To Airbnb or not to Airbnb? Short term renting of London homes
The money to be made on holiday rental sites is causing problems for London's residential landlords.
As a result of recent regulatory changes, it is now easier than ever to make money from short term holiday lets. The government's intention in making the changes was to encourage and increase private enterprise, although there is no evidence that the number of beds within London for such accommodation had decreased and there is a fear amongst the hotel trade that many hotels may be put out of business.
We have experienced a substantial number of these types of let, not by owners themselves but by assured shorthold tenants who have taken tenancy agreements for a particular period of say six or 12 months and in the meantime have sought to let out the property to short term occupiers using websites such as Airbnb to achieve a profit rental, without the consent of their own landlord. It seems that the changes have only encouraged what assured shorthold landlords regard as something of a scourge.
Minimising the problem
Practically, in respect of assured shorthold tenancy agreements it is important to ensure that the prohibition on alienation is as strict as possible with absolute prohibition of any sharing or parting with possession of any part or the whole of the property concerned (so as not to become embroiled in arguments about whether consent is unreasonably withheld with more relaxed covenants – which can cause a problem).
Even landlords of long leases are experiencing similar issues. Whilst a carefully drawn lease will include a covenant preventing the leaseholder from doing anything which might amount to a breach of any local planning legislation, that covenant would no longer apply to short term lettings as a consequence of the recent changes. However, the landlord is then left with the need to enforce any alienation covenants and will be at the mercy of the tenant should those not be as strict as they could be.
It will be more difficult for a landlord to reasonably withhold consent to using the property for short term lets where that is no longer prevented by planning legislation. When new leases of central London properties are negotiated this should be borne in mind.
From a practical perspective some leases contain an entitlement for a landlord to impose restrictions for management purposes on how properties may be used. Depending on how widely those restrictions may be applied, landlords could think about issuing regulations to their leaseholders if they have experienced problems with Airbnb style occupation, particularly if concerns have been raised by other occupiers within the building of noise, nuisance (and possibly "immoral conduct" going on).
It is said that what happens first in London will follow elsewhere in the UK and so this legalisation is perhaps a foretaste of what may happen around the country in the future. It gives advance warning as to how landlords of residential properties may have to protect themselves.
Background to the changes
In London it used to be the case that Londoners who wished to rent out their homes for less than 90 consecutive nights had to apply for planning permission because it would mean a change of use of their property (under the Greater London Council (General Powers) Act 1973 ("the 1973 Act")). A failure to obtain permission risked a fine of up to £20,000. Such fines were enforced inconsistently across different London boroughs and the government considered that such a restriction on the freedom of Londoners to rent out their homes on a temporary basis such as when they went on holiday (and for reward) needed reform.
Consequently the Deregulation Act 2015 amended the 1973 Act so as to confirm that planning permission would not be required provided that, firstly, no more than 90 nights were used as temporary sleeping accommodation in any one year and, secondly, at least one of the persons providing the sleeping accommodation was liable to pay the council tax for the property.
London boroughs (or indeed the appropriate Secretary of State) have been given power to dis-apply this provision but only if it is considered necessary to protect "the amenity of the locality". The local planning authority requires the consent of the Secretary of State to do this, however, although it remains to be seen if any such consent is applied for and even given.