Short term gain, long term pain: the risks of advertising your property for short term lettings

In a recent article, we highlighted the potential pitfalls of using popular vehicles such as Airbnb to sublet your property and the problems which you may face unwittingly should you choose to rent out your property on a short term basis (see http://gdknowledge.co.uk/airbnb-first-timer-consider-the-legal-implications-first/).

In recent times, the Airbnb phenomenon has seen a marked increased in the popularity of such lettings which create an opportunity for homeowners to secure an income from their property which can be very lucrative.  However, as a recent decision of the Upper Tribunal confirms, tenants who utilise these platforms to sublet their property are at risk of breaching the terms of their lease, which could ultimately lead to forfeiture action being taken by their landlord.

The issue has received particular attention in the recent case of Nemcova v Fairfield Rents Limited [2016] UKUT 303(LC), a decision of the Upper Tribunal which was handed down last month.

The question posed by the Tribunal was:

A long lease contains a covenant not to use the demised premises or permit them to be used for any illegal or immoral purpose whatsoever other than as a private residence.  If the leaseholder advertises on the internet the availability of the premises (a flat) for short term lettings and grants a series of such lettings, do the leaseholder’s actions breach the covenant?”

The fact that the tenant had granted a series of short term lettings of the flat was not in dispute.  According to the evidence, the flat had been let out on about 7 separate occasions over a 12 month period and only for about 90 days of the year using the services of a reservation system website.  The tenant contended that, provided the flat was being used as a private residence by someone, the circumstances of their occupation were immaterial and no breach of covenant had occurred.

The Upper Tribunal disagreed.

As far as the construction of the covenant in the lease was concerned, the Upper Tribunal applied the principles of contractual interpretation as set out in the decision of the Supreme Court in Arnold v Britton (2015) UK SC36 (as reported in our previous article http://gdknowledge.co.uk/extreme-service-charge/).  The ordinary and natural meaning of the words used in the lease should be applied and each clause must be construed in its context.

In assessing what it meant to occupy a flat as a “private residence”, the Tribunal formed the view that the demand and acceptance of a payment and/or the question of whether the occupier may have another, more permanent, residence elsewhere were not determinative factors.  The underlying motive for occupation was also not relevant in determining whether a breach of covenant had occurred.  On the other hand, the duration of occupation was material, since it was determined that, in order for a property to be used as the occupier’s private residence, there must be a degree of permanence going beyond occupation for a weekend or a few nights in the week.  Consequently, the Tribunal came to the view that by granting very short term lettings (which the Tribunal expressed as days and weeks rather than months) the leaseholder’s actions were in breach of the user covenant in her lease.

However, the Tribunal was at pains to point out that each case must turn on its own facts.  It is a question, therefore, of assessing the wording of the lease and determining as a matter of fact and degree whether a breach of covenant has occurred in any given case.  It is clear nonetheless from the Tribunal’s decision that the duration of the short term let was a primary factor in this particular case.

While the Tribunal expressed the view that it was days and weeks rather than months which would tip the balance, it is not clear (and there is therefore much room for debate) what would be the tipping point in any given scenario.  The shorter the duration of the letting, the greater the risk will be that the tenant will be in breach of covenant.  However, where you draw the line between a letting of several weeks or several months is far from certain.

In all cases, the short term benefits of letting out your property are unlikely to be worth the long term pain should a breach of covenant occur.

This guide is for general information and interest only and should not be relied upon as providing specific legal advice.  If you require any further information about the issues raised in this article please contact the author or call 0207 404 0606 and ask to speak to your usual Goodman Derrick contact.