Briefing 22 December 2016

Sub-letting: A cautionary tale

Author:

Michael Cox

Associate
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Summary and implications

The tale…

I have a friend. He owns a one-bedroom flat in central London. It's a nice place (quite trendy) with good transport links. My friend is quite a sociable chap and you will often find him spending the weekend with friends, sleeping in the spare room or on the sofa.

I recently found out that this "friend" has been spending the majority of his weekends with friends … on a rotational basis.

After a brief interrogation, my friend confessed that he had been renting out his flat for the weekend through Airbnb – the peer-to-peer online network which allows people to list or rent short-term accommodation in residential properties – but had nowhere else to stay.

I couldn’t believe it. Spending weekends with friends, so that he could rent out his  flat to strangers.

The legal bit…

The recent case of Iveta Nemcova v Fairfield Rents Limited considered an Airbnb situation and the following user covenant in a long-term residential lease:

"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 long-term residential lease contained no restriction on assignment, underletting or parting with possession prior to the last seven years of the term.

In a nutshell, the Upper Tribunal decided that in granting short-term lettings, the tenant was in breach of the user covenant in the lease – explaining that in order for a tenant to be using premises as a private residence, his or her occupation must have a "degree of permanence going beyond being there for a weekend or a few nights in the week".

Something to think about…    

Landlords

         1.  Be aware of the possibility that premises may be used for short-term lettings.

         2.  Each case will depend on the wording of the lease in question, but you should - as a               minimum - check the tenant covenants in the lease, particularly for covenants that:

              a) restrict the use of the premises to a private residence only; and

              b) prohibit short-term lettings.

         3. If you suspect that a tenant is using premises for short-term lettings, it would be                    prudent to carefully gather evidence to prove your case.

Tenants

Be very careful if you are thinking about granting short-term lets.  As a minimum, you should consider the following:

 1.  Check the lease - an ability to grant "Airbnb style" short-term lets will turn on the             construction of the lease covenants and the factual context. Read the lease as a               whole, but specifically consider

            a) the user covenant; and

            b) the alienation covenant.

        2. Review your mortgage documents - unless you have a "buy-to-let" mortgage, your                 mortgage T&Cs are likely to prevent you from subletting without consent.

        3. Check your building insurance policy - short-term lets may invalidate your policy.

        4. Don't take advantage of friends - if you're hoping to make some money from renting               out your flat, do not rely on the kindness of friends "putting you up" for the                             weekend!