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Airbnb – a wonderful idea or is it?

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22nd October 2016

Landlords have legal tools at their disposal to prevent their properties being used as a hotel

Airbnb seems like a wonderful idea. You can rent out your flat whenever convenient without having to become a full-time landlord or hotelier. It’s an easy way to earn a little extra cash with the added bonus of a world-wide network of other people’s spare rooms available for that well-deserved weekend break. Airbnb now has 60m users, 640,000 “hosts”, 2m listings and 500,000 stays per night. It’s big!

In London, 51.3% of listings are of entire homes and properties are let for an average of 81 nights per year. Most of the hosts are long leaseholders of flats in blocks. While they might not be bothered by other people sleeping in their bed, their neighbours may not relish the prospect of total strangers wandering in and out of their building, dragging their luggage through the newly painted common parts.

Horror stories of nuisance caused by Airbnb guests are rife. It is an unfortunate fact that holiday makers may not have the same respect for other people in the block as a permanent resident has.

Possible breaches of covenants

As a result of leaseholders’ complaints, landlords are increasingly seeking to stop their properties being used as a hotel. But can they do so? The landmark decision by the Upper Tribunal in Iveta Nemcova v Fairfield Rents Ltd [2016] UKUT 303 (LC) suggests they can. In Nemcova a Slovakian interior designer admitted to renting out her property on Airbnb and various other letting sites. Her neighbours became increasingly concerned and persuaded their landlord to take action. There were no restrictions in the lease on subletting the whole of the property but luckily for the landlord the lease did contain a covenant:

“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.”

Such a covenant is not unusual and many residential leases contain a covenant in similar terms. In this particular lease, the covenant was entered into with both the lessor and the other lessees.

In determining whether short-term occupation by an Airbnb guest was permitted by the covenant, Judge Stuart Bridge reached the conclusion that the duration of the occupier’s occupation was highly material. In order for a property to be used as a private residence, there must be a degree of permanence going beyond the occupier being there for a weekend or a few nights a week. An Airbnb guest, he said, would not consider the property he or she was staying in to be his or her private residence even for the time being.

In the earlier case of Laxcon Developments Ltd v Rogers LON/OOAY/LBC/2015/0021 the tenant let rooms on a nightly basis and there were numerous late-night parties at the property, one of which resulted in the riot police being called. The first-tier tribunal (FTT) found the “host” to be in breach not only of the covenant not to use the property “otherwise than as a private residence for occupation by a single household” but also of the covenant not to use the flat for “any act or thing which shall or may become a nuisance, damage, annoyance or inconvenience to the lessor or to the lessors or occupiers”.

Each lease will, of course, have to be construed on its own terms and each covenant considered in the context of the whole lease. Other covenants that might be relevant are the alienation covenants, covenants not to cause a nuisance and not to run any trade or business from the property. If a breach is determined in the FTT under section 168 of the Commonhold and Leasehold Reform Act 2002, the “host’s” lease will be liable to forfeiture.

Short-term tenancies

Letting on Airbnb is also likely to be a breach of a short-term tenancy. Section 15 of the Housing Act 1988 implies a term into every assured tenancy (which would include assured shorthold tenancies) that the tenant shall not sublet or part with possession of the whole or any part of the dwelling-house let on the tenancy without the landlord’s consent. This is an absolute covenant and a landlord can refuse consent whether it is reasonable to do so or not. Section 93(1) (b) of the Housing Act 1985 imposes a similar covenant on secure tenants and, if there is a forfeiture clause, the tenancy can be terminated if the tenant breaches this obligation.

Landlord’s consent

If the lease or tenancy requires the landlord’s consent for a sublet of the whole of the premises (a qualified covenant), the landlord will not be permitted to withhold that consent unreasonably – section 19 of the Landlord and Tenant Act 1927. However, the host cannot complain of “unreasonableness” if he didn’t ask for consent in the first place. If the landlord does grant consent for an Airbnb let, that permission will extend to the specific let only. So, in theory, a new consent will be required for each let – section 143 of the Law of Property Act 1925. This is likely to be rather impractical.

Mortgage terms

Even if the lease or tenancy does not prohibit Airbnb, the mortgage terms might well do so. Unless the mortgage is for a “buy-to-let”, it is likely that it will prohibit subletting without consent. Breach of such a condition will entitle the mortgagee to call in the entire security. Would-be hosts should also give thought to whether letting on Airbnb requires planning permission or additional insurance, as well as the tax implications of letting.

Airbnb’s terms and conditions require hosts to warrant that their listing will not breach any agreement with third parties and that they hold all necessary consents to list the property. How many tenants can really give such a warranty? The Upper Tribunal’s decision in Nemcova may well make leaseholders think twice before signing up.

This article was first published in the Estates Gazette on the 22^nd October.

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