Are short term lettings a breach of your lease?
Wednesday, 19th October 2016
The short term letting of flats and other properties on the internet using sites such as Airbnb and Onefinestay has surged in popularity in recent years. However, earlier this month, the Upper Tribunal (Lands Chamber) considered whether such lettings constitute a breach by the leaseholder of a restrictive covenant contained in the 99 year lease of a flat.
In Nemcova v Fairfield Rents Ltd  the tenant (Ms Nemcova) owned the long lease of the flat situated in a purpose built block. The covenant in the lease stated:
"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."
The 'Demised Premises' is the flat. Interestingly, the lease only contained a covenant against subletting the whole of the flat in the last seven years of the term and this period had not yet been reached. It is more usual for a long lease, such as Ms Nemcova's, to contain a prohibition on subletting the whole of the flat without the consent of the landlord. If such a restriction had been contained in Ms Nemcova's lease, and Fairfield Rents' consent had not been obtained to the short term lets, there would clearly have been a breach of covenant.
However the lease did not contain such a covenant and so whether there had been a breach turned on whether this 'user covenant' - not to use the flat other than as a private residence - had been breached.
Ms Nemcova had granted several short term lettings of the flat, predominantly to business visitors working in London, for about 90 days a year. Ms Nemcova continued to pay council tax and utility bills for the flat and she stayed there for about three to four days a week.
The Upper Tribunal considered an earlier decision by the First Tier Tribunal that there had been a breach of the covenant and, on the appeal, considered the facts of the case further.
There was an acknowledgement by the Upper Tribunal that the covenant did not require Ms Nemcova to use the flat as 'the private residence' but as 'a private residence'. The point put forward by counsel for Ms Nemcova was that the flat was being used as a private residence by someone, and that it did not matter as to the other circumstances of that occupation.
However, the tribunal asserted that occupying somewhere as a private residence meant occupying it as a home, and that this meant there should be a degree of permanence. The tribunal placed material importance on the duration of the lettings that had been granted as to whether such use of the flat could be classed as being out of the scope of 'a private residence'.
It was decided that a person using the flat for a very short period of time would not be occupying it as his or her private residence. Further, the occupier would not even consider it as such given the transient nature of their occupation. The occupiers would have left their homes only temporarily to reside in the flat for a short term purpose.
The Upper Tribunal therefore upheld the decision that Ms Nemcova had breached the covenant in her lease by granting the short lettings of a few days or weeks at a time.
The tribunal made it clear that advertising short term lettings on the internet and their subsequent grant would not definitively mean that there is a breach of a 'private residence' covenant in every case. Each case turned on its facts, including the precise wording of any covenant and so this decision does not apply universally to all leasehold owners granting short term lets. The tribunal did not provide any guidance on a minimum length of time that someone would need to have occupied the flat for it to be considered as being used 'a private residence'. However it would appear that letting for a longer term, such as on a six month assured shorthold tenancy ('AST'), would likely not have been a breach of covenant given that any occupier would likely have left their home to take up the AST.
Your solicitor will always review any restrictive covenants as part of the due diligence process on the purchase or re-finance of a property. However if you have owned the property for some time and are not familiar with any covenants contained in your lease this should be carefully reviewed before granting a short term let, together with any other title documents. These covenants are legal restrictions and often worded using 'legalese' meaning that they are difficult to interpret without professional advice. If you have any queries regarding such covenants, we recommend that you seek advice to avoid any potential breach. There is often a viable solution but such a solution will differ on the facts of each situation.
This article explains some legal concepts under English Law in general terms and is not a substitute for taking professional legal advice for your specific circumstances. If you would like further advice regarding any of the points in this article, please contact us.