With the prevalence and popularity of businesses such as AirBnB and Booking.com more and more homeowners and property investors are letting out their properties on short term lets. The figures speak for themselves as AirbnB now has more available rooms to rent than the largest hotel group. The attraction is obvious as the potential income generated can be exponentially more than by providing traditional long term letting accommodation.
The Government supports such initiative and has tried to assist by removing restrictions on short term lets for London properties.
However, for leasehold property owners, there is likely to be a direct conflict between the desire to provide short let accommodation and the obligations owed under the terms of their lease. As landlords and managing agents become aware of leaseholders providing short lets of their properties, there have been numerous cases before the Property Chamber to establish breach of covenant. In particular, the leases will usually include 3 provisions which exclude short term letting. These might be one or a variation of the following:
- To be used solely as a single residential unit and may not be used to carry on a business or trade;
- The property may not be sublet, or may not be sublet except as a whole (and often for not less than 6 or 12 months);
- The leaseholder must not do anything to invalidate the insurance of the building.
More often than not, the terms of a lease are enforced to protect other leaseholders within the building where the existence of short term letting is seen as detrimental to the sense of community between fellow leaseholders. The reasons for this are fairly obvious as owner occupiers may understandably be anxious or annoyed about neighbouring properties being used for short lets which are much harder wearing on the building. It is usually perceived by owner occupiers that fellow leaseholders providing short term lettings in the same building gain all the advantage of the higher rents, but the other residents bear the costs. For the unsuspecting leaseholder looking to profit from short term letting, defending a claim for breach of covenant can be an expensive process and wipe out any income (certainly any profit) made from short term letting.
Freehold property owners offering short term accommodation may feel safe in the knowledge that they don’t have a landlord to whom they have covenanted under the terms of a lease. However, where those owners have secured borrowing on the property, it would be wise to carefully check the terms of any loan or mortgage conditions as these will, more often than not, contain provisions specifically excluding short term letting.
For advice on obligations under a lease or disputes related to property or land, please contact Matt Smith to discuss.