The past few years have seen substantial growth in the number of people marketing their leasehold properties to be let on a short-term basis with companies such as Airbnb. However, as a result, there has been a rise in court cases in which the courts are finding that Airbnb lettings constitute a breach of covenant of the ‘user’.
What is a property covenant?
A covenant is an obligation, given by a leaseholder or freeholder, to do or not to do something. Covenants can be positive or restrictive/negative in nature.
Positive covenants require positive or affirmative action. For example, to fence or to keep in repair. Alternatively, restrictive or negative covenants require the person not to do something.
The purpose of a covenant is to benefit a third party. For example, a fellow leaseholder or a neighbour in a housing development.
How can I make sure there’s no breach of covenant when subletting my property?
Firstly, it’s important that you check the terms of your lease or freehold title very carefully, ideally before you decide to sublet your property. Some leases don’t allow subletting. Check for any restrictive covenants limiting what you can and can’t do.
If there are restrictions, you will need to ask for written consent from the freeholder to allow you to sublet your property. They may require you to pay a fee for this.
If in doubt, you should seek legal advice from a solicitor to prevent future issues or disputes.
Some additional considerations
It is worth noting that before subletting your property, you should also check the terms of your mortgage to make sure it is permitted. Some mortgage companies will give consent to subletting, especially if it is because the homeowner needs to relocate temporarily for work or other reasons.
If your mortgage prevents subletting, and you do not ask for permission, then you may also be in breach of your mortgage. This can have very serious consequences, including on your mortgage capacity to raise finance in the future.
Additionally, you should also notify your insurance provider.
The consequences of breaching a lease
If you breach your lease, the ultimate sanction available to the freeholder is to seek an order that your lease should come to an end. The legal word for this is forfeiture.
If your lease is forfeited, by order of a court, your asset, and therefore investment, is essentially lost. You cannot sell or transfer it as the leasehold interest has come to an end.
Breach of lease covenant case: Triplerose Ltd v Beattie
The recent case of Triplerose Ltd v Beattie has highlighted the approach the courts have been taking regarding subletting leasehold properties.
What were the facts of the case?
The owner of a leasehold property was only staying at their premises for a maximum of three nights per week. Therefore, the leaseholder advertised their property as a serviced accommodation available for short-term lets.
The landlord questioned whether this was a breach of the covenant that stated:
‘not to carry on any trade or business at the property nor permit the same to be used for any purpose other than as a private dwelling’
What were the findings of the Upper Tribunal?
The Upper Tribunal, in reference to the earlier case of Tendler v Sproule, concluded that the short-term lets did not amount to carrying on a trade or business.
However, The Upper Tribunal concluded that the use of residential premises for short-term occupation by a succession of paying guests went beyond the scope of permitted use as stated in the covenant. Taking in paying guests was a breach of the specific covenant: not to use the property other than as a private dwelling.
So, can I rent out my leasehold property for short-term lets?
If you are offering your leasehold property for short-term Airbnb-style lettings, you need to carefully check your lease to make sure you are permitted to do so. You could be in breach of covenant otherwise, as in the case above. This could result in you facing enforcement action by your landlord/the freeholder or neighbouring properties enjoying the benefit of the covenant.
We can help you
If you have any questions or concerns regarding a short-term let, talk to us. Our specialist Property Litigation Team is here for you.