Introduction
As we start to consider the possibility of lockdown lifting and our thoughts recklessly stray to the idea of getting away from it all, I thought I would dampen the exuberance by reminding us all of the perils of using leasehold property for holiday lets (Airbnb or otherwise).
On the face of it, generating a little extra income from your home when you are away on business or on holiday seems harmless enough, but for leaseholders, the terms of the lease hold the key to what can and cannot be done, and for landlords the lease provides the basis for what you can or cannot resist.
The Lease
Every lease carries the potential to tightly regulate use or to be completely silent on the matter in question. The type of tenancy under examination is also relevant. The range of activity available to a Rent Act tenant will differ from that of a tenant holding a 999-year lease, as we shall see.
The question in the case of holiday lettings is which covenant, if any, works as an antidote to short-term sub-letting if you are a landlord, or a panacea for riches if you are a tenant? Let us explore some of the more common covenants and see what case law has had to say about them.
Covenant not to use the property for business purposes
This covenant will typically say something about not using the premises or any part of it for trade or business. The relevant case here is Tendler v Sprule [1947] 1 All ER 193 where the Court of Appeal held that by taking in paying lodgers, the leaseholder was in breach of its covenant not to use the property for any business and a covenant to keep the property as a private dwelling house. The property in question was a Rent Acts tenancy which had some bearing.
In Nemcova v Fairfield Rents Ltd [2016] UKUT 303 (LC), the Upper Tribunal held that it was important to consider the context as well as the meaning of the words used in the relevant clause. It held that as Tendler involved a Rent Acts tenancy the context was one in which the tenant must use the property for their own occupation in order to retain their security of tenure. As a result, the covenant must be taken to prohibit the taking in of lodgers on a commercial basis.
Covenant requiring use as a private residence
A good example of this type of covenant is that from Nemcova, namely, “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.” This is not uncommon wording. Nemcova concerned what “use as a private residence” meant in the context of a 99-year lease for which the leaseholder had paid a premium.
The lease contained no alienation restrictions in relation to the property as a whole, apart from during the last seven years. As a result, the Upper Tribunal determined that the leaseholder did not have to use the property as their own private residence (in other words, they could sublet), but whoever was the occupier must be using the property as a private residence. “…where a person occupies for a matter of days and then leaves it can [not] be said that during the period of occupation he or she is using the property as his or her private residence.” This is taken from paragraph 53 of the Nemcova judgement and effectively rules out a holiday let.
In Bermondsey Exchange Freeholders Ltd v Ninos Koumetto (as Trustee in Bankruptcy of Kevin Geoghehan Conway) [2018] 4 WLUK 619, HHJ Luba examined the interpretation of clauses within a 999-year lease. While his decision is not binding at county court level, given his expertise in the area of housing and property, his findings, explored below, are likely to be persuasive.
Covenant against parting with part of the property
The usual wording would prevent the tenant from assigning, subletting or parting with possession of part of the premises. Such was the case in Bermondsey Exchange Freeholders. As this clause relates to use of a part, rather than the whole of the premises, a leaseholder letting out the whole of the property for short term lets is unlikely to be found to be in breach of this type of covenant in a long lease.
Covenant against parting with or sharing the whole of the property
This clause is similar to that above (and the two are sometimes combined into one clause), and would typically state that the leaseholder is, “Not to part with or share possession of the whole … or permit any company or person to occupy the same save by way of an assignment or underlease of the whole of the Demised Premises.”
This particular wording is taken from a clause in Bermondsey Exchange Freeholders although the wording is not uncommon. In the Bermondsey case, the judge found that the advert for Airbnb clearly stated it was for the entire property and so the leaseholder had not been in occupation. This type of covenant is likely to be found by the court to prohibit this type of holiday let activity. The clause is not totally prohibitive, in Bermondsey Exchange Freeholders the judge held that the word “company” in the clause did not preclude a personal arrangement, for example having a friend or family member stay.
Covenant against alienation without consent
This type of clause, common in all types of lease, would typically prevent the tenant from assigning or underletting the whole of the Premises without the prior written consent of the Landlord. The obvious solution to this type of clause (or indeed any other where prior permission is required) is to secure permission from the Landlord. If that is not forthcoming the tenant may be in breach, but Airbnb type activity would have to be construed as a letting rather than a licence. I have written in detail about the difference between the two in a previous article concerning the question of “lease v licence” but in short, Street v Mountford [1985] AC 809 gave us the starting point that, giving exclusive possession to another for a period of time and for payment for that period constitutes a lease, or in this case underlease.
In Bermondsey Exchange Freeholders HHJ Luba was clear that none of the features of an Airbnb style arrangement prevented the Street v Mountford principle from being applied. No doubt the higher courts will have more to say on this in the future.
Conclusions
As with all legal matters relating to leasehold property, the starting point in Airbnb and similar uses, is the lease. As a landlord there may be safeguards in the lease to draw upon. As a tenant, there may be pitfalls to avoid. In many cases there will be a different interpretation of the covenants in a lease, depending on the type of tenancy and the exact wording of any relevant clauses. I expect to see the matter addressed more often in new leases in a specific way, it is becoming more common to see clauses describing short-term holiday let activity, particularly in relation to new blocks of flats where tenant security can be a concern.
This is a developing area of law for which each case depends on its own set of facts; this note is but a brief overview. As one might expect I have not covered every eventuality and have made some points which may not apply to all situations. If you require advice or assistance with a lease dispute of this type, do not hesitate to contact clerks@becket-chambers.co.uk.
