The Airbnb judgment: the potential risks of granting short-term lettings of your property

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The Airbnb judgment: the potential risks of granting short-term lettings of your property

11 Oct 2016

In the recent case of Nemcova v Fairfield Rents Limited, a tenant’s online Airbnb ad – and subsequent grant of a series of short term lettings of her flat – was considered by the Upper Tribunal (Lands Chamber). The leaseholder was found to have breached the covenant in place that stated she could not use the premises for any purpose other than as a private residence.

Whilst each case is fact-specific upon the particular construction of the terms of the tenant’s lease, this decision will certainly be of interest to many long leasehold tenants and residential landlords – especially due the growing popularity of websites such as Airbnb and peoples’ desire to maximise the income generated from their properties.

The case

In Nemcova v Fairfield Rents Limited [2016] UKUT 303 (LC), the tenant owned a long lease of a flat that contained a covenant not to use the premises, or permit them to be used, for any illegal or immoral purpose or for any purpose other than her private residence. In spite of this, the tenant advertised the availability of her flat on the internet for short term lettings, which were granted on numerous occasions.

The landlord (freeholder) made an application under section 168(4) of the Commonhold and Leasehold Reform Act 2002, seeking a determination that the tenant had breached covenants. This was the first step towards the landlord obtaining possession by forfeiture. Forfeiting a lease is the ultimate sanction, where a leaseholder fails to pay rent and/or breaches covenants in the lease. The incentive for a landlord is the potential windfall to be gained from taking possession and re-letting the property for a premium.

The defence

The tenant admitted in evidence that she made short term lettings of the flat and advertised its availability online. She confirmed that she paid council tax due for the flat in addition to the utility bills and that the property was her main residence – although it had recently remained empty for 75% of the year as she felt intimated by her neighbours.

The tenant went on to state that she only let the flat for about 90 days of the year and that her lettings were almost all to business visitors working in London as opposed to holiday lets. During the hearing before the First-Tier Tribunal, the tenant stated that she currently stayed in the flat about three or four days each week and stayed with her boyfriend on the nights that she wasn’t there. The tenant admitted that she had let out the flat on about seven occasions in the past twelve months.

The decision

The First-Tier Tribunal found in the landlord’s favour and held that the tenant had breached the covenant of her lease. The First-Tier Tribunal looked at ‘the ordinary and natural meaning of the words, read together with the whole of the lease, having regard to the factual context surrounding entry into the lease in so far as this can be identified’.

The First-Tier Tribunal held that there was no difference between the use as a private residence and use as a private dwelling house. As the people occupying the flat on a short-term letting would not be occupying it as their home, it followed that the tenant was using the flat for a purpose other than use a private residence.

The tenant appealed to the Upper Tribunal (Lands Chamber) on the basis that the First-Tier Tribunal had erred in law. The Upper Tribunal (Lands Chambers) did not accept the tenant’s submissions and dismissed the appeal. It was acknowledged that the covenant refers explicitly to use ‘as a private residence’, which although did not require the tenant to use the premises as their home – the tenant could have more than one residence any one time – but there had to be a degree of permanence. The problem for the tenant in this case was that her occupation was transient and, in the context of her lease, she had breached the covenant in the lease by granting short-term lettings of days and weeks.

Lessons to learn

The Upper Tribunal (Lands Chambers) accepted that this case was fact-specific. However, it shows that leaseholders need to review the terms of their lease before they advertise and let their property even on a short term basis. No doubt landlords will now also be taking a more active interest in their tenant’s activities which could give rise to more applications to the First-Tier Tribunal in the future.

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