The letting of property on a short term or holiday basis is a modern phenomenon. It has been driven firstly by technological change through providers such as Airbnb - it is currently estimated that around 100,000 British home owners let their properties through Airbnb - and also by changes in the law through the Deregulation Act 2015 which exempted the need to obtain planning permission for a material change of use for such lettings.
However, thanks to the recent decision of the Upper Tribunal (Lands Chamber) in Nemcova v Fairfield Rents Limited [2016] this may be about to change. At the very least, those owners of leasehold properties thinking of letting their properties on such a basis should act with care.
Ms Nemcova is the owner of a flat acquired on a long leasehold basis (99 years) and which she regularly rented out on short term holiday lets through Airbnb and similar providers (there was no dispute as to the facts of this). Her lease contained the following entirely standard covenant:
“(1) 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”
There was no prohibition in her lease on sub-letting.
Following complaints from neighbouring flat owners regarding the people to whom she let the property, the freeholder and landlord, Fairfield Rents Limited, sought a determination from the First Tier Tribunal as to whether or not such short term lettings were consistent with the use of the flat as a “private residence” and therefore a breach of this covenant.
The First Tier Tribunal found in favour of Fairfield, but gave Ms Nemcova permission to appeal to the Upper Tribunal because of the lack of authority on the meaning of “private residence”.
The Upper Tribunal found that in order to be a property used as an occupier’s private residence, there must be a degree of permanence which went beyond a weekend or a few nights in the week, and therefore those in occupation of the property for such short periods cannot be said to be in occupation of the property as a private residence. Accordingly, the Upper Tribunal found that Ms Nemcova’s short term lets of her flat were a breach of the user covenant in her lease.
The significance of this decision is potentially huge. Whilst each case will be fact specific, such user covenants are often included in long leases as standard and many leaseholders who let their property on a short term basis may therefore find themselves caught by this decision. If so, such lets may be in breach of covenant and if they are, they will carry with them the risk of proceedings, including for the lease to be forfeited.
The advice to leaseholders currently engaged in or considering letting on a short term basis must be to consider their lease with great care and if necessary, to take specialist legal advice on its terms, before proceeding. Depending on that advice, leaseholders may also wish to consider trying to negotiate with their landlord a variation to such user covenants so as to permit short term lets.