Jonathan Pennington Legh looks at the problems that generally arise for the home owner in relation to mortgages and leases. Homeowners looking to make a few extra pounds should be careful, in particular in the following areas:
- Breach of mortgage conditions / insurance policy conditions
- Breach of planning
- Breach of covenant
Most people will now be familiar with Air BnB. As its website says: “Founded in August of 2008 and based in San Francisco, California, Airbnb is a trusted community marketplace for people to list, discover, and book unique accommodation around the world — online or from a mobile phone or tablet. Whether a flat for a night, a castle for a week, or a villa for a month, Airbnb connects people to unique travel experiences, at any price point, in more than 65,000 cities and 191 countries.” A look at its website reveals the company is about more than accommodation now, with all sorts of experiences on offer. But at its heart it is a way of booking accommodation directly from the home owner. As with Uber it has run into various difficulties over the years, including as you might expect in relation to its UK tax position.
This article looks at some key problematic areas for members of the website and some recent decisions of the English courts which interpret its status in property / landlord and tenant law.
The problems generally arise for the home owner in relation to mortgages and leases.
Mortgages / insurance
Letting out your property via Air BnB without the consent of the lender will be a breach of the conditions of most residential mortgages and seemingly all buy to let mortgages. Even when giving consent, some lenders will charge a fee. Letting without consent may lead to the lender recalling the mortgage and seeking possession.
Another often-missed point relates to insurance – short term rentals may not be covered by the owner’s home insurance policy, which would likely be another breach of the mortgage conditions, as well as potentially leading to your insurer refusing to pay out in respect of any claim.
Some lenders are changing. In November 2016 MetroBank amended their terms to allow up to 90 days of short term lets without asking permission. But even MetroBank customers will need to check their insurance policy.
Planning – Greater London
Air BnB lettings for more than 90 days in any 365 day period are deemed by London councils to be temporary sleeping accommodation which is a “material change of use”. This means that such use requires actual planning permission.
So if you are thinking of letting your property out for more than 90 days in any 365 day period, your property is in Greater London and you do not have planning permission then you will be committing a criminal offence. The maximum fine is £20,000.
Air BnB lettings have been found to be breaches of lease covenants in various cases.
The case of Iveta Nemcova v Fairfield Rents Ltd  UKUT 303 (LC) posed the question:“A long lease contains a covenant 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. If the leaseholder advertises on the internet the availability of the premises (a flat) for short term lettings and grants a series of such lettings, do the leaseholder’s actions breach the covenant?” There was no general covenant against alienation, save for the last seven years of the lease – persons other than the lessee could use / occupy the property. But what if the person occupying the property had let it through Air BnB?
The appellant’s argument that the only meaning that can be ascribed to the words ‘private residence’ is whether the flat can physically be described as a private residence, namely whether it retains the physical characteristics of a private residence such as a kitchen, bathroom and living area, was rejected at first instance and then again on appeal. The clause requiring use as a private residence meant as a home. That would not be fulfilled if it was occupied by short term lets. As a result the appellant was not using the property as a private residence: “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. In my judgment, I do not consider that where a person occupies for a matter of days and then leaves it can be said that during the period of occupation he or she is using the property as his or her private residence”.
In Bermondsey Exchange Freeholders Limited v Kevin Geoghegan Conway (County Court at Lambeth) (10 November 2016) (unreported elsewhere) complaints were received about noisy Air BnBers. The leaseholder refused the request to stop using the website and as a result the District Judge granted an injunction (lasting 4 years) to prevent the leaseholder letting his property out on Air BnB. The lease in that case contained fairly typical clauses – not to use otherwise than as a residential premises for one family; not to part with or share possession; not to assign or underlet without the consent of the landlord, not to be unreasonably withheld.
On 4 and 5 April 2017 the Daily Mail and the Daily Telegraph reported another such decision, which had previously appeared pre-judgment in the Telegraph: Ashley Gardens Freeholds Limited v Linda Marinelli Landor (County Court at Central London). Linda Landor is an 81 year old poet living in a £2.8 million pound flat in Belgravia. Neighbours complained about noisy parties and the freehold owners brought proceedings to forfeit the lease. She had advertised on sparerooms.co.uk and Air BnB itself, on which she described herself as a “writer renting out rooms”. In her defence she appeared to argue that the visitors were friends or family and any payments she took were gratuities for an artistic foundation. She also alleged that she no longer advertised the property on such websites and, even if she had been running a business from there in the past, was no longer doing so. HHJ Lochrane disagreed and was scathing in his assessment of her credibility, according to the Mail’s report.
Air BnB’s own terms and conditions (they can be found here: https://www.airbnb.co.uk/terms) state that a member of the site warrants and represents that the listing and booking “(i) will not breach any agreements you have entered into with any third parties, such as homeowners association, condominium, or other third party agreements, and (ii) will (a) be in compliance with all applicable laws (such as zoning laws), Tax requirements, Intellectual Property laws, and rules and regulations that may apply to any Accommodation included in a Listing you post (including having all required permits, licenses and registrations), and (b) not conflict with the rights of third parties.”