Short Term Lettings and breach of tenancy agreement

Posted on: September 28th, 2016

The recent decision (Nemcova v Fairfield Rents Limited [2016]) has highlighted the nature of the leasehold obligations which owners of residential flats are likely to be required to adhere to. This case specifically concerns the user covenant of the lease.

Blocks of flats are typically, if not always, divided into a number of long leasehold interests whereby the user covenant in the lease will specify that the property must be used as “a private dwelling”. From time to time these may be sub-let and are frequently done so by way of an assured shorthold tenancy. The use of the property in these circumstances is unlikely to breach the user covenant, since invariably a letting of 6 months (or more, as the case may be), will still be for the purposes of a residence (although there may be a covenant against any sort of sub-letting which would be breached by the granting of an assured shorthold tenancy).

This is to be contrasted with the very short lettings advertised on websites such as Airbnb. These are almost always for stays of less than two weeks, the purpose of which is for a holiday or mini-break. The difficulty with a short-term letting of this nature is that it sits at odds with a covenant that the property must be used for private residential purposes (the user covenant).

The effect therefore is that this may well amount to a breach of the user covenant under the lease. This is not strictly “illegal” in the sense that a criminal act has been committed, but it does mean that the landlord will have grounds to take enforcement action under the lease. This may be for an injunction (to stop the breach and to prevent further breaches occurring in the future) and for damages (if this has caused loss). It will also expose the tenant to a claim for costs, which the landlord is likely to be entitled to recover under the lease. A landlord will also be mindful of its wider obligations, including to enforce the lease covenants against a defaulting tenant for the benefit of the other (non-defaulting) tenants in the block.

So what can a tenant do who wants to enter into short-term lettings in this way?

In reality, each case will be fact-specific and whether there is a breach will depend on the extent of the covenant and the nature of the letting. Where it appears there would be a breach, the tenant is at the mercy of the landlord if it wants to be released from the covenant. In deciding whether or not to release the tenant, the landlord will need to consider the purpose of the covenant and the effect its release will have on the other tenants. The landlord will also almost certainly want payment of a considerable fee, which could make the release of the covenant prohibitive for the tenant.

However, that it is not to say it won’t be successful. if there are enough tenants in the block who want the covenant to be released, in circumstances where sub-letting is otherwise permitted in any event, a landlord may be prepared to cooperate, particularly if it will mean it can profit from the activity in some way.

How will this affect services like Airbnb? In practice, it is difficult to see what liability attaches to enterprises of this nature. They are merely advertising the property as a place to stay on a short-term basis, without necessarily warranting that a stay in the property will not cause a breach of any superior leasehold covenants. Nevertheless, it will be interesting to see how the law develops in this area, including the extent of applicability of the Consumer Protection from Unfair Trading Regulations 2008. These regulations are designed to protect the public from traders engaging in unfair commercial practices. Where advertisers may come unstuck will be in relation to the omission of material information (regulation six) such that it would cause the average consumer to take a transactional decision that they would not otherwise have made. In other words, would the disclosure by the advertising company have caused a potential property guest to decide not to proceed with the letting if it had known that it would commit a breach of the user clause?

What will the effect be on the wider rental market? The answer is probably minimal. These lettings are normally for short-term purposes only and pave the way for owners to generate additional income. Where it is likely to have an effect is in connection with the hotel and leisure industry and whilst this continues to be a thriving market it will almost certainly drive the cost of short-term accommodation down.

Mike Ellis is a Solicitor in Coffin Mew’s Property Litigation team.