About: CJEU decision, aff. C-724/18 and C-727/18, sept. 22, 2020.
Renting accommodation in which one does not live on Air BnB is considered a commercial activity under French law. The exercise of a commercial activity in premises presupposes that the premises have a commercial purpose, within the meaning of town planning law. These premises are different from those intended for housing. This subtlety obliges impetuents to enquire about both national and municipal regulations (View my article on thoses points).
Like other European countries, France has set up conditions for the exercise of the activity of short-term rental of accommodation to tourists (for an overview of the legislation in other states, view : Study on the assessment of the regulatory aspects affecting the collaborative economy in the tourism accommodation sector in the 28 Member States (580/PP/GRO/IMA/15/15111J)).
Also, to carry on a short-term tourist rental activity in France, in municipalities with more than 200,000 inhabitants, it is compulsory to follow an administrative procedure for changing the use of the premises concerned. Depending on the municipality, this procedure can range from a simple declaration to the town hall to the obligatory prior authorisation, sometimes subject to the reverse conversion of premises belonging to the same owner, which are commercial, into accommodation. This is the procedure that is in force in Paris, and which justified the CJEU’s ruling concluding that the rules comply with European law (1), but this procedure exists, sometimes under different conditions, in other major cities in France, where the question of their full compliance with European law remains (2).
- Conformity with European law of the rules adopted in Paris
In the CJEU decision, two owners had offered studios located in Paris for rent on the Air BnB site, without any prior authorisation from the municipal authorities. They were ordered by the domestic courts to pay a fine and to return the studios as their main accommodation. French Supreme Court (Cour de cassation, 3ème ch. civ., 15 nov. 2018, n°17-26.156) decided to ask the Court of Justice about the perfect conformity of French town planning law with the 2006 “services” directive.
The French judges questioned the Court on several points, in particular whether the regime provided for by French law is analysed as a regime of administrative authorisation of a service by the directive, and whether the housing shortage is an overriding reason of general interest justifying such prior authorisation. Finally, the question was whether this measure was well proportionate to its objective.
The CJEU has therefore just shed its light on domestic judges on 22 September 2020. Its reasoning consists first of all in classifying the activity of renting premises for a short period of time to clients as a “service” within the meaning of Directive 2006/123.
Then, after finding that French legislation makes short-term renting subject to prior authorisation by the city, the Court stated that this is only possible within the meaning of the 2006 directive if Articles 9 and 10 are complied with. Thus, the authorisation regime is indeed a derogation from the freedom to provide services, and is only possible in the absence of discrimination, on justification of an overriding reason relating to the general interest and if the objective cannot be achieved by a less restrictive measure. In addition, the criteria for granting the authorisation must comply with the 7 conditions of Article 10 of the 2006 Directive.
With regard to the overriding reason of general interest, the French legislator had highlighted the need to combat the shortage of housing intended for long-term rental. Emphasised by the Court, this ground is accepted as an overriding reason in the public interest.
On the other hand, the Court of Justice considers that with regard to the requirement of proportionality of the criteria implemented in France for obtaining authorisation, the national courts should verify, in particular, that the system of compulsory compensation in Paris actually responds to a shortage of housing intended for long-term rental in the municipality.
Finally, the French regulation is approved by the CJEU, with a twofold provison, firstly that of proof of an overriding reason in the general interest relating to a shortage of housing in a town, and secondly that of the compliance of the conditions for obtaining the town’s authorisation with Articles 9 and 10 of the 2006 Directive.
While evidence of shortages of long-term rental housing in Paris should not pose any difficulties, this question should be considered for other French municipalities with more than 200,000 inhabitants. There are 11 of them: Paris, Marseille, Lyon, Toulouse, Nice, Nantes, Montpellier, Strasbourg, Bordeaux, Lille and Rennes (source: INSEE).
2. Conformity with European law of the rules in force in other major French cities.
The ruling of the CJEU removes uncertainties about the conformity of national law with the 2006 Services Directive. However, it does raise an issue for the attention of municipalities in major French cities. It is possible that certain French local regulations must be reworked to be in conformity with European law. Indeed, a study of the full compliance by municipalities with articles 9 and 10 of the directive could reveal situations that do not comply.
First, let’s deal with the article 9 of the Services Directive, and the criteria of overriding reason of general interest which is highlighted by the Court aims to ensure an adequate supply of housing for long-term rental at affordable prices. This criteria must be the justification of the city rule, made obligatory by the European law.
For example, in Lille, the city has adopted a rule to limit short-term rental accommodation, with an authorisation scheme granted on the condition that the accommodation converted into furnished tourist accommodation is compensated for by the creation of a dwelling in a place in the city which had another purpose. Reading the city’s deliberation, it is difficult to find the justification of the measure by the difficulty of finding long-term rental housing, or by a situation of housing shortage. This situation could be difficult to prove in some of the neighbourhoods concerned such as Moulins or Wazemmes.
Second, let’s deal with the article 10 of the Services Directive and in particular with the requirement of non-discriminatory conditions to obtain the authorisation to rent a dwelling for short-term.
For example, in Nice, permission to change the destination of a premises to accommodate tourists is subject to compensation through the creation of accommodation in a place intended for economic activity. This compensation also exists in Paris, and can be justified by the situation of the long-term rental housing market in the city. However, it seems more difficult to justify under the 2006 Directive that compensation is required from legal entities and not from natural persons (compensation is not required for the first authorisation, and become required for the second transformation of a dwelling into a short-term accommodation). Indeed, within the meaning of the 2006 Directive, a service provider may be either a legal person or a natural person (Article 4(2)), and administrative authorisation seems not supposed to be more difficult to obtain when one is a legal person.
The decision of the CJEU concluding that French regulations comply with the Services Directive should not lead to the conclusion that such compliance has been achieved in all cities in France. Indeed, domestic judges will have to check that the Directive’s criteria are correctly implemented by each of the cities with more than 200,000 inhabitants.
To conclude, the conformity of the national rule with European law is acquired with this decision of 22 September 2020, but the devil is in the details, and the conformity of certains aspects of municipal regulations is still under debate.