Airbnb has become an incredibly popular site for people who want to offer short lets of their property. However, both property owners and their tenants may find they are breaching either their mortgage and insurance contracts or rental agreements respectively.
The English case of Iveta Nemcova v Fairfield Rents Limited (2016) has highlighted the importance of tenants checking the terms of their leases before renting out their properties on Airbnb and other similar sites.
The case
A tenant applied for a determination by the First-Tier Tribunal (Property Chamber) on whether she had breached a clause in her lease by renting out the property using Airbnb. A determination was made in favour of the landlord and the tenant appealed to the Upper Tribunal.
There was no term in her lease preventing her from sub-letting but there was a clause stating the property could only be used as “a private residence”. The tenant argued that as the lease referred to “a private residence” rather than “the private residence” it did not have to be the tenant herself using the flat, provided it was being used by someone as a private residence. The owner argued that the tenant had breached this clause and the test was based on duration of occupation and whether there was a degree of permanence.
The decision
The Tribunal held that these short term lets were lacking the necessary degree of permanence to amount to use as a private residence and granting them was in breach of the lease. The Upper Tribunal made it clear that each case would be fact-specific and dependent on the terms of the lease.
The significance for short lets in Scotland
This was an English case and is not binding in Scotland and the position in Scots law is slightly different. Under the Housing (Scotland) Act 1988 Section 23, there is an implied term that a tenant in an assured (or short assured) tenancy can only sub-let or assign his or her lease with the landlord’s consent unless the lease specifically states otherwise. The Private Housing (Tenancies) (Scotland) Act 2016 (paragraph 5 of schedule 2) which introduced the Scottish Private Residential Tenancy (SPRT) as from 1 December 2017 provides that the SPRT must contain a term (known as the 'statutory term') where "the tenant may not, without the written agreement of the landlord (a) sublet the property, (b) take in a lodger (c) assign the tenants interest..."
A tenant seeking to let out his or her property needs to check the terms of the lease for any express clauses. If there are none, then the implied term applies and the landlord’s permission must be sought. The landlord can refuse consent on any grounds and in private tenancies there is no requirement that refusal must be reasonable.
Some landlords who previously offered short assured tenancies are now turning to Airbnb as an alternative because it offers more flexibility and higher returns. A property owner who is considering using Airbnb, or a landlord asked to consent to sub-letting, should seriously consider the implications before doing so.
Risks for landlords
A landlord with a mortgage may find that the terms restrict them to letting as a short assured tenancy or SPRT and do not allow for short lets. Mortgage conditions also often contain terms prohibiting the subletting of properties. Breaking these terms could be in breach of the agreement and risk the mortgage being called up.
Equally, landlords’ insurance policies do not usually cover short term lets or sub-letting so if anything were to go wrong, the policy may not be valid. Depending on the terms of the sub-letting arrangement, an HMO (house in multiple occupancy) licence may also be necessary. And if the letting or sub-letting amounts to a change of use of the property, planning permission from the local council may be required.
Tenants may not be aware of the condition requiring their landlord’s consent to sublet a rented property. However, by including an express clause in their leases, landlords would make it clear to their tenants. They may even want to specifically prohibit Airbnb-style sub-letting in their leases.
If you would like more information or advice about how this may affect you, please contact a member of our Private Housing and Letting team, who would be happy to help.
