The past few years have seen substantial growth in the number of people marketing their leasehold properties on a short-term basis with companies such as Airbnb. However, as a result, there has been a rise in court cases in which the courts are finding that Airbnb lettings can constitute a breach of the lease. This is type of short-term letting is typically in breach of lease clauses, known as covenants.
A covenant is an obligation, given by a leaseholder or freeholder, to do or not to do something. Covenants can be positive or restrictive/negative in nature.
Positive covenants require positive or affirmative action. For example, to fence or to keep in repair. Alternatively, restrictive or negative covenants require the person not to do something.
The purpose of a covenant is to benefit others. For example, a fellow leaseholder or a neighbour in a housing development. The idea behind them is to create a pleasant place to live for all, with covenants typically applying equally to all residents in the block.
There is a distinction between subletting a property through a Tenancy Agreement – typically an AST, and short-term letting for a weekend/week on sites such as Airbnb. Often, subletting on a longer term basis, through an AST, would be considered permissible, as it is to be used as the occupant’s home. Short-term letting for visitors for short breaks, will cause far greater disruption to local residents – hence the distinction.
Regardless of the term or intent of the letting, it’s important that you check the terms of your lease or freehold title very carefully, ideally before you decide to sublet your property. Some leases don’t allow subletting at all regardless of duration/type. Check for any restrictive covenants limiting what you can and can’t do.
If there are restrictions, you will need to ask for written consent from the freeholder to allow you to sublet your property. They may require you to pay a fee for this.
If in doubt, you should seek legal advice from a solicitor to prevent future issues or disputes.
It is worth noting that before subletting your property, you should also check the terms of your mortgage to make sure it is permitted. Some mortgage companies will give consent to subletting, especially if it is because the homeowner needs to relocate temporarily for work or other reasons.
If your mortgage prevents subletting, and you do not ask for permission, then you may also be in breach of your mortgage. This can have very serious consequences, including on your mortgage capacity to raise finance in the future.
Additionally, you should also notify your insurance provider.
If you breach your lease, the ultimate sanction available to the freeholder is to seek a court order that your lease should come to an end. The legal word for this is forfeiture.
If your lease is forfeited, by order of a court, your asset, and therefore investment, is essentially lost. You cannot sell or transfer it as the leasehold interest has come to an end. This is obviously therefore a substantial penalty for offending leaseholders – hence the need for specialist legal advice at the outset.
The case of Triplerose Ltd v Beattie has highlighted the approach that has been taking regarding subletting leasehold properties.
The owner of a leasehold property was only staying at their premises for a maximum of three nights per week. Therefore, the leaseholder advertised their property as a serviced accommodation available for short-term lets.
The landlord questioned whether this was a breach of the covenant that stated:
‘not to carry on any trade or business at the property nor permit the same to be used for any purpose other than as a private dwelling’
The Upper Tribunal, in reference to the earlier case of Tendler v Sproule, concluded that the short-term lets did not amount to carrying on a trade or business.
However, The Upper Tribunal concluded that the use of residential premises for short-term occupation by a succession of paying guests went beyond the scope of permitted use as stated in the covenant. Taking in paying guests was a breach of the specific covenant: not to use the property other than as a private dwelling. It can also breach ‘nuisance’ covenants – in that such use can constitute a nuisance and annoyance to neighbouring properties/leaseholders.
If you are offering your leasehold property for short-term Airbnb-style lettings, you need to carefully check your lease to make sure you are permitted to do so. You could be in breach of a covenant otherwise, as in the case above. This could result in you facing enforcement action by your landlord/the freeholder or neighbouring properties enjoying the benefit of the covenant.
Alternatively, if you are suffering from a neighbour’s breach of covenant and you would like for us to act on your behalf to bring such a breach to an end, please feel free to contact us.
If you have any questions or concerns regarding a short-term let, please feel free to get in touch with us. Our specialist Property Litigation Team is here to assist you.