Always check the lease
You have purchased a leasehold apartment in a thriving town or seaside resort with the view to sublet, You start out subletting to a family on an Assured Tenancy Agreement (AST) but you have been told you could make a better return if you were to offer short lets under a serviced accommodation model advertising with the very popular and mainstream Airbnb. You have heard this is relatively easy so you decide to give it a go.
But before you confirm your bookings and order your welcome packs we suggest you check your lease.
The small print of your lease may prevent you from using the property in this way. To such an extent that the Landlord might be able to take the Property back without paying you anything. This is known as the Landlord’s right to forfeit the lease and is something Landlords can and will threaten. Ouch!
If you, the leaseholder, need explicit permission from the freeholder to rent out the property for short lets and if you do not get this, you are risking the landlord taking action to stop you, leaving you open to significant legal costs and potentially losing your entire investment.
When buying an investment property on leasehold it is essential you check the terms of your lease carefully for anything that will stop you from subletting the flat. Leases often include explicit restrictions on subletting. For example, a lease may ban some agreements outright or only permit it with the landlord’s continued consent (which will always come at a cost). It may be ok to sublet on a long-term AST to a family who lives there on a permanent basis but not for short lets to multiple tenants throughout the year. In many cases, the restriction may be more difficult to spot.
Here are two examples of recent cases.
Nemcova V. Fairfield Rents
In Nemcova v. Fairfield Rents, N had a 99-year lease of a flat in Enfield within a purpose built residential block. The issue was whether N had breached the lease by letting it on short-term lets. N admitted she had advertised the flat’s availability on various websites such as Airbnb and let the flat for about 90 days every year, mostly to business visitors working in London. She also said that she paid all the utility and council tax bills relating to the flat.
On the face of it, the lease only expressly prohibited N from subletting the whole of the flat in the last seven years of the term. However, the lease did ban N from using the flat ‘for any purpose whatsoever other than as a private residence’. The Upper Tribunal ruled that in granting very short term lettings (days and weeks rather than months), N had breached the lease. Use as a private residence meant there had to be ‘a degree of permanence going beyond being there for a weekend or a few nights in the week’. Does this mean that a tenant under a long lease will never be able to grant Airbnb-type lettings? No. as the Tribunal stressed everything will depend on the precise wording of the particular lease.
Roundlistic Ltd v Jones
In another case, Roundlistic Ltd v Jones, J and his Partner had a long lease of a maisonette in Barnes in south west London. In April 2015 they sublet the maisonette to a Mr Jackson on a one-year assured shorthold tenancy. The landlord applied for a Declaration that in granting the tenancy, the tenants had breached the lease.
Once again, nothing in the lease expressly forbade subletting. However, the tenants were banned from using the maisonette ‘for any purpose whatsoever other than as a single private dwelling house in the occupation of the Lessee and his family’. Rather surprisingly the Upper Tribunal ruled that this stopped the tenants subletting the maisonette altogether. This decision has caused a few legal eyebrows to rise and it is possible that a higher court would take a different view of the matter. For the moment, however, it represents the law.
How can you protect yourself?
While these cases were less common a few years ago, with the increased accessibility of online platforms such as Airbnb we are seeing them more frequently. These two cases demonstrate how careful you have to be when buying a lease to make sure you will be able to use the premises as you intend.
Due to the immaturity of this service and lack of specific regulation there are many grey areas that could leave you exposed.
Before you invest in a new property or change the type of occupiers of an existing property make sure you fully understand the following agreements to ensure you are protected. If you are unsure on any you should seek professional advice.
- Leasehold agreement
- Mortgage agreement
This list is a starting point for your information and not exhaustive. We have had many years’ experience in this area, acting for both Landlords with difficult tenants and tenants who have fallen foul of aggressive tactics of their landlords. If you would like to seek legal advice please contact Caroline Wilton or Shabnum Hussain on 01908 662277
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