What do I need to consider with a short term lease of my property?
In 2017, it was reported that over 80,000 British homeowners were trying to boost their income by advertising their properties on short term rental websites such as Airbnb. With these numbers expected to rise to one third of homeowners by 2021, and with the summer season upon us, Pam Kamel, Paralegal in our Commercial Property team, explains what you should consider as a leaseholder before advertising your privately owned property on a short term let basis.
Short term leases
The starting point is to always check your lease beforehand. In some leases, there will be an outright restriction on subletting your property, and some will only allow you to sublet if it is on an Assured Shorthold Tenancy basis for a minimum period of 6 months.
However, even if this restriction is not in a lease, property owners may still find themselves in a tricky situation and must look for other relevant covenants. In the case of Nemcova v Fairfield Rents Limited a leasehold owner advertised their property via rental websites as being available for short term lets. Their lease did not contain a provision which restricted subletting, however it did contain a covenant that the property would be used only as a private residence. The neighbours subsequently complained to the freehold owner on the basis that a short term letting did not constitute using the property as a private residence.
The court decided that there had been a breach of the lease, with the Judge stating “in order for a property to be used as the occupier’s private residence, there must be a degree of permanence going beyond being there for a weekend or for a few nights a week.”
There are certain covenants which you need to look out for in your lease, including, but not limited to:
- Does your lease state that the property must not be used for trade of business? Short term letting in exchange for money is likely to be constituted as business.
- Does your lease prohibit you from causing or permitting nuisance? As a leaseholder, you are responsible for any noise made by occupiers, and will be treated as if making the noise yourself.
- Does your lease prohibit sub-letting unless by way of an Assured Shorthold Tenancy? An Assured Shorthold Tenancy runs for a minimum period of 6 months, and so a short term occupier cannot reside in a property if this covenant is contained within a lease.
The consequences of breaching a lease covenant are serious. Your landlord may instruct solicitors to carry out legal proceedings, which could ultimately result in them seeking possession of the property. The terms of a lease will also most likely state that you will be liable to pay the landlord’s legal costs, as well as your own to defend any case.
Mortgages and short term lets
The Council of Mortgage Lenders (“CML”) handbook states that the lender should advise the borrower that consent is to be obtained if the borrower wishes to sublet the property after completion. There is no guarantee that your lender will agree to this, and if you go ahead and rent the property out without their consent, you could be in breach of your mortgage and may be faced with proceedings to have your flat repossessed, or your lender may demand repayment of the mortgage in full immediately.
The handbook also states that the lender reserves the right to change the terms of the mortgage, or require a higher rate of interest if the borrower decides to consider the request for consent. Common terms of mortgage offers are that the interest rates are provided as long as the owner occupies the property as their only main residence. You therefore run the risk of paying higher interest on your mortgage, should you change its use.
Each mortgage lender is different and you will need to ensure that you comply with all of their requirements and seek advice from them in advance of letting out your property.
Insurance and short term lets
The freeholder is responsible for insuring the building, whilst you, as the leaseholder, are responsible for insuring the inside of the property and its contents. Whilst Airbnb provides insurance, this does not expressly cover everything. You will therefore need to check that by renting on Airbnb, this does not invalidate either your or your landlord’s insurance.
Health and safety regulations and short term lets
The Regulatory Reform (Fire Safety) Order 2005 states that the responsible person for complying with the Order is the person who has control of the property in connection with the carrying on by him of a trade, business or other undertaking. You will need to ensure that each floor of the property has a smoke alarm and a carbon monoxide alarm fitted and working at all times, ensure that all safety certificates for the gas and electrics are all up to date and adequate; and check that the boiler and water ways work correctly, being regularly tested.
What do I do if I wish to rent my property?
If you have any concerns or questions regarding renting your property out on Airbnb or any other similar short term letting websites, we strongly advise that you seek legal advice on the complex nature of the above potential hurdles. If you are considering this, you can contact Pam on 023 9277 6524, or by email at email@example.com.
This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice.