Property letting and Airbnb: challenges for landlords and tenants
A 90-day stretch
11 April 2017
Alex Ground draws attention to the challenges of Airbnb for landlords and tenants
Airbnb provides a convenient way for landlords to make money from a worldwide market of potential lets, while customers find it easy to use thanks to:
- its reviews;
- its wide selection of available properties; and
- the fact that there is often no landlord present on the premises.
However, Airbnb is facing an increasing number of legal and political challenges.
The service makes it clear in its terms and conditions that owners should make sure they only offer their property when they comply with:
- local and national legislation;
- landlord and tenant regulations; and
- the particular terms of their lease or freehold, as applicable.
However, these terms and conditions are more and more frequently being ignored.
The Greater London Council (General Powers) Act 1973 required that planning permission be obtained for short-term lets of a property in the capital – which were defined as lets of fewer than 90 consecutive nights – on the basis that this amounted to a material change of use from private dwelling.
Before 1973, it was for the individual London boroughs to decide whether a change of use from private dwelling to short-term lets needed such permission; the act therefore removed any uncertainty by defining terms more clearly.
Airbnb is facing an increasing number of legal and political challenges
The Deregulation Act 2015 changed the position in Greater London again, stating that planning permission will not now be required, provided that the property is not used as temporary sleeping accommodation for more than 90 nights in any 1 year and council tax is paid. Property owners, whether freeholders or leaseholders, who let their home on Airbnb in accordance with the 2015 act are therefore not in breach; however, those who let on a short-term basis for more than 90 days a year are carrying out an unlawful use, in which case a council has the discretion to take enforcement action.
Where an owner or leaseholder lets part of their property and remains resident in it, it is arguable that no material change of use occurs because the main use remains as a private residential unit, with the letting of parts only being ancillary. Whether or not such an argument would be defensible if challenged by a council would depend on how many lets were made at any one time and for what proportion of the year. Outside Greater London, the position remains unchanged, in that there is no objective test for the number of days that a property can be let without needing planning permission. Each case will be determined by the local authority according to the facts and local planning policy.
If an enforcement notice is served by the local authority, this will require the owner to cease using their property for short-term lets by a set date. It is a criminal offence not to comply with such a notice, and prosecution can lead to a fine of up to £20,000.
Enforcement action can also enable the council to use legislation under the Proceeds of Crime Act 2002 to recover the income obtained from the unlawful subletting.
Enforcement notices must be served by a council on both the landlord and all tenants, so the former may apply pressure to the latter when such a notice is threatened. A long lease will often prevent tenants from subletting the property on a short-term basis; should they do so, they can face private litigation from their landlord and statutory enforcement action from the council.
London councils are increasingly taking enforcement action against owners who do not abide by current legislation. This threat causes some owners to stop or limit the number of short-term lets, and can result in bookings from Airbnb customers being cancelled at the last minute.
Short-term lets can breach lease covenants and mortgage terms
However, other owners choose to ignore the threats and wait for the enforcement notice to be served, because no actual offence is committed until the notice’s compliance date is ignored. Many owners find that a series of short-term lets is significantly more lucrative than longer-term lettings.
Consideration also needs to be given to the house in multiple occupation (HMO) licensing regime and relevant regulations if a larger property is let to several different groups. A growing number of councils are introducing selective licensing for smaller HMOs, as well as mandatory licensing for those of at least 3 storeys, and a fee is payable for this.
The regime applies regardless of whether the HMO is used for short- or longer-term lets. Failure to obtain selective licensing could result in prosecution by the council in the magistrates’ court, with possible sentences including an unlimited fine or a criminal record.
Alongside planning issues, short-term lets can amount to breaches of lease covenants and mortgage terms if the landlord’s consent has not been obtained. With Airbnb increasing in popularity, it is likely the courts are going to see a greater number of private landlord and tenant cases; sometimes a council will encourage a landlord to take action in their private capacity to stop the short-term lets so that the authority itself does not have to resort to statutory enforcement action.
Airbnb’s next hurdle appears to be political. London Mayor Sadiq Khan has voiced concern over the short-term rental service reducing the availability of longer-term lets, in turn contributing to the housing crisis in the capital. The shortage of affordable homes is rising up the political agenda, though whether Airbnb contributes to this shortage has yet to be confirmed; the mayor has hinted, however, that further legislation may be introduced to regulate short-term lets. Nothing relating to such legislation has been published, so it is unclear whether any changes will affect the current 90-day annual limit or require engagement with the council.
London councils are increasingly taking enforcement action against owners who do not abide by current legislation
Nevertheless, as a result of this pressure, Airbnb has agreed that from 1 January, its systems automatically limit home listings in London to 90 days a year unless the owner confirms they have permission for longer lets.
Given the sometimes scarce resources of council enforcement teams, it is likely that many will now wait to see whether this new system results in any significant change in terms of compliance with the legislation before taking action against those in breach of planning laws.
These new measures still rely on Airbnb checking that owners actually possess the permission for longer lets they claim to have, and owners are also free to list with other agencies, either in conjunction with Airbnb or on their own, which may not be as rigorous.
Under current legislation, it is only possible to take enforcement action against the actual property owners because the letting agency does not itself own an interest in the rented properties.
To track down owners who are potentially breaking the 90-day limit on short-term stays, some councils are trying to use other powers to force agencies to reveal details of the properties they advertise. It is not clear that councils actually have such powers, which may necessitate amendments to legislation to compel agencies to police the 90-day limit rather than washing their hands of the problem.
If you are the freeholder of a property, we recommend that you explicitly state in any long lease whether you want to allow short-term lettings without your knowledge. If you prohibit these and then your tenant does not comply with planning legislation, this will assist your defence against any prosecution brought for failure to comply with a statutory enforcement notice served by the council.
On the other hand, if you are an owner – whether freeholder or long leaseholder – wanting to allow use of your property for short-term lets, it is suggested that you keep a record of these and their duration as evidence should you ever be challenged by the local authority.
Alex Ground is a partner and Head of Planning at Russell-Cooke LLP