A Staycation? Some pitfalls of using your leasehold property as an Airbnb/short-term let
In the present climate of a ‘red’, ‘amber’, ‘green’ traffic light system one can see why Airbnb/short-term lets seem like a solution to the holiday stresses. But for those leasehold owners of flats who want to cash-in on the inevitable increased demand for this type of ‘local’ holiday they should be cautious.
A leaseholder must look carefully at the covenants/obligations in their lease to ensure that they are not in breach of any user covenants in the lease.
Many leases have user covenants which state that the premises must be used as a private residence. The courts have made several decisions where a leaseholder has been using their residential flat for short-term Airbnb style lettings and found them to be in breach of such user covenants.
In the decision of Nemcova v Fairfields Rent Ltd [2016] UKUT 303 (LC) the court decided that a user clause in the lease, which stated that the property should not be used for any purpose other than as a private residence, the tenant was in breach of the user clause. Although the tenant had stayed in the property for the majority of the year, she had let the property on short-term lettings for some 90 days in a year. The court decided that the Tenant that owned the flat was in breach of the lease. The court found that the occupiers of the flat during the short-term lettings could not be using the flat as their private residence during the time of their stay in the flat. The court stated that for such an occupier to use the flat as a private residence there must be some level of permanence and an occupier that just used the flat for a few nights or a weekend would not be compliant with the user clause that the property must be used as a private residence.
It is important for leaseholders to appreciate the consequences of being found in breach of their lease when using it for Airbnb/short-term lettings. Leaseholders risks the landlord seeking to terminate the lease. This is known as a ‘forfeiture’ of the lease.
The Airbnb/short-term letting is often a controversial use of a flat by the very nature of it encouraging use of a flat in a building in a transient way, with potential nuisance/disturbance to other leaseholders, and ultimately may affect flat values. It is not a surprise that the risk of forfeiture has become a useful tool for other leaseholders in a building to prevent short-term lets by requesting the landlord to enforce the terms of the lease. As many leaseholders of blocks of flats are also the owners of the company that owns the freehold, enforcing a breach may be a relatively simple process.
Another user covenant that the leaseholder must be wary of if they do let their property on a short-term let is whether the lease contains a covenant that prevents the use of a flat for any trade or business. It can be construed that where the leaseholder lets their property out on a short-term let using sites such as booking.com or Airbnb, that they are doing so as a ‘business’ and will be in breach of this covenant. This would have been the case in a recent decision of Triplerose Limited v Beattie and Beattie [2020] UKUT 180 (LC). However, the leaseholder in this case had a reprieve as she was able to establish that she had regular residential use of the flat during the week, short-term lets in this case were found by the courts to be both ‘ancillary’ and ‘subordinate’ to the use by the leaseholder as a private residence. This decision by the courts may not be the final word on this. If the leaseholder had not been able to establish that she had regularly used the flat as a private residence the court may well have found that she was in breach of the user clause in the lease.
Although it may be an attractive proposition to make a bit of extra money in these times by letting out a leasehold property, we recommend that you double check the user covenants of your lease. If you are not sure you should seek professional advice before placing your flat on Airbnb or booking.com (or any other short-term let style site).
If you have any queries regarding short term lets, please contact Chris Christofi on 01306 884432 or email cchristofi@meaby.co.uk
