30 November 2016 | Comment

Short Term Holiday Lets: A Possible Breach of Leasehold Covenants

Challenger Bank Metro Bank plc has recently announced that its residential mortgage customers can let out their properties for short periods without requiring the prior approval of the bank.

In September, the Upper Tribunal handed down its decision in Nemcova v Fairfield Rents Ltd [2016] UKUT 303 (LC) (Nemcova) which considered such short term lets. In the case, the owner of a long leasehold interest resided in a London flat, but occasionally rented out the property for short periods through a reservation system website. These websites, such as Airbnb, are becoming increasingly common, but tenants, owners, buyers, mortgagees and other interested parties may not be aware of the perils of short-term lets.

In Nemcova, the long leasehold contained a covenant that the flat only be used as a private residential premise. The Tribunal found that this restriction on use prohibited renting the property out on short term holiday lets. This precedent suggests that, depending on the particular wording of a restriction on use (if any) contained in the lease, a tenant who lets premises out for short periods may be in breach of the lease. This decision is significant, because such restrictions on use other than as a private residence or dwelling house are fairly standard and found in many leases.

In light of the decision, owners, buyers, tenants and mortgagees should consider:

  1. Is the property used for short terms lets where visitors stay at the property but do not live there? Such lets could include Airbnb style letting, where a person occupies the property as their residence but also uses the property for short term lets to other people.
  2. Is the property held on a lease?
  3. Does the lease contain a covenant which says that the property can only be used as a private residence or dwelling house?

If the answers to the above questions are ‘yes’, short term lets are likely to breach the terms of the lease.

There are other dangers associated with short-term holiday lets. For example, in certain areas (such as within Greater London) planning approval may be required to use a property for short-term lets for more than 90 days in aggregate in each year. Due consideration should be given to the legal implications of using any property for short term lets.

Although a mortgage lender may not require that it gives prior approval to short term lets, borrowers are required to comply with the terms of their lease and other regulations. Before the owners of leasehold and other properties engage in short term or holiday letting, it is recommended that legal advice is obtained.

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