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Airbnb – Brainwave or Breach of Covenant

airbnb
With the rise of short term room lets on sites such as Airbnb we look at the pitfalls of 'hosts' not doing their homework on covenants.
 
The success of companies like Airbnb rely heavily on the availability of local ‘hosts’ willing to allow short term lets of their properties, whether these are commercial or residential. Their website boasts over 2 million listings worldwide including 1400 castles!

Often the host will be staying in their property when their guests arrive.  Fundamentally the host makes money by letting spare room(s) and the occupation by guests is temporary and without exclusive possession so there is no question of a traditional landlord and tenant relationship being created.  Prior to the Deregulation Act 2015 the use of a property in any of the 32 London Boroughs as temporary sleeping accommodation required the owner to make an application for change of use planning permission.  The relaxation of this planning requirement enabled homeowners to advertise their properties for let on the internet or holiday home swap sites.  

When does it become a business?

But what of those hosts who let their whole properties for perhaps days or weeks at a time in return for payment from their guests who book through a sophisticated online booking system. Could this be considered a business?

It would appear so considering the usual meaning of the word – to carry out a commercial activity with a view to making a profit. 

Brainwave - If of course you have somewhere else to stay when a guest wants to pay to stay in your property. But have those hosts reviewed their title deeds?  A number of freehold titles contain restrictions on carrying on a business at the property and in commercial leases there is usually an absolute prohibition on the use of the premises to provide sleeping accommodation.  Restrictive Covenants attach to the land and not the owner so even a freehold owner of land could be stopped from using their property in this way if there is a beneficiary of the restrictive covenant who wants to enforce it. 

A recent case

The Upper Tribunal (Lands Chamber) recently heard an appeal from the tenant of a residential leasehold property held on a 99 year lease when the First Tier Tribunal allowed the Landlords application for determination of the lease on the basis of a breach of lease covenants because the owner had been advertising her property for short term letting on the internet.  The covenant to be observed by the tenant in the lease read “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.” 

Counsel for the tenant urged the Upper Tribunal to consider the lease as a whole.  There were no restrictions on underletting or on granting short term tenancies or licences, no covenant prohibiting business use of the flat and no requirement for the property to be used at the tenant’s main residence.  The Upper Tribunal in dismissing the appeal commented that the transient use of the property by the tenant created a set of circumstances where the tenant would not consider the property her private residence and that by granting short term lets of the property for days and weeks at a time this did in the facts of this case breach the covenant under consideration.  Nemcova v Fairfield Rents Limited [2016].

It is important to consider lease covenants when purchasing property as a buy to let investment or before setting up as a host on a holiday swap site – failure to observe covenants in a lease or Restrictive Covenants in a freehold title could result in the loss of the property.  Owners who are borrowers should also consider the terms and conditions of their mortgage before entering into short term lets as they could be in breach of those conditions by sharing occupation even for short periods of time.             

More information        

If you would further advice on how this may affect you please contact our Commercial Property Department. They can advise on all aspects of commercial leases including restrictive covenants and short term lets. Call 01708 229 444 or click here to find out more about our commercial property services.

 
This article was written by Keeley MillerCommercial Property expert at Pinney Talfourd Solicitors. The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. Specific legal advice should be taken on each individual matter.
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