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Ben Gurluk’s article on Airbnb and residential leaseholds in Small Business

  • October 25, 2016
  • By Hunters Law

The recent developments all Airbnb landlords must consider

Airbnb is one of the great digital success stories of the sharing economy; in less than a decade, the Silicon Valley start-up has reached a value of $30 billion. Globally, there are more than 100 million users of more than 2.3 million listed properties. London now has the third-highest number of Airbnb listings (25,357), just behind Paris and New York, while the nationwide total for the UK exceeds 80,000 homeowners. For many people, Airbnb lettings form part of their regular income. But landlords or potential landlords must tread carefully if they want to avoid possible repercussions; the law is not always on their side.

As an Airbnb landlord, there are several recent developments that you need to consider. For example, if you are a leaseholder of the property, you may already be in breach of your lease by using Airbnb. That is according to a recent ruling from the Upper Tribunal (Lands Chamber), the highest property court in the land with equivalent status to the High Court. As a consequence, residents and occupiers of leasehold properties whose leases state that the property must be used as a ‘private residence only’ may now be prevented from renting out their homes for short-terms lets. Roughly four million people in Britain who hold leaseholds may have similar legal clauses in their ownership contracts. So you need to check your lease.

Typically, long leases contain the following covenants: not to sublet the property or any part of it without consent, not to be unreasonably withheld, not to cause or permit a nuisance to those living in the other flats in the block, not to run any trade or business from the property; and not to use the property other than as a private dwelling-house in the occupation of a single family.

This last covenant was the particular issue in the Tribunal. The leasehold ruling was made after a property developer had a dispute with her neighbours at a housing development in Enfield, North London. Other residents in the block were concerned about strangers regularly staying in the one-bedroom flat, and asked the freeholder of the block to take action, and the case went to court.

Judge Stuart Bridge, who oversaw the Tribunal, ruled: ‘In order for a property to be used as the occupier’s private residence, there must be a degree of permanence going beyond being there for a weekend or a few nights in the week. Granting very short-term lettings (days and weeks rather than months) necessarily breaches the covenant [not to use the property as anything other than a private residence].’

He added: ‘I do not consider that where a person occupies for a matter of days and then leaves it can be said that during the period of occupation he or she is using the property as his or her private residence. The problem in such circumstances is that the occupation is transient, so transient that the occupier would not consider the property he or she is staying in as being his or her private residence even for the time being.’

But he concluded that ‘each lease is different; and so is each clause’, according to the particular covenant, ‘It all depends’. While this may seem delightfully vague, it is quite possible that many people are in breach of their lease by short-letting their flats.

Make sure you adhere to your mortgage terms

The next question to consider is whether you are complying with the terms of your mortgage. The Council of Mortgage Lenders (CML) has stated that Airbnb hosts who offer short-term lets without seeking permission from their mortgage lender are ‘very likely’ to be breaching their mortgage contract; this applies to buy to let mortgages too, as recently confirmed by Bernard Clarke, spokesperson for the CML: ‘Most lenders do not allow borrowers to offer short-term lets on their properties, whether on an owner-occupier or buy-to-let mortgage’.

Most mortgage conditions state that the interest rate applies so long as they occupy the property as their only and/or main principal residence. An Airbnb-style letting will probably cause the buy-to-let rate to be applicable which often requires explicit consent from the lender. These might seem to be technical objections and many mortgage holders (ie most property owners) might well think: how would the mortgage company ever know? But if you take the risk, the potential repercussions are serious – failing to seek consent may result in a demand for repayment of the entire mortgage balance and possibly foreclosure.

Another consideration is planning law. Again, as an Airbnb landlord you might potentially be in breach and possibly committing a criminal offence. Londoners are legally allowed to rent out their properties for up to 90 non-consecutive nights and Local Authorities in many of the 32 boroughs are clamping down on owners who exceed the 90-day period and therefore breach the 90-day rule.

After receiving complaints from neighbours that a property was regularly being let out and that the tenants were noisy, Kensington and Chelsea council recently issued an enforcement notice against the occupants of a flat in Ladbroke Grove rented through booking.com, a website offering short lets. An enforcement notice may not sound that bad, but it is a legal warning. Failure to comply with it renders the owner liable to a £20,000 fine. More importantly, breaching planning permission is a criminal offence which can result in prosecution, conviction and a criminal record.

If that weren’t enough to consider, then the terms of your insurance policy are next: are you complying with them by letting out the spare bedroom every now and then? Landlords need to consider whether their block insurance policy adequately deals with the use to which the building is now being put.  It is very likely that explicit consent will be required from the insurance company to use a property for Airbnb style lettings. Not something that many Airbnb landlords automatically think about. By not doing so, they run the risk of insurers refusing to pay out for claims and the insurance policy being invalidated.

Airbnb may be the success story of the age, but in its wake the traditional warning of buyer beware has a modern counterpart: short-term landlords beware.

This article was originally published in Small Business, and can be found here.

Ben Gurluk

Associate, Hunters incorporating May, May & Merrimans.

 

 

 

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