You wouldn't think renting out a room in your home or the granny flat out the back to holidaymakers or a student would merit a $1.1 million fine, but that is what some councils reckon.

A man in the inner Sydney suburb of Annandale was shocked when he received a letter from his local council threatening him with a massive penalty for putting his home on the holiday rental website Airbnb.

A neighbor had complained about the coming and goings at his home. The council responded by threatening him with a fine for breaching zoning laws as he hadn't got permission to run what they said was a hotel style business.

A woman in Randwick was given ten days to respond to a council threat of a $1.1 million fine plus $110,000 ever day she continues to operate an "unauthorised" bed and breakfast.

More than 10,000 homes in Sydney are offered on Airbnb but The Sydney Morning Herald found just six Sydney councils allowed short-term rentals in some areas - and most required permission from the council.

Stacks Law Firm lawyer Michael McHugh, an accredited specialist in property law, says the laws governing renting out rooms in homes or granny flats on apps and websites such as Airbnb are confusing, undefined, inconsistent and need to be fixed.

"Some councils think short term rentals break zoning and building laws, while others think they might breach health and safety regulations for bed and breakfast accommodation," Mr McHugh said.

"Tens of thousands of people around the country are offering their home or empty rooms to let for travellers through websites. The hotel industry might not like it, but many people love hosting travellers and the money helps household incomes.

"Neighboring property owners and tenants have a right to quiet enjoyment and there are safety and other issues associated with short term letting so councils do need to set and enforce some rules. However there's also something to be said for the old mantra that 'the punishment should fit the crime'. Some of the action being threatened by councils is just way over the top."

Mr McHugh says it is time for the government to step in and bring uniformity and certainty to the laws governing short term letting.

"Even though there hasn't been a successful prosecution as yet, letters threatening million dollar fines are a heavy-handed and intimidating response. Airbnb and home letting are now a popular fact of life, and we need clear, uniform and fair laws that allow home letting but ensure it is done safely and without disturbing neighbours.

"Short term home letters would be best to get experienced legal advice before getting a nasty letter from council," Mr McHugh said. "Every council is doing something different and it will be some time before there's consistency across local government areas."

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