Short-Term Lets May be Breaching Leases

Millions of property owners using Airbnb and other websites for short-term lets may be breaching their lease terms, according to a recent ruling by the Upper Tribunal – a superior court with equivalent status to the High Court.

The ruling, which may set a precedent, was made after a lady fell out with her neighbours in a development in north London after letting her flat via Airbnb and other similar sites.

Residents asked the freeholder of the block to act, and the case went to court.

Short-Term Lets May be Breaching Leases

Judge Stuart Bridge, who was overseeing the case, ruled: “In order for a property to be used as the occupier’s private residence, there must be a degree of permanence going beyond being there for a weekend or a few nights in the week.

“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].”

Set up in San Francisco in 2008, Airbnb now has over two million homes and rooms available for rent around the world. This new ruling potentially means that thousands of UK Airbnb residents of leasehold properties who have leases that state the property must be used as a private residence may now be prevented from renting out their homes for short-term lets.

Bernard Clarke, the spokesperson for the Council of Mortgage Lenders, comments: “Most lenders do not allow borrowers to offer short-term lets on their properties, whether on an owner-occupier or buy-to-let mortgage.”

Additionally, the Manager of Transactional Liability at Pii, Adam Keith, explains his views on the case: “This new ruling could potentially prevent a vast number of property owners in leasehold properties from conducting short-term lets. This is particularly an issue in London, where there is a large number of leasehold properties and a growing demand for short lets from tourists, contractors, casual workers and overseas students.

“Any investors, buy-to-let landlords or homeowners considering taking advantage of the Airbnb market should think hard about the legal implications. They may find that they are restricted to longer-term rentals and may fall foul of the law if they become Airbnb hosts. This has real repercussions and, in the very worst case scenarios, could result in the forfeiture of the lease and the loss of the property.”

He insists: “The implications of this new ruling are significant. Not only is there the potential that mortgage companies may pull the finance in the event of a lease breach, but insurers may refuse to pay any claims. If property owners fail to tell their insurers that they are letting out their property on short-term lets, their insurance could be potentially null and void.

“In essence, property owners who fail to inform their buildings and contents insurer about their short-term lets are potentially putting their property at risk. Should a claim need to be made for the building itself or the contents, the owner may be in for a big shock. There is a high likelihood that the insurer will refuse the claim.”

He adds: “Though Airbnb does provide limited insurance for damages up to £600,000, there is no cover for household contents, building insurance or breaches of the lease. If Airbnb hosts are concerned about their cover, they should contact their insurers.”

If you rent out your property on Airbnb or other websites, be aware of the new ruling.