Briefing 09 January 2017

Update: Short-term lets

Author:

Joshua Risso-Gill

Partner
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Co - Author:

Tim Stansfeld

Associate
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Summary and implications

Following our briefing from June 2014 and in the wake of intense media speculation on home sharing websites like Airbnb, we re-examine the position on short-term lettings.

The Law

The Greater London Council (General Powers) Act 1973 intended to stop landlords turning badly needed permanent housing into unofficial hotels, because the use of residential premises in Greater London as temporary sleeping accommodation was deemed a material change of use, which required planning permission.

In 2015 the Government introduced new legislative measures to remove regulation and bureaucratic burdens, and repeal or amend over 180 pieces of legislation through the Deregulation Act 2015 (the "Act"). This included changes to the regulation of short-term letting.

The Act allows the use of residential premises in Greater London as temporary sleeping accommodation for up to 90 days per calendar year without this being a material change of use. The provider of the accommodation must be liable for council tax on the relevant premises, to ensure the policy only applies to residential (not commercial) premises. The Act simultaneously provides for local planning authorities to apply to the Secretary of State – or for the Secretary of State himself – to elect that particular residential premises are not covered by the Act.

Impact of the Reforms

In 2015 several councils voiced their fear that allowing short-term lets may result in a loss of permanent housing, exacerbating London’s already rising housing shortage. Their concerns related primarily to Airbnb and other home sharing sites. An independent report by think tank IPPR warned that accommodation websites are causing landlords to remove properties from the already stretched private rented sector and place them into short-term lets, in a trend that poses “potential future risks to housing supply in London”.

Exacerbating this issue over a year later are reports that nearly 90% of Airbnb’s revenues come from “commercial” listings. Councils' concerns that developers and investors would buy up blocks and rent them out as short-term lets at disproportionate rates has materialised, ironically due in part to home sharing websites set up to help home owners make money letting out spare rooms. Home sharing sites are therefore accused of being abused by professional landlords turning their properties into pseudo-hotels without planning consent.

However, short-term lettings granted on a commercial enterprise scale, such that the use is actually that of a hotel or a serviced apartment rather than temporary sleeping accommodation, constitutes a change of use from class C3 to C1 requiring planning permission. This is regardless of the exemption in the Act, as it would be a material change of use. This would then allow the local planning authority to take enforcement action for that unlawful material change of use.

The Websites' Response

Airbnb admitted in December that 4,938 of its “entire home” London listings – 23% of the total – were let out for three months or more. Following recent talks with Westminster City Council, the website introduced a 90-day annual limit for London hosts starting spring 2017, banning them from renting out their entire home beyond 90 days without consent from the relevant council. The news came two months after Airbnb's European chief denied the website was driving up London house prices.

The home sharing site likely wanted to avoid the sort of regulatory backlash it has faced in other cities where leaders have also grown concerned about its impact on housing supply. Berlin levies a €100,000 fine for anyone renting out more than half of their home for less than two months without a permit, while hosts in San Francisco who do not register with the city authorities can be fined up to $1,000 per day.

The Councils

It is believed that various London Borough Councils have submitted applications for the Secretary of State to direct that the 90-day relaxation from the Act does not apply to particular premises or a particular area within their borough, but we are not aware that any such applications have been accepted.

In October 2015 Westminster City Council applied for the Secretary of State’s consent to exempt specific areas within Westminster from relaxations within the Act. The application submitted to the Secretary of State requested that the whole of Bryanston and Dorset Square and Hyde Park wards, as well as 16 individual residential blocks, be exempted. The Secretary of State refused to grant the exemption, but the Council has been successful in convincing accommodation websites to self-regulate in London.

Nonetheless, Westminster City Council has indicated it intends to make a new application to the Secretary of State, but a timescale for a second attempt at an exemption submission is yet to be decided. Certainly other Greater London councils will follow suit and apply for an exemption from the 2015 reforms.

Conclusion

Developers and owners must ensure that they comply with the laws on restricting short-term lettings to avoid the risk of enforcement action and the kind of public scrutiny that home sharing websites have endured since 2014.

If you have queries about short-term letting regulations or how your properties are affected, please do not hesitate to contact us.