You may have seen that Airbnb short-term letting has hit the headlines recently following a case which resulted in an order for forfeiture being made against the leaseholder concerned (link). In this latest blog we will consider how this increasingly popular style of letting may be putting more and more leaseholders’ interests in their properties at risk where by letting their property they are potentially in breach of their lease.
In the case of Nemcova v Fairfield Rents Ltd [2016] UKUT 303 (LC), the Upper Tribunal (Lands Chamber) considered whether short-term letting was a breach of a lease which included a covenant on the part of the leaseholder “not to use the Demised Premises or permit them to be used…for any purpose whatsoever other than as a private residence”. After considering the respective parties’ written representations, along with several relevant authorities, the Tribunal duly concluded that a breach had occurred. Covenants such as this are regularly found within long leases and the Upper Tribunal’s decision is likely to now be relied upon by landlords and management companies who seek to pursue similar alleged breaches, perhaps with a view to bringing forfeiture proceedings where appropriate. The Upper Tribunal were clear however that leases should be considered on their own merits and with regard for the context in which they were agreed, and indeed their decision points to several factors to which consideration ought to be given before deciding whether a breach has occurred or not.
The construction of the relevant covenant, particularly post Arnold v Britton [2015] UKSC 36, will be of paramount importance, and in Nemcova the covenant essentially operated to prohibit all uses of the property other than as “a private residence”. The Upper Tribunal contrasted this at paragraph 48 with “the private residence”, suggesting that in such an example the covenant may be more open to being breached by short-term letting, however these are of course not the only uses of a property which a long lease might envisage. For example, where a lease is identical to that in Nemcova save for “a private residence” being substituted for “a private residential dwelling” or even “a private dwelling-house”, would a tribunal in the same circumstances reach the same conclusion that a breach had occurred? The Upper Tribunal stated at paragraph 37 of their decision that “private dwelling-house” and “private residence” were not necessarily synonymous, however one can imagine that in the context of many leases the meaning of “a private residence” as decided upon in Nemcova may reasonably be found to be the same as the meaning of any similar use of a property which a long lease may provide for.
Aside from the construction of the lease, perhaps the most pertinent factor considered by the Upper Tribunal in Nemcova was the duration of the occupancy, and at paragraph 53 of the decision they stated that “it does seem to me that 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”. Given the typical short duration of an Airbnb style let, this facet of the Upper Tribunal’s decision will undoubtedly be welcomed by landlords and management companies who seek to remedy perceived breaches arising from short-term letting, however a question does nonetheless arise as to what the degree of permanence required for a property to be used as the occupier’s private residence is? This is again likely to depend upon the individual merits of each case, however there is perhaps a clue at paragraph 54 of Nemcova where the Upper Tribunal appear to suggest that occupancy would need to be in terms of months, as opposed to days or weeks.
A frequent by-product of short-term letting is nuisance complaints, primarily from other residents of a development, and certainly I am aware of cases where a party has pursued an alleged nuisance breach whilst at the same time pursuing a perceived breach relating to the use of the property. The issue with that however is that nuisance is not necessarily an inevitable consequence of short-term subletting, and even when it is it is still necessary to prove it to obtain a determination that the nuisance breach has occurred. There may nevertheless be salvation, albeit in a watered-down way, in cases where the covenants on the part of the leaseholder are not only with the landlord and / or the management company but also with each of the other leaseholders of the development, as was the case in Nemcova and which led to the Upper Tribunal stating at paragraph 44 that “it is therefore an entirely proper inference that the current covenant was extracted in part for the protection of those other leaseholders”. We know from Nemcova that consideration should be given to the context in which a covenant is agreed, and it is conceivable therefore that a breach in respect of short-term letting may be more readily found to have occurred where a leaseholder has failed to use their property in the way they covenanted to with their fellow leaseholders as well as with the relevant landlord and / or management company.
In conclusion, Nemcova will undoubtedly assist landlords and management companies who seek to pursue perceived breaches relating to short-term letting, however it is apparent that this is not a clear-cut matter where the default position is that such lets are prohibited by virtue of the lease containing an identical or similar restriction relating to the use of the property. The Upper Tribunal state clearly in Nemcova that each case is fact-specific, and one suspects that tribunals will therefore exercise caution before accepting this case as binding authority in any matter before them where the facts duly differ. There is also a potential elephant in the room in the form of Sch. 6, s.17(1) of the Housing Act 1985 which states:
“A provision of the lease, or of an agreement collateral to it, is void in so far as it purports to prohibit or restrict the assignment of the lease or the subletting, wholly or in part, of the dwelling-house”
Is short-term letting a form of subletting? If so, does the above mean that covenants such as that in Nemcova are void insofar as they restrict short-term lets or when properly read does the covenant not purport to prohibit the subletting of the property (although this may nonetheless be a consequence of it)? This is not an issue which has yet been addressed by a superior court, however the absence of the issue from Nemcova (where both parties were represented by counsel) may go some way to indicating what the correct answer would be. For now at least, Nemcova remains the most relevant guidance that we have and, as a result, any leaseholders who are considering letting their respective properties on a short-term basis would be best advised to check the relevant covenants within their lease and take expert advice where necessary. Should they fail to do this and end up letting their property in breach of their lease then they may too find themselves on the receiving end of an order for forfeiture as well as being featured in an article in the Daily Mail – I’ll leave it to you to decide which is worse.
I hope that you have enjoyed reading this latest blog and that you have found it informative, if you have any comments or queries regarding it then please do not hesitate to get in touch.
NW
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