Leaseholders beware: are rent-a-room sites really easy money?

Leaseholders beware: are rent-a-room sites really easy money?

Before renting your property out through sites such as Airbnb, it’s vital you consider breach of covenant and long-term lease implications first.

For many flat and house owners who have properties they only stay in for short periods of time, the arrival of online rental sites like Airbnb may seem like an ideal way to make money from short-term lettings during periods when the properties would otherwise be empty.

Sites such as Airbnb typically allow users to book overnight accommodation within private homes – be it a flat, a house, a castle or a villa – for a few days at a time instead of booking and staying in the conventional hotels or guesthouses.

This option seemed the perfect solution to Iveta Nemcova, the owner of a leasehold flat in a North London residential apartment block.

Unfortunately, things became difficult for Ms Nemcova when her neighbours complained to the block’s freeholders, Fairfield Rents Ltd, about strangers regularly coming and going from the one bedroom, first floor flat.

The freeholders took legal action against her.

Nemcova v Fairfield Rents Ltd (2016)

At the Upper Tribunal, Ms Nemcova didn’t deny having advertised and rented out the property on several occasions throughout the past 12 months on Airbnb and other holiday lettings websites because she only stayed at the property 'three or four days a week'.

She argued that she remained within her lease's 'private residence use' clause because she paid the flat's council tax and bills, and that her lease did not expressly bar her from charging people to stay in her flat short term while she was not there.

However, Upper Tribunal Land Chamber Judge Stuart Bridge disagreed.

He ruled that her presence of only a few nights each week, while granting short lettings in-between, went beyond use considered as a private residence so she was in breach of her lease.

He said that there must be a “degree of permanence” and “granting very short-term lettings (days and weeks rather than months) … necessarily breaches the covenant [not to use the property as anything other than a private residence].”

You can read the full judgment here.

What this means for you

Most flat owners in the UK will be residential long-leaseholders rather than freehold owners of their flat. (Some house owners are also long leaseholders.)

The significance of this is that there will be a lease, which is a private contract between landlord and tenant, that sets out the rights and duties of both the landlord and the leaseholder under the lease.

The lease will give the leaseholder the right to live in the property for a fixed number of years, commonly 99 or 125 years. But there are also likely to be restrictions on how the property may be used.

If those restrictions are breached, the landlord (usually the freeholder) may choose to legally enforce them.

A very common clause in a long residential lease is a “private residence use” clause. This allows tenants only to use the property as their own private residence.

The Nemcova case centred on the meaning of use as a “private residence” and whether Ms Nemcova had breached that clause by having paying guests short-term to stay in her flat.

This decision doesn’t affect tenants who rent out spare rooms while they’re still staying in the property themselves. But it will be significant for the many that rent out whole properties on websites like Airbnb.

Leaseholders who are engaging in the practice need to carefully check the terms of their own lease to ensure they’re not in breach.

A landlord or freeholder can sue a leaseholder for a breach of covenant, and if found in breach the leaseholder could face legal costs or ultimately have to forfeit their lease.

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