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Airbnb – a quick buck or a catastrophic mistake?

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5th August 2016

The last few years have seen short term property letting sites such as Airbnb become the go-to way of booking holiday accommodation in Europe’s most popular cities. Millennial tourists are rejecting stuffy, expensive hotels, preferring instead the flexibility of their own apartment right in the middle of town where, in the words of Airbnb, they can “feel at home anywhere in the world”. In response, those who are lucky enough to own or occupy a city apartment have been quick to meet the demand, with new “hosts” joining the site every day. There are Airbnb kiosks on London’s high streets where tourists can book a property like they used to book a cab.

There has been much debate about whether sites like Airbnb are good for the property market and for prime housing stock generally, however (like most property lawyers) my interest is in the effect on the city’s landlords. London is full of flat-dwellers, which means that for every person in occupation of a flat, there will be at least one reversionary interest (that of the freeholder) and very often an intermediate leasehold interest as well. Furthermore, in prime central London, the freehold will often be owned by one of the city’s large estate owners, who naturally take their responsibilities as guardians of the heritage of London’s period properties very seriously.

The occupational lessee will, of course, have obligations to their immediate landlord and perhaps also to their superior landlord. In most short term tenancies, these obligations will include:

• Not to sub-let the property or any part of it;
• 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;
• Not to use the property other than as a private dwelling-house in the occupation of a single family.

Longer term tenancies tend to include the same types of covenants, save that sub-letting is likely to be permitted albeit often only with appropriate landlord approval or notification.

I doubt that very many hosts consider carefully the covenants contained in their leases before they advertise their flats online. However, those covenants are obviously highly relevant and a lessee could easily find themselves in breach of their lease by proceeding with an Airbnb booking. Even if sub-letting is permitted under the lease, the need to notify the landlord or obtain his approval would prove impractical in a high turnover situation as this would be.

However, Airbnb’s terms and conditions require their hosts to warrant that i) the listing will not breach any agreement the host has with third parties; ii) the listing complies with all local laws (e.g. planning) and iii) they have all necessary consents and permits to list the property. Mortgagees tend not to be happy with Airbnb arrangements either and often this type of sublet will be in breach of the terms of the mortgage. A host could therefore find himself in hot water with his landlord, his bank and the booking site.

Should landlords be worried about Airnbnb? The answer is, in my view, yes they should. First, the landlord’s aim in restricting sub-letting is so that he knows and can control who is occupying his property – he cannot possibly know who is coming and going under an Airbnb contract. Secondly, Airbnb rentals are by their nature short term. A high turnover of occupancy could lead to quicker deterioration of the property and higher repair and maintenance costs. Thirdly, in many cases, groups of young tourists occupying flats could lead to late night parties and a potential nuisance to the other occupiers of the building, which the landlord will be called on to deal with. Fourthly, the landlord will need to consider whether there is any business use at the property and the ramifications of that. Fifthly, the landlord will need to consider whether his block insurance policy adequately deals with the use to which the building is now being put. The list goes on, and more landlords are realising that this is a problem that they will have to deal with.

So, what can a landlord do in this situation? The first stage will obviously be to check the terms of the lease to establish what the lessee is or is not entitled to do with the property. Then, one will have to gather evidence of the breach. That will not necessarily be easy in circumstances where the occupants come and go. Proof of the property listing on the site will be helpful, as will witness evidence from neighbours, and possibly photographs of the guests entering and leaving the property.

The landlord will also have to decide whether he wishes to seek possession of the property or whether some other course of action (e.g. increasing the rent or security deposit, or seeking a share of the rental income etc.) is more appropriate.

If possession is sought, the nature of the tenant’s interest will then determine what further action need be taken. If the tenant occupies under an Assured Shorthold Tenancy, then ground 12 (breach of covenant) or ground 14 (conduct causing nuisance or annoyance), both of which are contained in schedule 2 of the Housing Act 1988, may be relevant. The landlord would serve notice and issue possession proceedings in the normal way. If the lessee sublets the whole of the property and no longer lives there, it may also be possible to argue that all of the statutory protection contained in the 1988 Act no longer applies and the tenancy can be determined by the usual common law methods.

If the lessee occupies under long lease, forfeiture is likely to be the appropriate remedy. In the residential context, s.168 of the Commonhold and Leasehold Reform Act 2002 provides that no notice under s.146 of the Law of Property Act 1925 may be served until a court or the First Tier Tribunal has determined that a breach has occurred or until the tenant has admitted the breach. Normally, proceedings for a s.168 determination would be issued in the FTT and, once determined in the landlord’s favour, followed up with a s.146 notice and possession proceedings if the breaches are not remedied within a reasonable period. If the landlord intends to take this route he should be very careful not to waive the right to forfeit by (for example) accepting rent from the tenant and should always seek professional advice.

Fuelled by the rise of property sharing websites, illegal sub-letting is fast becoming an important ground for evicting both long and short term residential tenants. The procedures for obtaining possession will be familiar to most property lawyers, however those dealing with central London properties would be well advised to get ahead of the curve and ensure that their landlord clients are checking that their tenants are compliant with their leases or are obtaining the relevant permissions where necessary. Tenants also need to ensure that any Airbnb letting complies with their lease – if they do not, they could face eviction and the loss of their most valuable asset.

There is much to say about this incredibly topical issue and it will be examined further at the Tanfield Chambers Junior Landlord and Tenant Conference (to be held on 4 October 2016) where we will also look at Airbnb rentals from the tenant’s perspective. You can book tickets for this event here.

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