Check your lease before you list for Airbnb – a warning of the pitfalls of leasehold covenants

18 January 2017

Airbnb has become a worldwide platform for home owners to generate an extra income stream.  The ability to jet away on a tropical holiday and let your home out for a fee or (for those fortunate enough to own more than one home) to let out your additional homes at short term intervals, is certainly attractive.  However, whether or not such lettings are legal, or whether they breach any covenants restricting the property, is rarely considered when listing for Airbnb. 

Following the Upper Tribunal’s Land Chamber ruling in Nemcova v Fairfield Rents Ltd (2016) UKUT 303 LC (“Nemcova”), property owners, particularly of flats or leasehold premises, should think twice before using the attractive option of Airbnb for some extra cash.  Checks should be made to establish whether such lettings are permitted or at least not prohibited.

In Nemcova, the Upper Tribunal was tasked with interpreting the covenant (contained within the lease of a flat) “not to use the flat (or permit it to be used) for any purpose whatsoever other than as a private residence” (“the Covenant”).  Such a covenant, or versions similar to this covenant, appear frequently in flat leases and sometimes such covenants may apply (albeit in rarer occasions) to some freehold properties.  The defendant in question, who owned the property, had registered the property with Airbnb.  A series of short term lettings had been granted via Airbnb (it was understood that in the 12 months prior to the legal challenge seven such lettings were granted, each lasting for only days or weeks at a time). Almost all the lettings were to professionals working in London as opposed to holiday lets and the lettings had amounted to up to around 90 days of the year.

The matter came before the Upper Tribunal to determine the question as to whether or not such short lettings breached the Covenant.  The Upper Tribunal ruled that it did.  In short, for a property to be considered as the occupier’s ‘private residence’, the Upper Tribunal ruled that there must be a certain degree of permanence going beyond being there merely for a weekend or a few nights in the week.  It was found that the occupation of the property was ‘transient’, so transient in fact that the occupier would not consider the property he or she is staying in as being his or her private residence, even for the time being.

The ramifications are significant given that this ruling clearly indicates that such short term lettings for days or weeks will automatically breach such a restrictive covenant.  The worst case scenario by using Airbnb for such lettings would be the risk of forfeiture by the Landlord under the lease terms and bring the lease to an end.  Although this ruling does not affect the ability to grant lettings for longer term lets (subject of course to any other restrictive covenants and or consents required), it highlights the real need to acknowledge and know what covenants restrict your property before listing a property on Airbnb.

Further information

For further advice on leasehold or freehold restrictive covenants, please contact a member of our Real Estate team.

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