Airbnb – playing with fire?

Over the last few years, the popularity of short term holiday or business letting websites has increased and shows no sign of slowing down. It’s easy to see why. The hosts can rent out their property when it suits them and don’t have the burden of becoming a full time landlord. The guests get an affordable and often unique place to stay. But what are the downsides? There are plenty of stories floating around on the internet about horror hosts or nightmare guests. But are there other potential issues with this type of arrangement?

Unfortunately, the answer is yes.

Where the properties are subject to mortgages, the terms of those mortgages may prohibit or restrict the use of the property in this way. Similarly, the buildings and contents insurance will undoubtedly also contain strict requirements governing how the property may be used or occupied (breach of which may invalidate the policy). If the property in question is leasehold (typically flats but some houses are as well), the way in which the property owner may deal with or occupy the property will also be restricted by the terms of their lease.

Most residential leases will prohibit or restrict (for example on specific terms or with landlord’s consent) (a) the ability of the property owner to sub-let or to allow others into occupation of the property;  and (b) how the property can be used – for example only as a private residence. There are usually additional covenants requiring the leaseholders not to do anything which would cause a nuisance to the other leaseholders in the building.  If the property owner breaches any of the terms of the lease (also known as leasehold covenants), then the landlord may be entitled to take legal action. In fact, there have been a number of cases in which the landlord has done exactly that.

In Nemcova v Fairfield Rents Limited, Ms Nemcova owned the leasehold interest in a flat. She advertised the availability of the flat on the internet for short-term lettings and granted a series of such lettings (in total for about 90 days a year and generally to business visitors as opposed to holiday lets).  The lease did not contain a covenant prohibiting sub-letting the property save for the in the last 7 years of the term.  However, it did contain a covenant not to use the property or permit it to be used for any illegal or immoral purpose or for any purpose whatsoever than as a private residence.  Having received complaints from other flat owners about the short-term letting arrangements, the landlord took action and sought a determination from the Tribunal that Ms Nemcova had breached her lease. The question was whether the short-term lettings meant that the property was being used for purposes other than as a private residence.

The First-Tier Tribunal agreed with the landlord and Ms Nemcova appealed.  The Upper Tribunal considered the matter in detail and, in particular, the meaning of “private residence”.  The material point was the duration of the occupier’s occupation.  The Upper Tribunal considered that in order for a property to be used as a private residence, there must be a degree of permanence going beyond being there for a weekend or a few nights.  Ultimately, the Judge concluded that “having considered the context of the grant of the lease, and the nature of the intended relationship between lessor and lessee taking account of the obligations entered into, I am of the view that in granting very short term lettings (days and weeks rather than months)…breaches the covenant”.

More recently, on 1 May 2018, His Honour Judge Luba QC handed down his judgment of an appeal by a flatowner who had been found by the lower Court to be in breach of his lease by letting out his flat to provide short term accommodation to tourists, business travellers and others. The flatowner had covenanted not to: (a) part with or share possession of the whole of the property or permit any company or person to occupy it save by way of an assignment or underlease and not to do so without the prior written consent of the landlord; and (b) use or permit the use of the premises or any part of it otherwise than as a residential flat with the occupation of one family only.

The landlord sought an injunction restraining him from continuing to let the flat out on Airbnb style platforms.  The Judge at first instance agreed with the landlord. The flatowner appealed.  His Honour Judge Luba upheld the Judge’s findings.  In particular, his view was that there had been a breach of the clause restricting parting with or sharing possession or occupation and the user covenant had been breached because the flat was not being used as a residential flat but as short term temporary accommodation for transient visitors paying for such used by way of commercial hire.

Landlords and tenants are advised to check the terms of the leases carefully to avoid potential disputes between themselves or with other leaseholders.

Rachael Donnelly
Property Litigation Team
0113 207 1094

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