Law catches up with Airbnb landlords

The popularity of Airbnb shows no signs of slowing. The holiday lettings website has given many people an extra income stream, allowing them to rent out a spare room, or even their whole flat or house if they have somewhere else to stay. But this form of ‘unregulated letting’ is facing growing calls for governments to restrict it. There are also legal traps for unwary landlords.

A recent report for the Mayor of London, Sadiq Khan, warned that more than a third of the 7,000 properties in the capital listed on Airbnb are owned by professional landlords. As well as driving up the price of property, the short-term lettings that the website offers make it easier for property owners to circumvent tax and safety regulations. It was for those reasons that Governments in many European countries have passed laws banning people from renting out more than 50% of their home on Airbnb. There is speculation that similar restrictions may be introduced in the UK.

Anyone who rents out property on Airbnb, or is considering doing so, needs to ensure that the rules of any mortgage or insurance on the property allows them to do so. Many banks do not allow sub-letting of properties on which they have secured a mortgage. Similarly property insurance terms may forbid paying guests. It is always best to check with a bank or insurance company beforehand – and not to find out afterwards, when it may be too late.

Leaseholders also need to make sure that the terms of their lease do not prevent them using Airbnb. One case illustrating the potential problem came up recently in the highest property court (the Upper Tribunal). In Nemcova v Fairfield Rents [2016] UKUT 303 (LC), the 99-year lease of a flat contained a covenant not to use the premises other than as a private residence. The leaseholder regularly rented out the property on a short-term basis.

The freeholder objected, and said the short-term lets was in breach of the terms of the lease. It argued that this was not using the flat as a private residence. The property was not occupied as a home during the time it was sub-let. The leaseholder said that there was no restriction in the lease on sub-letting and granting short-term tenancies. The flat was being used as a ‘private residence’ by someone, i.e. the person staying there. The circumstances of their occupation were immaterial.

However the court held that the leaseholder was in breach of the terms of the lease. There had to be a degree of permanence in the occupation, and so short-term lets for days and weeks, as advertised on Airbnb or similar, do not count.

The decision affects situations where an entire flat or house is let, and not individual rooms where the owner remains in residence. But it means that freeholders and managing agents are able to take action to prevent a leaseholder letting their entire property on a short-term basis. This might ultimately lead to forfeiture of the lease.