Short term lettings – Is it worth the risk?
The recent case of Iveta Nemcova v Fairfield Rents Limited will serve as a warning to residential property owners and tenants who are considering or are already granting short term lettings of their properties on platforms such as Air bnb.
In this case the tenant held a flat under a long term lease containing a covenant not to use the premises or permit them to be used for any illegal or immoral purpose or for any purpose whatsoever other than as a private residence. The lease contained no material restrictions on underletting or granting short term tenancies or licences, no requirement that the tenant reside in the flat herself or occupy it as her principal home and no specific covenant prohibiting business or commercial use or use of the flat for holidays. The tenant let the flat out for around 90 days a year via the Air bnb platform and her lettings were almost all to business visitors as opposed to holiday lets. Her neighbours objected to this use and asked the landlord to take steps to prevent it.
It was found that the tenant, by granting a series of very short term lettings (days and weeks rather than months), had breached the covenant not to use or permit the premises to be used for any purpose whatsoever other than as a private residence.
A significant proportion of private residences in Northern Ireland are held under long leases which likely contain a private residence covenant. This case highlights that, rather than run the risk of forfeiting their lease and/or incurring substantial legal costs, property owners and tenants who seek to grant short term lettings should first consider whether the tenant covenants in their lease regarding use and alienation prevent them doing so. Terms and conditions of mortgages and building insurance policies may also restrict sub-letting and will therefore be invalidated by an Air bnb style letting.
It was noted by the tribunal in this case that the lease contained no restriction on alienation of the property as a whole and, as long as the private residence covenant was complied with, the lease clearly contemplates the tenant being able to deal with the property with substantial freedom. In the ‘gig economy’ age, landlords should be alive to the fact that tenants may seek to grant their own short term lettings and it may therefore be prudent for both landlords and tenants to be conscious of private residence covenants within the drafting of a lease.
While great care has been taken in the preparation of the content of this article, it does not purport to be a comprehensive statement of the relevant law and full professional advice should be taken before any action is taken in reliance on any item covered.