6 November 2018

Case update: Airbnb lettings – finally put to bed?

The advent of short-term letting arrangements through online platforms such as Airbnb has presented a challenge to landlords of residential buildings with concerns about the impact of such lettings on others in the building and the potential for nuisance and security issues caused by transient occupiers.

There are now two helpful cases in this area that provide some guidance on the legal position. The outcome will still depend on the terms of the lease and the relevant facts of each case, but it is likely that a leaseholder letting out their flat as temporary accommodation such as Airbnb will be in breach of their lease. Landlords will accordingly be able to take action in relation to this breach, including injunctive proceedings.

Terms of the Lease: Sharing possession / underletting provisions

Most residential leases contain obligations for the leaseholder not to underlet his or her flat, or permit others to occupy the flat other than by way of assignment or sublease. Sometimes assignment or underletting is allowed if the landlord's consent is obtained first. This is known as an alienation covenant.

In Bermondsey Exchange Freeholders v Ninos Koumetto (as Trustee in Bankruptcy of Kevin Geoghehan Conway), the Court held that a leaseholder's short-term letting via Airbnb and other online agencies was a breach of the alienation covenant, as the property had either been underlet without the landlord's consent, or the arrangement was a licence which constituted a breach of the obligation not to permit other occupiers without granting them an assignment or sublease.

The Court determined in Bermondsey Exchange that it was not necessary to determine whether the short-term arrangements fell into the category of lease or a licence, and that all the Court needs to consider is whether the leaseholder had arranged for the property to be occupied by third parties while the leaseholder was not in occupation.

Terms of the Lease: Use of premises as a private residence

It is also common to include a clause in a residential lease that the leaseholder will not use or permit the property to be used otherwise than as a "residential flat in the occupation of one family only", or similar wording to that effect. In 2016 the Upper Tribunal Land Chamber, in the case of Nemcova v Fairfield Rents, held that such a clause meant there must be a degree of permanence to the leaseholder's occupation. Therefore, if the property was let often enough, this would be a breach of this user covenant.

The judge in Bermondsey Exchange agreed and expanded on the position. He held that arrangements involving "short-term, transitory occupation by strangers" for payment are akin to holiday lets and constitute commercial hire, meaning that they are in clear contravention of such an obligation.

Planning

In London short-term lets are permitted for a maximum of 90 days a year without planning permission. After this, they are a material change of use for which planning permission is required. Whilst online providers are beginning to regulate the number of nights properties are rented for, and the terms of a residential lease usually require the leaseholder to comply with planning, landlords, as landowner, are ultimately responsible. Non-compliance can result in enforcement action being taken by the local planning authority. Therefore this is another consideration for landlords to be alive to.

Injunctions

An injunction is a powerful tool to prohibit a leaseholder from carrying out further short-term lets. It is a discretionary remedy, which means that the judge will decide whether it is appropriate in all the circumstances.

In Bermondsey Exchange, an injunction was awarded even though the leaseholder had already stopped the short-term letting. A key reason for this was to provide certainty and clarity for other leaseholders in the development who might consider letting their flats via Airbnb or similar online platforms.

Bermondsey Exchange is a County Court case, which means that it does not set a binding legal precedent and the Judge made it very clear that the case turned on its facts. However, it is persuasive authority that a landlord will be able to obtain an injunction to prevent short-term lettings, even when the leaseholder has stopped the offending behaviour.

Lessons Learnt

Landlords and managing agents should consider the following if they want to prevent short-term letting:

  • Ensure that leases contain appropriate prohibitions on user and alienation. Any disputes will turn on the construction of these clauses, so careful drafting is essential.
  • Make clear to leaseholders that they will be in breach of their lease and potentially planning law if they let the property via Airbnb or similar online platforms.
  • If a leaseholder is letting the property via short-term online lets such as Airbnb, a landlord will have strong grounds to argue that the leaseholder is in breach of the lease if it contains the necessary alienation/user provisions.
  • If a leaseholder is in breach, a landlord has the option of taking steps to forfeit the lease. Following the Bermondsey Exchange case, it appears that the threat of an injunction may be more effective as it can be obtained even where the immediate breach has been remedied.

If you are a leaseholder considering renting your flat via Airbnb or a similar online platform, you should carefully check the terms of your lease as there is a high risk that you will be in breach by doing so. If your landlord is able to establish such a breach, this could be a first step to forfeiture proceedings and the loss of your property, or you could be on the receiving end of an expensive injunction. You should also check your mortgage documents as they may contain similar prohibitions.

Specialist advice is often needed. If you require further clarification or advice please contact Forsters' property litigation team.

Elizabeth Oxendale, associate, and Lucy Zaremba, senior associate, work in Forsters' Property Litigation team.

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