Short Term Letting | A Breach of Covenant?
In many leases there are some restrictions on the long leaseholder sub-letting (also known as underletting) the property. These are known as the “alienation” provisions and can amount to an absolute prohibition on sub-letting or a requirement to obtain the consent of the Landlord or Managing Agent in advance. .
The internet has made it easier for owners of flats and houses to provide an alternative to hotels and guesthouses for tourists to experience places they visit as a local and there has been a boom in short term letting and property sharing as a result.
However, where there is a proposal to sub –let, it is not just the alienation covenant in a lease that needs to be examined. Where a long leaseholder proposes a sub-let, they need to be mindful of whether the proposal to let is a breach of any other covenant in the lease or of the requirements of the planning laws. Where a landlord’s consent is required, the landlord also needs to have regard to this wider context, and not just the alienation clause.
When a landlord is approached about consent to subletting, or a long leaseholder is considering subletting, they need to consider :
- The requirements of the alienation clause – is sub-letting prohibited, does it require consent?
- Is there a restriction on the type of occupier who can occupy the premises?
- Is the sub-letting in breach of the User clause – is there a requirement to use as a “private residence”?
- Will planning permission be required? Does the letting amount to a change of use?
- Will the sub-letting breach the nuisance / annoyance provisions (this is often a concern caused by a succession of newcomers)
- What will the status of the short term letting be? Will a tenancy be created? If so, the provisions of the Housing Act (assured / assured shorthold tenancies) may apply. Will a possession order be required to remove a sub tenant ?
- Is permission from the mortgage lender required?
Planning Permission & Short term letting
Care needs to be taken by long leaseholders about whether letting of property for holiday lets requires permission for a change of use. In the case of Moore v Secretary of State for the Environment the Court of Appeal was asked to determine whether a dwelling let out for short term holiday use is still a dwelling under Use Class C3 of the Use Class Order. The Court determined that the case must always be decided on the facts of the situation – there could be no general rule in this regard. In this case, a large holiday home with 8 bedrooms was found to be outside Class C3 and required planning permission for a change of use.
In London, short term letting for less than 90 consecutive nights was prohibited under the Greater London Council (General Powers) Act 1973 unless permission for a change of use was obtained. In practice, this was not universally enforced and was felt to be restricting tourism with the rise of Airbnb and the internet innovations making short term letting easier.
The Deregulation Act 2015 now permits short term letting in London (for council tax payers, rather than business rates payers) so long as the property is not let for more than 90 days in a year. This is an attempt to strike a balance between keeping residential accommodation accessible for permanent residents of the city and permitting the owners some flexibility to earn extra income.
Properties permanently in short term use or let for more than 90 days in a calendar year are not affected by the deregulation and so permission for a change of use will be required. Owners face a possible fine of up to £20,000 for failing to obtain permission.
Although the question of planning permission is primarily the concern of the long leaseholder, the long leaseholder will usually have an obligation to the Landlord to observe the planning requirements and the Landlord usually has an obligation to enforce breaches of covenant. A breach by the long leaseholder could therefore become an issue for the Landlord to enforce.
Use as a residence / private dwelling
Care must also be taken by a long leaseholder planning to let property on a short term basis who has a covenant in their lease to use as a “private residence”.
In the case of Nemcova v Fairfield Rents  UKUT 0303 (LC) the Upper Tribunal was asked to determine whether use of a property for a short term Airbnb letting was a breach of this covenant. The Upper Tribunal found that it was a breach. Their rationale was that use as a “private residence” had to have a degree of permanence beyond being there for the weekend or a few nights.
In that case, the tenant had wide powers of alienation (to assign or sub-letting) and so the alienation covenant was not breached by the subletting. However, as a short term occupant was not using the property as a “residence”, the long leaseholder was found to be in breach of the user covenant. The Upper Tribunal did caution that the question of whether this was a breach was a question of fact and degree and so this was not intended to be a definitive answer to whether Airbnb lettings were a breach of this user clause in all circumstances.
As a result of this decision, a long leaseholder who sub-lets his property on a short term basis could find himself facing an allegation of breach of covenant by his landlord. Similarly, a landlord who gives permission for a sub-let which is in breach of the user covenant of the lease, could find himself in breach of his obligations to the remaining tenants to enforce the same covenants in all the leases of a block of flats.