Quiz - how well do you understand your lease?
Understand the key things you should know about your lease. If you are a purchaser, this can help make sure your solicitor has covered all of these points and explained them clearly to you.
By Ana Kandri, Legal Adviser
Airbnb is an online platform that allows its users to rent out their homes, rooms and apartments to visitors. Leaseholders in England and Wales have to be aware of the law, rules, regulations and other legal agreements that they may fall foul of, if they intend to use Airbnb to rent out their property. Here are some of the pitfalls leaseholders should be aware of.
- Health and safety issues
If you let the property as a landlord, you would be obliged to comply with health and safety laws. If you are a leaseholder with a long lease, and decide to let the property as holiday accommodation, the health and safety laws would apply to you as you would be considered to be a landlord under the law.
The Regulatory Reform (Fire Safety) Order 2005, s.3 states that the responsible person for complying with the Order is the person who has control of the premises (as occupier or otherwise) in connection with the carrying on by him of a trade, business or other undertaking (for profit or not). Airbnb is a holiday let and the leaseholder would be carrying out a business which means that they would need to comply with the Order.
On 14 September 2015, parliament approved the Smoke and Carbon Monoxide Alarm (England) Regulations 2015 which apply in England and are yet to be implemented in Wales. Under these Regulations, private sector landlords are required to install at least one smoke alarm on every storey of a property on which there is a room being used wholly or partly as living accommodation, and a carbon monoxide alarm in any room used wholly or partly as living accommodation which contains a “solid fuel” burning combustion appliance. The guidance provided by the Department for Communities and Local Government indicates that ‘solid fuel’ is coal or wood so it appears that the requirement would not apply to gas or oil appliances.
In most leasehold flats it is usually the freeholders’ obligation to take out insurance to cover the entire building, and the leaseholder may choose to secure its contents by obtaining contents insurance.
Leaseholders must make sure that if they intend to let their property as a holiday let on Airbnb, their insurance is not invalidated by so doing. Property owners should inspect both of the policies to ensure that they are not in breach of either. Furthermore, they could be in breach of their mortgage terms if they do not have adequate insurance in place. Airbnb states on its website that it offers Host Guarantee and Host Protection Insurance, but it adds that “this does not take the place of homeowners or renters insurance or of adequate liability coverage.”
- Mortgage lender
Leaseholders who have mortgaged their property need to ensure that by letting their property as a holiday let on Airbnb they do not breach the terms of their mortgage.
Part 1 of the Council of Mortgage Lenders handbook, at note 16.4, states that the lender should advise the borrower that consent is to be obtained if the borrower wishes to sublet the property after completion. Note 16.4.3 states that the lender reserves the right to change the terms of the mortgage, or requires a higher rate of interest if the borrower decides to consider the request for consent.
It is usually a term of the mortgage that interest rates are available for as long as the owner occupies the property as their only or main residence. Any letting may require consent in writing from the mortgage lender, and failing to do so may lead to a demand for repayment in full or repossession of the property.
- Planning law
In London, local authorities can serve enforcement notices on a property owner who has breached planning law if he changes the use without planning permission. If the property owner does not comply with the notice he is liable to a £20,000 fine. This is provided under the Greater London Council (General Powers) Act 1973 (“the 1973 Act”).
Section 44 of the Deregulation Act 2015 amended the 1973 Act, to allow landlords to let their properties as temporary sleeping accommodation for up to 90 days, as long as the host is liable for council tax. Local authorities may direct that the exemption does not apply to certain residential premises, or residential premises in certain areas. Leaseholders who intend to let their properties as holiday lets on Airbnb should check with their local authorities first to see whether the exemption applies in their case.
The Income Tax (Trading and other Income) Act 2005, ss. 784-799, state that landlords who let or licence a furnished room in a property, which is their main or only residence, benefit from ‘rent-a-room’ income tax relief. For the tax year 2016 to 2017 this relief is worth £7,500. There is no need to file a tax return for those who earn less than the above threshold. However, property owners who exceed the threshold must comply with the tax rules and submit a return.
- The Lease
Leaseholders need to ensure that the lease does not have any clauses preventing them from letting as a holiday let on Airbnb. The main standard clauses which leaseholders could potentially breach, by letting the property on Airbnb, would be the following:
(a) Change of use
There have been a few decisions which have discussed the issue of whether the use of premises to let on Airbnb is in breach of any clause in a lease which restricts the use of the property as a private residence only or prohibits carrying out any business in the premises.
One such example is the recent case of Nemcova v Fairfield Rents Ltd UKUT 303 (LC). The lease in this case stated that the leaseholder was “not to use the premises or permit them to be used for any illegal or immoral purpose or for any other purpose whatsoever otherwise than as private residence.” The Upper Tribunal decided that the clause prohibits all other uses save as a private residence. The clause did not state that the premises are to be used as the private residence of the lessee or the occupier, but as “a private residence”. In other words the clause in the lease would not be breached if the occupier for the time being is using it as his or her private residence. The motive for the occupation and the acceptance of payment is immaterial. What is important is the duration of the letting. Judge Stuart Bridge held that “…for the property to be used as the occupier’s private residence there must be a degree of permanence going beyond being there for a weekend of a few nights in the week.” The lessee in granting short term lettings for days and weeks rather than months had breached the clause in the lease to use the property as a private residence only.
If leaseholders intend to allow pets in their property, they would need to ensure that the lease allows pets in the property. Otherwise, the leaseholder may find himself being in breach of their lease.
As a leaseholder you could be in breach of your lease if your guests are causing noise in the property, and the freeholder, or any of the other leaseholders can bring a claim against you. It has been held that by permitting Airbnb guests to use the property, and those guests, either having parties or the leaseholder permitting them to do so, the leaseholder would be responsible, as if he were hosting those parties himself (Laxcon Developments Ltd v St John Guy Rodgers LON/00AY/LBC/2015/0021).
Airbnb is a pioneer in providing travel accommodation via an online platform. Airbnb is operating with minimal regulatory control in many countries. In England and Wales leaseholders have to be aware of the law, the lease restrictions and other regulatory controls if they want to host Airbnb guests.