Short-term property lets – top tips for Landlords to avoid the pitfalls
The short-term rental of flats through online platforms such as Airbnb has become increasingly common and has presented a challenge to landlords of residential buildings, with uncertainty regarding the short-term occupier’s use of the flat, as well as concerns about the impact of such lettings on others in the building and the potential for nuisance and security issues caused by transient occupiers.
In order to ascertain the legal position landlords will need to consider the lease terms and the circumstances of each case.
Terms of the Lease:
i) Sharing possession / underletting sections
Most residential long leases restrict the leaseholder’s ability to partly underlet the flat without obtaining the Landlord’s prior written consent. The leaseholder has to comply with the landlord’s requirements in relation for granting consent.
In Bermondsey Exchange Freeholders v Ninis Koumetto (as Trustee in Bankruptcy of Kevin Geoghehan Conway), the Court held that a leaseholder’s short-term letting via Airbnb and other online agencies was a breach of the alienation covenant, as the flat had been underlet without the Landlord’s consent and the tenant had allowed the flat to be occupied by third parties whilst the tenant was not in occupation.
The leaseholder in this case was found to have breached the following covenants in the lease:
- Clause 2.10.2 – “Not to part with or share possession of the whole of the Demised Premises or permit any company or person to occupy the same save by way of an assignment or underlease of the whole of the Demised Premises” – the leaseholder had parted with possession and/or had allowed other persons to occupy the property other than by assignment or underlease.
- Clause 2.10.3 – “Without prejudice to the absolute prohibitions hereinbefore contained not to assign or underlet the whole of the Demised Premises without the prior written consent of the Landlord” – no consent had been given.
- Clause 2.4 – “Not to use or permit the use of the Demised Premises or any part thereof otherwise than as a residential flat with the occupation of one family only…” – the very short-term letting did not amount to residential use as the Demised Premises were used for short term temporary accommodation for transient visitors paying for such use by way of a commercial hire.
Bermondsey Exchange is a County Court case, which means that it does not set a binding legal precedent and the judge made it very clear that the case turned on its facts. However, it is persuasive authority that a landlord will be able to obtain an injunction to prevent short-term lettings, even when the leaseholder has stopped the offending behaviour. The reason for this was to provide certainty and clarity for other leaseholders in the development who might consider letting their flats via Airbnb or similar online platforms.
ii) Permitted use of premises as a private residence
Most residential leases restrict the use of the flat to a private flat in the occupation of one family only. Any purpose from which a nuisance can arise to the owners, lessees and occupiers of the other flats comprised in the estate or to the neighbourhood is usually not permitted to this effect.
The ‘one family’ restriction is something we commonly encounter in older leases. The interpretation of what is ‘one family’ is markedly different nowadays from what it was in older leases and in my view, occupation by a cohabiting couple for example would not be considered to offend this clause today. It seems to me that a court may be persuaded that a purposive approach should be adopted here. The landlord would no doubt contend that any underletting of the flat must be upon a reasonable length of permanency rather than fleeting short term lettings which are more akin to hotel-type accommodation (business or commercial use). A very short-term letting may not have been envisaged in the lease and, moreover, that regular, transient comings and goings could constitute the nuisance to the owners, lessees and occupiers of other flats – the argument being that such transient occupiers have only a fleeting connection with the flat and will not treat it and the surroundings with the degree of care and respect that would ordinarily be associated with a more lengthy contractual connection to the flat.
In 2016 the Upper Tribunal Land Chamber, in the case of Nemcova v Fairfields Rents, held that the requirement that the premises is to be used as the private residence of the leaseholder or any occupier meant that there must be a degree of permanence to the leaseholder’s occupation. In the circumstances, if the flat was let often enough, there would be a lack of degree of permanence and this would be a breach of this user covenant.
The lease in this case stated that the leaseholder was “not to use the premises or permit them to be used for any illegal or immoral purpose or for any other purpose whatsoever otherwise than as private residence.” The Upper Tribunal decided that the clause prohibits all other uses save as a private residence. The clause did not state that the premises are to be used as the private residence of the lessee or the occupier, but as “a private residence”. In other words, the clause in the lease would not be breached if the occupier for the time being is using it as his or her private residence. The motive for the occupation and the acceptance of payment is immaterial. What is important is the duration of the letting. Judge Stuart Bridge held that “…for the property to be used as the occupier’s private residence there must be a degree of permanence going beyond being there for a weekend of a few nights in the week.” The lessee in granting short term lettings for days and weeks rather than months had breached the clause in the lease to use the property as a private residence only.
The judge in Bermondsey Exchange agreed on the above position and held that arrangements involving “short-term transient occupation by strangers” for payment such as holiday lets, meaning that they are in clear contravention of such an obligation.
Salient points for landlords to remember:
- Careful drafting of the lease on grant can ensure that leases contain appropriate prohibitions on user and alienation. Any disputes will turn on the construction of these clauses and it should be considered that an express exclusion is added to the lease to avoid any ambiguity, otherwise where there is doubt about the meaning of the contract, under the contra proferentem rule the words will be construed against the party who drafted the lease (usually the landlord).
- A landlord will have strong grounds to argue that the leaseholder is in breach of the lease if the lease contains the necessary alienation/user provisions and the leaseholder lets the flat via short-term online lets.
- Remind leaseholders that they will be in breach of their lease if they let their flat via Airbnb or similar online platforms.
- A leaseholder using the flat for Airbnb use may be in breach of planning covenants in the lease. Airbnb lettings may also constitute a breach of planning for residential premises. There are other planning rules, too – for example, Londoners are forbidden from using their home to provide temporary sleeping accommodation for paying guests for more than 90 days in each calendar year. Planning permission may be required for short term lets more than 90 days in each calendar year.
- Serviced apartments are not specifically identified in either the Planning Acts or within the Town and Country Planning (Use Classes) Order 1987. On a case by case basis, this type of product tends to be classified as either C1 (hotel), C3 (residential) or, if a proposed use does not fit neatly into one of the established use classes, then it is regarded as being “sui generis” (effectively, in a class of its own). In London, local authorities can serve enforcement notices on a property owner who has breached planning law if he changes the use without planning permission. The landlord could complain to the local planning authority if the leaseholder is in breach of planning.
- Even if the lease terms prohibit short term lettings, the tenant’s mortgage terms might well do so. Unless the mortgage is for a “buy-to-let”, it is likely that it will prohibit subletting without consent. A freeholder will have the tenant’s mortgage lender’s details and could decide to inform them about what the tenant is doing – especially if the tenant has not sought permission from the freeholder and so has breached a lease covenant.
- Even if a tenant obtains its landlord and lender’s consent to sublet the property and has not breached any contractual obligations it will be breaking the law if it fails to comply with health and safety laws as the tenant will be considered the landlord under the lease e.g. obtain a gas safety certificate for the property each year.
If the leaseholder is in breach, a landlord has the following options:
- Take steps to forfeit the lease; or
- Threaten injunction as in Bermondsey Exchange case (even where immediate breach has been remedied).
Whether you are a landlord concerned about the use to which your tenant is putting your property or you are wanting to grant a lease, or you are a leaseholder taking a lease or wanting advice as to your rights of use of the leasehold property. The best advice is to contact a Conveyancing Expert, who will be able to explain your options and help you protect your interests.
For further information please contact Jason Hooker, an Associate specialising in residential and commercial conveyancing.