Short-term sub-lettings: holiday fun or a risky business?

The appearance of websites such as AirBnB, Ownersdirect and OneFineStay has recently led more and more homeowners to explore generating income from their properties.

Over two million properties worldwide are listed on AirBnB alone and it, like other ‘disruptive’ new businesses, has been receiving a lot of press coverage. For some people it has been a means of earning a little extra income from underutilised space, whilst others have multiple properties permanently available to travellers.

Those in London wishing to rent out their homes on a short-term basis were given a helping hand last year by the Deregulation Act 2015, which relaxed the restrictions imposed by the Greater London Council that required residents who wanted to rent out their homes for less than 90 consecutive nights to apply for planning permission from their borough council. To benefit from the relaxation the person who provides the accommodation must be liable for council tax in respect of the property, to ensure it only applies to residential premises.

The letting market generally has seen exponential growth in recent years and many of those renting their houses and flats through popular websites are themselves tenants. There are reports that growing numbers of tenants are subletting their properties in breach of the covenants in their leases. Landlords are in turn exposed not only to those breaches and the additional wear and tear on their rental properties but are often also exposed to the risk that their insurance has been invalidated or to potential breaches of their mortgage terms.

We now have a legal decision that highlights these issues. In Nemcova v Fairfield Rents Ltd [2016] UKUT 303 (LC), a landlord sought a determination from the Upper Tribunal that its tenant was in breach of her lease of a residential flat.

The tenant owned a 99-year lease of a flat in Enfield. The lease contained a covenant not to use the property ‘for any purpose whatsoever other than as a private residence’. It did not require the tenant to occupy the property as her only or main residence nor did it prohibit the use of the flat for a business. There was no restriction on under-letting the whole of the property except in the last seven years of the term.

The tenant was often absent and admitted to making short-term lettings of the flat and advertising its availability on various websites, like AirBnB. The tenant stayed at the flat about three or four days a week and let it out, usually to business visitors working in London, for about 90 days a year. Other occupiers of the building began complaining to the landlord about the succession of different residents.

The issue turned on whether using the flat for short-term lettings breached the private residence covenant. This covenant did not require that the flat had to be the private residence of the tenant, who could have more than one private residence at a time. It did not require a connection between the occupier and the residence.

The Tribunal said there must be ‘a degree of permanence going beyond being there for a weekend or a few nights in the week’. It said that: ‘the occupation is transient, so transient that the occupier would not consider the property he or she stayed in a being his or her private residence even for the time being.’ Occupation for such a short period was not occupation ‘as a private residence’. The tenant was held to be in breach of the covenant in her lease.

The decision illustrates the need of those advertising their properties on websites to ensure that they are entitled to do so. If their properties are leasehold, a failure to comply with the terms of the lease can have severe consequences.

Landlords are likely to welcome the decision and they may seek to rely on it when trying to limit the number of short-term lettings at their properties. Their remedies for breach of the tenant’s obligations in its lease can be significant and we may now see more active monitoring by landlords of infringements of these restrictions.

When considering new lettings, landlords selling off plan may consider including an additional lease covenant that expressly prohibits properties being underlet for short periods.  Alternatively, if they are concerned that some buyers might be put off by such restrictions, they may want to build in some flexibility by making short lettings such to the landlord’s consent first being obtained.

For more information or guidance, please contact:

Simon Hartley
Partner
T. 020 7227 7476
E. simon.hartley@rlb-law.com

29 September 2016


Disclaimer

This briefing is for guidance purposes only. RadcliffesLeBrasseur accepts no responsibility or liability whatsoever for any action taken or not taken in relation to this note and recommends that appropriate legal advice be taken having regard to a client's own particular circumstances.

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