The so-called sharing economy is epitomised by American-inspired web sites such as Airbnb. There are thought to be over 30000 hosts in London and up to 80000 throughout the country.
Under this model, owners can derive additional income from their properties by allowing others to rent them on a short-term basis. In 2015 the planning restrictions preventing Londoners renting out their properties on a short-term basis were lifted. When announcing the reforms, the housing minister Brandon Lewis said “ today’s changes will allow them (homeowners) to earn extra money, increase choice for visitors and bring the capital’s short term rental market up to date with the internet age.”
However despite these reforms, as the case of Nemcova v Fairfield Rents Ltd ( 2016) UKUT 303 in the Upper Tribunal demonstrates, owners of leasehold property who let their properties on a multiple short term lets may be in breach of their lease and thus at risk of legal action.
The brief facts were as follows: Iveta Nemcova was the long leaseholder of a purpose built flat on the Enfield Island Village housing estate where Fairfield Rents Ltd was the freeholder and landlord. The lease was for a term of 99 years. She was often absent and had granted seven short-term lettings of the property over the previous year. Ms Nemcova had advertised on websites such as Airbnb, Holidaylettings and Trip Advisor as well having her own website. Ms Nemcova’s evidence was that the lettings were to business users.
The landlord issued proceedings to determine whether there had been a breach of covenant after receiving complaints from other residents in the development. It seemed that they were unhappy at the short-term use of the flat.
The Upper Tribunal upheld the decision of the First Tribunal Tribunal that Ms Nemcova had breached the lease. This is despite the fact that the tribunal accepted that the 99 year lease must have envisaged several different occupiers over the duration of the lease. It seems clear that the decisive factor was the user covenant which stated:
(1)“not to use the Demised premises or permit them to be used for any illegal or immoral purpose or for any purpose whatsoever other than as a private residence”
(2) Not to do or permit to be done any act or thing in or upon the Demised premises or any part of the Property which may be or grow to be a damage nuisance or annoyance to the Lessor or the Company or any occupiers of other flats I the Property or to the occupiers of any neighbouring or adjoining property”
The tribunal found that the user clause did not require the tenant to live there herself but it required whoever was occupying it to do so as a private residence. Very short- term lettings for a few days or weeks did not amount to occupation as a private residence. In its judgment, the tribunal stated “each case is fact specific depending on the construction of the particular covenant in its own factual context.” However the facts of this case were hardly out of the ordinary. The tribunal was quite clear that it could not be realistically argued that airbnb guests who occupy a flat for a few days and then leave are using the property as their private residence.
Despite the tribunal’s qualification that the case was related to its unique facts, it seems clear that the case has wide significance given the increasing popularity of websites such as airbnb. Prior to letting their property via airbnb and similar websites, owners must ensure that the use of the property for short term let does not breach the terms of any mortgage or any home insurance. As this case makes clear, they must also check the terms of their lease.
For further advice please contact Robert McLellan by clicking here or Barbara Judkins by clicking here.