and alcohol, unless outsourced to a third party, hotel operators are required to comply with the Australia New Zealand Food Standards Code, which contains, among other things, food safety requirements applicable to any business involved in the handling or sale of food in Australia. In addition, the sale and supply of liquor is regulated by each state and territory through its own legislation, regulatory authority and licensing framework. Hotels that provide swimming pools and spas will also be responsible for complying with relevant state and territory laws regarding pools safety, building requirements and a general duty of care.

Leases

A hotel lease comprises a hybrid arrangement of terms typically contained in an HMA and a long-term commercial lease.

However, unlike an HMA or a franchise agreement, the hotel owner leases the underlying hotel asset to the hotel operator on a long-term basis (under which rent is payable) and the hotel operator operates the hotel business autonomously. Subject to the terms of the hotel lease, the rent received by the hotel owner may comprise a fixed and variable component whereby the variable component is calculated as a proportion of the gross revenue or profit of the hotel (similar to an HMA).

As the hotel operator has no interest in the hotel business other than through payment of rent, a hotel lease represents a passive investment in a hotel property (subject to the rent structure of the hotel lease) meaning the hotel owner is exposed less to the risk of the hotel business and the profitability of the hotel operation.

Typical lease terms include:

  1. Term: the term will be more than five years, with options to renew.
  2. Rent: rent is structured as combination of fixed and variable component. The fixed rent component will typically be subject to annual increases with a market rent review on commencement of any option term. The variable rent component is typically a percentage of the hotel business' revenue.
  3. Performance tests: where the variable rent component comprises a significant portion of the rental obligations of the hotel operator, a performance test (similar to those included in HMAs) may be included in hotel leases. Where a performance test is included, a hotel operator's failure to achieve performance tests may give rise to termination rights – refer to Section VII for further details.
  4. Insurance: the operator (as the tenant) takes out public liability, business interruption insurance, etc. The owner (as landlord) usually does not have any express insurance obligations in the lease, though most prudent owners take out building replacement insurance at a minimum.
  5. Termination rights: early termination rights may be included in favour of the hotel operator.
  6. Transfer of business: if a hotel lease contains a percentage test as referred to above, it is typical for such hotel leases to include a transfer of business provision that allows the owner to transfer the business to a new tenant or operator in the event the current tenant or operator exercises the early termination right under the percentage test.

Intellectual property and branding

A key legislative change was the amendment of Section 92(4)(b) of the Trade Marks Act 1995 (Cth) (Trade Marks Act) to reduce the period that must pass before an application to remove a trademark on the basis of non-use can be filed.

Any person may apply to have a registered trademark removed from the register on the basis it has not been used for a continuous period of three years before the date of the removal application.

Importantly, this amendment only applies to non-use applications relating to trademarks filed on or after 24 February 2019.

A key decision affecting the hotel industry considered the use of a competitor's trademarks in a website as metatags.4

In this case, Cairns Harbour Lights Pty Ltd (CHL) owned the trademarks Harbour Lights and Cairns Harbour Lights, which it used for accommodation letting and rental services in Cairns. Liv Pty Ltd (Liv) was a competitor letting agent that traded under the business name Harbour Lights Property Management and Sales and under the domain names cairnsharbourlights.com.au> and harbourlightscairns.com.au>.

CHL and its licensee Accor asserted that Liv infringed the trademarks by using Harbour Lights in the source code of its websites.

Despite the metatags not being displayed on the screen, this argument was successful. It was found that using Harbour Lights in the source code was use of the name of a business offering rental accommodation and operated as a badge of origin to distinguish Liv's services from those of others and thus constituted trademark infringement.

Caution should be exercised when using trademarks in metatags as this case makes the position under Australian law clear that it amounts to use as a trademark.

In another case,5 Hilton Worldwide Inc (Hilton) successfully opposed applications for 'Waldorf Apartments' in classes 37, 19, 35 and 36 before the Australian Trade Marks Office.

The hearing officer held that Hilton's 'Waldorf Astoria' trademark had a substantial reputation in Australia at the relevant dates in relation to hotels, temporary accommodation and property management services and this trademark was commonly used and recognised in the shortened form Waldorf. The hearing officer also held that there was a real and tangible danger of confusion arising from Waldorf's use of 'Waldorf Apartments'.

Data and hotel tech

Hotel operators need to be aware of the Australian Privacy Act 1988 (Cth) (Privacy Act) and other laws affecting privacy when collecting, using and disclosing personal information. Personal information includes any information that is about an individual who is identified or who is reasonably identifiable. Stricter rules apply in relation to sensitive information, which includes personal information concerning a person's health, criminal record, membership of a professional or trade association, political opinions, religious beliefs, etc.

The core Privacy Act rules are the 13 Australian Privacy Principles (APPs). To comply, it is necessary to have compliance processes in place including a privacy policy, systems and processes to make individuals aware of relevant matters, and to ensure that information is properly managed. Direct marketing programmes should be tailored to comply with the relevant legislation.6 Arrangements should also be put in place to ensure that requirements to provide access to, and correct, personal information in certain circumstances are complied with.

It is also important for hotels to set up their systems with data breach notification obligations in mind. Mandatory data breach notifications in the Privacy Act require organisations to assess data breaches within relatively short time frames (30 days to assess a data breach). Eligible data breaches must generally be reported to affected individuals as well as the Australian Information Commissioner.

Hotels that operate audio or visual surveillance devices must also comply with the legislative requirements governing surveillance devices in each location. Furthermore, New South Wales and the Australian Capital Territory each have legislation dedicated to workplace surveillance.

i E-commerce regulation

The Australian Consumer Law (ACL) regulates the supply of goods and services by hotels to consumers. Currently, three key areas of the ACL are the following.

ii Consumer guarantees

Services provided to consumers come with guarantees that cannot be contracted out of. Services must be provided with due care and skill, and must be reasonably fit for purpose.

iii Misleading or deceptive conduct

Hotels must not engage in misleading or deceptive conduct. Representations that are frequently the subject of complaints and scrutiny include reviews, room quality, amenities, fees and rights for a refund.

Consumers can be misled in many ways, including by:

  1. photos of rooms or descriptions on the hotel website;
  2. deceptive third-party platforms engaged by the hotel to sell bookings; and
  3. manipulation of online reviews.

iv Unfair contract terms

Unfair contract terms are unenforceable against consumers. Examples of unfair contract terms include those that permit a hotel to unilaterally change the terms of a consumer's booking, and place unreasonable limits on a hotel's liability.

The ACL applies to hotels even in relation to third-party goods and services it has on-sold to consumers (for example, premium television channels or Wi-Fi). However, the ACL may not apply to third parties supplying services to the hotel, so hotels should be aware of this risk gap during supplier negotiations.

v Australian Competition and Consumer Commission (ACCC) reviews

Two 2019 ACCC reviews into customer loyalty schemes (including hotel reward programmes) and digital platforms will impact hotels.

The ACCC's recommendations under the customer loyalty scheme review include:

  1. improving how loyalty schemes communicate with customers, particularly how their terms are presented and ensuring changes to the terms are fairly notified;
  2. prohibiting unfair contract terms and unfair trading practices;
  3. improving the data practices of loyalty schemes, including presenting consumers with information about how they handle consumer data and providing consumers with meaningful control over their data; and
  4. strengthening protections in the Privacy Act and a broader reform of Australian privacy law.

The Australian government has committed to implementing many of the recommendations made by the ACCC in the digital platforms inquiry, which will have consequences for the entire digital economy. It can be expected that hotels will need to adjust the terms of their Australian rewards programmes, as well as their policies and procedures in relation to issues such as data and privacy.

Franchising of hotels

Franchising is a common way of doing business in Australia and contributes approximately 9 per cent of the GDP. Franchising is subject to the common law and is regulated by the Franchising Code of Conduct (Franchising Code), a regulated industry code enforceable under the Competition and Consumer Act 2010 (Cth) by the Australian Competition and Consumer Commission (ACCC). The Franchising Code imposes various obligations on franchisors and grants rights to potential and actual franchisees. Franchising is also subject to the usual prohibitions against misleading and deceptive and other forms of conduct under the Australian Consumer Law (ACL), which is contained in Schedule 2 to the Competition and Consumer Act 2010 (Cth). Franchisors are obliged to provide a disclosure document to anyone proposing to enter into, renew or extend a franchise agreement. They are also required to provide the disclosure document (in a mandated format) to existing franchisees on request once per year to provide prospective and existing franchisees with key information about the franchise system and operations.

Update and changes to the Franchising Code

A 2019 report from a parliamentary inquiry into the operation and effectiveness of the Franchising Code, made broad recommendations designed to rebuild confidence in the system following exploitation of some franchisees and concerns that disclosure and transparency requirements alone are insufficient safeguards. Regulations were implemented in response to the report (Regulations). The majority of changes came into effect on 1 July 2021. Some limited items are described below:

The Regulations:

  1. seek to mitigate the perceived imbalances in bargaining power and resources between franchisors and franchisees in dispute resolution by:
    • expanding the dispute resolution avenues; and
    • conferring dispute resolution assistance functions, such as keeping lists of alternative dispute resolution (ADR) practitioners and receiving information about disputes dealt with under the Franchising Code;
  2. aim to 'improve the quality and scope of disclosure requirements, while [. . .] bringing the most pertinent business information to the attention of prospective franchisees'7 and introduce a new key facts sheet;
  3. introduce a disclosure obligation on franchisors for franchise assignments;
  4. expand the rights of franchisees to terminate franchise agreements;
  5. offer franchisees greater protection in respect of franchisor termination;
  6. strengthen the general prohibition on significant capital expenditure being required of franchisees (by extending protections to the automotive franchising to the broader franchising sector); and
  7. narrow the enforceability of a restraint of trade clauses.

Case law

Recent case law is also indicative of the need for franchisors to be aware of and to adhere to their obligations under the ACL. The Federal Court recently imposed significant pecuniary penalties on a car wash franchisor as well as its senior officers for unfair dealings with franchisees.8 The significance of the penalties was due, at least in part, to the fact that there were separate contraventions for each dealing with a franchisee that resulted in a franchise agreement.

An area of interest specific to the hotels industry is the move to online distribution channels such as Expedia. Franchisors should include franchisee use restrictions or conditions in their franchise agreements and disclosure documents.

The full Federal Court of Australia handed down a decision that reinforces the strict obligation on franchisors to provide detailed and 'meaningful' information to franchisees as per the Franchising Code.9

That judgment follows a recent clampdown by the ACCC on failures by franchisors to disclose certain information to potential franchisees, encouraging franchisors to enhance their transparency when dealing with prospective franchisees.

The ACCC Franchising Taskforce is also suppressing failures to comply with other aspects of the Franchising Code.

Conclusion

The key takeaway from these developments may be summarised in one of the Court's observations in the Ultra Tune case: franchisors should 'err on the side of candour, rather than secrecy' in relation to their information disclosure obligations.10

Finally, due to covid-19, it is likely that previous forecasts have become redundant and no longer provide an accurate representation of the financial position of the business. Franchisors should ensure that they have a clear understanding of termination rights as well as any material adverse change and other key provisions of agreements with franchisees. Given the disclosure obligations to disclose materially relevant facts to franchisees, it is crucial to keep franchisees informed as to developments in light of the evolving situation. Franchisors may mitigate their risk by preparing an action plan and maintaining clear lines of communication with its franchisees to ensure that key information is exchanged on an ongoing and frequent basis.

Hotel management agreements

Various Australian laws govern HMAs in Australia including property or planning laws, privacy legislation, liquor licensing, intellectual property legislation, workplace or employment regulations and tax laws. Most Australian states or territories also have their own legislative frameworks that apply.

HMAs are commonly used in Australia, particularly in relation to key operator brands (e.g., upscale brands) where operators prefer direct control to ensure consistent brand standards.

Key terms typically found in HMAs include the following.

i Fees

A key HMA commercial matter is fee structure. Fees are tiered and include:

  1. base fee: a percentage of gross revenue, usually fixed;
  2. incentive fee: payable to the operator provided they meet certain performance and revenue thresholds; and
  3. other fees: examples include fees for centralised services, marketing fees, booking fees, etc.

ii Term

HMA terms are usually fixed. The term depends on the parties' negotiating power and the stature or location of the hotel. Given increased market competition, it is common in Australia to see shorter terms with owner options to renew.

iii Early termination

Upon payment of liquidated damages, certain HMA provisions allow the owner to terminate early without cause; or for a hotel sale.

The amount of liquidated damages depends on several factors including the parties' relative negotiating power.

iv Performance

Most HMAs include operator obligations to manage the hotel with due skill or care expected of a prudent operator. It is common to see in HMAs, the inclusion of performance tests allowing the owner to terminate (without penalty) if the operator fails to satisfy them.

In Australian HMAs the performance test is usually two-pronged based on:

  1. pre-agreed budgets between the owner and the operator; and
  2. comparing the revenue per available room against similar hotels in the area.

v Employees

HMAs usually state hotel employees are employed by the owner, with the operator retaining the right to employ certain key employees directly (e.g., the general manager). This is done as operators may shuffle such employees around hotels and promote them to regional management roles.

vi Insurance

HMAs prescribe the parties respective insurance obligations. Typically, the owner takes out property insurance, business interruption insurance, etc., while the operator takes out operating insurance, etc. The HMA may also allow the owner (for a fee) to satisfy its insurance obligations by joining the operator's insurance policy.

vii Non-compete

Most HMAs include the concept of protected territories. Usually the operator is not permitted to operate another hotel of the same brand within the protected territory radius. The size of the protected territory depends on the parties' relative negotiating power.

viii Property rights

Typically, an HMA does not grant any property rights (i.e., the operator cannot register their HMA interest on the Titles Registry).

ix Transfer and assignment

Transfer frameworks are varied and depend on the operator or asset. Usually for landmark hotels, the operator's consent to a sale is required. Otherwise, in the event of a bona fide sale the operator's consent is not required and the HMA may be terminated (if vacant possession is required).

x Other agreements

Agreements ancillary to HMAs include:

  1. key monies agreement: The operator may offer monetary incentives to assist the owner with establishing operations. This agreement will set out distribution terms and any claw-back for default;
  2. guarantor deed: A independent guarantor may be required to guarantee the owner's HMA obligations;
  3. trademark licence agreement: This deals with the licensing and use of the operator's trademarks or intellectual property; and
  4. service agreements: These agreements deal with providing centralised services such as accounting programmes, reservation systems etc.

Particular care is required when drafting and negotiating HMAs to avoid future disputes. When disputes occur, most HMAs contain prescriptive clauses in relation to dispute resolution that outline appointment of an independent arbitrator. Accordingly, most decisions in relation to disputes are rarely published. See Section X for information on some cases.

Financing

In Australia, operators typically require an NDA to be entered into and usually make this an obligation on the owner in an HMA. This is essentially a tri-party agreement whereby the financier agrees to honour and not disturb the operator's rights under the HMA in the event the financier has to step in if the owner fails to comply with the terms of the security.

Given the financier is not a party to an HMA and they are reluctant to sign additional agreements, it can be difficult for owners to procure the financiers to sign an NDA. Accordingly, in Australia owners commonly request that HMAs are amended to remove the absolute obligation to have a non-disturbance agreement signed and instead for the owners to use reasonable endeavours.

Employment law

In Australia, hotel employees are typically covered by the Hospitality Industry (General) Award 2020 (Award). The Award sets out the minimum conditions of employment to be provided to employees, (for example pay rates, overtime rates, flexible working arrangements, and, importantly, consultation obligations).

The majority of workers employed in the hospitality industry are classified as casual employees engaged on a regular and systematic basis. Casual employees are entitled to a higher rate of pay, known as 'casual loading' as they are not eligible for a number of entitlements under the National Employment Standards (NES), such as annual leave or paid personal leave.

Under the Fair Work Act 2009 (Cth) there is no requirement for either the employer or the casual employee to provide notice on termination of employment unless specified by an employment contract.

As a result of a recent federal court decision, employers who incorrectly classify employees as casual instead of full-time or part-time could be responsible for back paying entitlements.11 In some circumstances where an employee has been incorrectly classified as a casual, an employer may be able to claim that paid casual leave loading payments should be off set against owed entitlements.

In 2019, a number of instances of 'wage theft' in the hospitality industry came to light with investigations by the Fair Work Ombudsman showing that employees are being paid less than they are legally entitled to. Wage theft is a colloquial term used to describe the practice of not paying employees their entitlements under the NES.

Recently, a former Australian Hotels Association divisional president was penalised A$50,000 for their part in the underpayment of a hotel manager.12

The Ombudsman is focusing on underpayments stating that it intends to send a clear message to employers that it is not acceptable to underpay employees or to deprive them of their entitlements and recently confirmed that the hospitality industry is among its key priorities for the year ahead.

To support the implementation and operation of Job Keeper in Australian workplaces, temporary provisions were added to the Fair Work Act. Those provisions were in place until 29 March 2021 and enable qualifying employers to stand down employees, to give eligible employees a direction to reduce their hours or days of work, change an employee's usual duties or change an employee's location of work.

The Fair Work Commission made a determination varying the Award by inserting temporary provisions (new Schedule J) that were in place until 27 September 2020. Schedule J is aimed at preserving the ongoing viability of businesses and protecting jobs during the covid-19 pandemic, although do not apply to an employer or an employee if either become entitled to Job Keeper. In essence, the Schedule imports additional flexibility by allowing employers to change employee duties even if the new duties are not in the employee's usual classification, reduce hours and mandate annual leave.

Dispute resolution and management

Disputes in the hotel sector may be heard in various courts. Contractual disputes are ordinarily heard in the courts of the states and territories. Intellectual property disputes are ordinarily heard in the Federal Court of Australia and, in respect of New South Wales, planning disputes are heard in the NSW Land and Environmental Court.

In the Australian hotel sector, disputes are often resolved using alternative dispute resolution (ADR) procedures, comprising:

  1. mediation: a neutral third party assists the parties to negotiate a resolution;
  2. conciliation: similar to mediation, except the neutral third party may take an interventionist approach; and
  3. arbitration: a neutral third party acts as a judge.

ADR is usually cheaper and faster than litigation, and potentially affords the disputing parties greater control. However, ADR generally affords the disputing parties less certainty of outcome, and some cases are not appropriate for ADR.

In 2020, there were few decided cases that are uniquely relevant to the Australian hotel sector.

One notable exception is a 2019 case.13 That case has interesting ramifications for the sector, given that it is experiencing an extraordinary surge in foreign investment.

The decision is the first ever court-ordered collective sale of a strata scheme under the new strata renewal provisions.14 Under those provisions, the Court can order the collective sale of an entire strata title property on the application of 75 per cent of the strata unit owner.

The Yeh family sought orders for the collective sale of the strata scheme of the Seasons Harbour Plaza serviced apartment complex in Sydney. The Yeh family purchased 75 of the 90 strata units (for a hotel conversion) and sought orders to compel the remaining, non-consenting strata unit owners to sell.

Ultimately, the Court was satisfied that the required procedural steps had been fulfilled, including the strata renewal plan being 'just and equitable in all the circumstances'. The Court approved the plan for the sale of the property and the applicant was permitted to convert the entire serviced apartment complex into a hotel.

This case will encourage other developers to seek similar mechanisms.

Another NSW Supreme Court decision15 provides useful guidance on how damages may be calculated where a property owner's breach of a lease results in a lessee hotel operator being unable to use building assets with consequent effects on the profitability of the business.

In that case, the plaintiff leased the premises that it operated as the Ryals Hotel Broadway. The lease provided that the lessor was 'in the process of' installing a new lift in the building. These works were not completed within the time frame contemplated by the lease, and in the interim, customers were required to use the building's stairs.

Expert evidence put on by the plaintiff argued that the absence of the functioning lift prevented the business from fulfilling guest expectations damaging the hotel's reputation. Reece J agreed and noted that the lessor's breach had brought about 'a reduction in the revenue and hence profitability of the business' and awarded associated damages.

Outlook

This chapter seeks to provide a practical, business-focused analysis of recent changes and developments in key areas of law as they relate to the hotel industry in Australia, while also providing a high-level overview of historically significant legal issues that remain pertinent to the industry.

Over the next 12 to 18 months, it is anticipated that the hotel industry will continue to face increased uncertainty as Australia emerges from the covid-19 pandemic and its vast economic implications with most international source markets likely to be locked out for the foreseeable future. It is likely that hotel operators will resort to temporary support measures (such as hiring freezes, reduction in headcount and reduced capital expenditure, etc) in an effort to remain financially viable.

While international borders are likely to remain closed for a longer duration, domestic markets are expected to recover faster and in this respect, local hotel operators are likely to see a culmination of benefits arising from local population growth, increased domestic travel demand and finalisation of large infrastructure projects. However, the latest delta variant outbreak in Australia from June 2021 which has resulted in new lockdown restrictions (including the rolling closure of state or territory borders within Australia during 2021), and continued to create uncertainties that will substantially slow the pace of recovery.

In addition, it is expected that the Australian government, as well as each respective state and territory, will continue to implement strategies to enhance the growth and competitiveness of the Australian hotel industry, which will undoubtedly continue to face increased pressure from short-term rental accommodation providers and digital marketplaces such as Airbnb (particularly domestically).

In terms of recent legislative developments, the relevant government department is undertaking an independent review of the existing Commercial Building Disclosure (CBD) Program.

The CBD Program operates to rate and regulate energy consumption of commercial office buildings. Under the enabling legislation,16 information in the form of a Building Energy Efficiency Certificate must be made available to prospective tenants and purchasers of commercial office space exceeding 1,000m² when offered for lease or sale. The review will examine an expansion of the CBD Program to other heavy energy-using classes of buildings, including hotels.

Vaccine passports

The prospect of a 'vaccine' or 'immunity' passport has presented itself as a means to revive the tourism and hospitality market.

In practice, it essentially provides individuals with a certificate, digital or otherwise, that displays their covid-19 immunisation status and in turn, allows them to re-engage with the tourism and hospitality market. For the domestic market, a vaccine passport may stimulate safe interstate travel and allow holders the exclusive ability to safely attend events, restaurants, hotels, etc. On a global scale, the immunisation certification regime may allow countries, including Australia, to reopen their borders to tourism. Notably, airlines including Qantas announced plans to introduce proof of vaccine policies for those wishing to fly.

The World Health Organisation advises against mandated vaccination documentation due to its potential to discriminate and restrict the freedom of movement. Nonetheless, as the percentage of people being vaccinated increases, several countries have already begun to propose such measures. Israel was first to introduce a proof of vaccine mechanism in the form of a 'Green Passport'.

As Australians began to receive vaccinations from February/March 2021, the government announced plans to introduce a vaccine certificate programme. While that programme is yet to be implemented, several proposals exists such as in New South Wales where the 'passport' is proposed to be digitally accessible via the Service NSW government app. Moving forward, Australia's vaccine passport programme has the potential to replace mandated quarantine regimes and facilitate a safe return to the pre-pandemic prosperity for the tourism industry.

Footnotes

1 Vince Baudille is a partner and the global co-head of real estate and Adrian Rodrigues is a senior associate in his team in Sydney at Bird & Bird.

2 Tourism Research Australia National Visitor Survey Results June 2020.

3 Domestic travel driving industry recovery Matt Lennon, 12 April 2021 on Hotel Management.

4 Accor Australia & New Zealand Hospitality Pty Ltd v. Liv Pty Ltd (2017) FCAFC 56.

5 Hilton Worldwide Inc v. Waldorf Australia Group Pty Ltd [2018] ATMO 86.

6 Spam Act 2003 (Cth), the Do Not Call Register Act 2006 (Cth) and Australian Privacy Principle 7.

7 Explanatory Statement, p. 9 of the Regulations.

8 ACCC v. Geowash Pty Ltd (Subject to a Deed of Company Arrangement) (No. 4) [2020] FCA 23.

9 Ultra Tune Australia Pty Ltd v. Australian Competition and Consumer Commission [2019] FCAFC 164.

10 ibid.

11 Workpac v. Skene [2018] FCAFC 131. See also WorkPac Pty Ltd v. Rossato [2020] FCAFC 84.

12 Fair Work Ombudsman v. NSW Motel Management Services Pty Ltd & Ors (No. 2) [2019] FCCA 2638.

13 Application by the Owners – Strata Plan No. 61299 [2019] NSWLEC 111.

14 Part 10 of the Strata Schemes Development Act 2015 (NSW).

15 Ryals Hotel Pty Ltd v. Zhaos Pty Ltd [2020] NSWSC 719.

16 Building Energy Efficiency Disclosure Act 2010 (Cth) (BEEC Act).

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