AirBnB may cause you to lose sleep
The exponential growth of AirBnB is a shining example of the so-called “sharing economy”. Mark Banham from our commercial property team considers the potential perils that hosts may encounter whilst using this service.
AirBnB has gained hugely in popularity over the last few years. Its simple objective: cheap accommodation, globally.
So how have they achieved this? What AirBnB call “hosts”, can list their properties (rooms, a suite of rooms, apartments, moored yachts, houseboats, entire houses or even a castle) for free on the AirBnB website. The absence of fees (contrast with estate agents) makes this an attractive proposition.
Hosts can decide how much to charge per night, per week or per month, and can present their adverts with descriptions, pictures of the property, and a user profile to introduce themselves.
To date the AirBnB website has attracted over 60m users in over 191 countries; its growth has been rapid and continuous. However, the AirBnB offering has not been without criticism. Some have argued that what commenced as a hub to support independent travel has now become a vehicle for high-profit short-term rentals for landlords in areas that are often suffering from housing shortages. AirBnB’s increasing grip on the housing market is potentially a factor in increasing rents and depleting the supply of properties available to families and workers.
The company has faced recent challenges to its business model and practices. Earlier this year, for example, authorities in Berlin took drastic steps to safeguard affordable housing for their city’s permanent residents, and banned the letting of entire properties via AirBnB. In London, some local councils have introduced policies to limit short-term lets to 90 days unless the host seeks permission to make them longer.
Despite the criticisms and hurdles, AirBnB is still proving to be lucrative for the company itself and the hosts that subscribe. It is clear that reaching a vast audience and incurring no upfront costs, rather than instructing estate agents or drafting a tenancy agreement, remains attractive. In addition, the Government has provided a number of tax benefits (most notably, changes to the Rent-a-Room relief, allowing hosts to share space in their home tax-free on income up to £7,500 a year) for individuals who rent out their spare rooms as short-term holiday lets. Coupled with the ability to claim capital allowances and possible access to better rates of capital gains tax on a disposal, it perhaps begs the question, why aren’t more people using AirBnB?
Here are some of the legal issues that should be considered when placing your property on the AirBnB website:
Potential breach of lease conditions
For tenants with long leases, the possibility of earning extra cash for that spare room in your property can be tempting. However, you may find yourself in dispute with your landlord, especially if there are provisions in your lease placing restrictions on sub-letting, or, at least, requiring the landlord’s consent to do so. These restrictions can be found in the “alienation clauses” of the lease. Being in breach of them could put you in a precarious position with your landlord, who may wish to evict you and/or seek compensation.
Currently AirBnB provides no security checks to verify the home a host wishes to advertise actually belongs to them; or, if the host is a tenant, confirmation they have permission from the landlord to sublet the property. Such a scenario is, on a balance of probability, less likely to occur when utilising the traditional renting route through agents who are more likely to be regulated by legislation and professional organisations.
In the recent case of Nemcova v Fairfield Rents Ltd, the Court held that a tenant breached an obligation in their long lease that prohibited the use of the flat for any purpose whatsoever other than as a private residence. The tenant in this case argued she had not breached the “private residence” clause, as she was in the property “three or four days a week” and she paid the flat’s council tax and bills.
The judge disagreed saying that “in order for a property to be used as the occupier’s private residence, there must be a degree of permanence going beyond being there for a weekend or a few nights in the week”. By reason of the short term nature of these lettings, being days and weeks rather than months, the tenant was in breach of the covenant, and the landlord was allowed to terminate the lease.
This emphasises the importance of checking the provisions in your lease before using AirBnB to let your property.
Breach of Mortgage/Insurance Conditions
Such lettings may also have an adverse effect on any mortgage agreement or building or contents insurance policy. It is always best to seek the consent of both your lender and insurer before hosting an AirBnB let, otherwise you may face increased premiums in your insurance and (in extreme cases) a request for repayment from your lender. The Council of Mortgage Lenders (CML) says AirBnB hosts who offer short-term lets without seeking permission from their mortgage lender are “very likely” to be breaking their mortgage contract.
Breach of Planning Policy
To further complicate matters, some properties let out for more than 90 nights a year may require planning permission (depending on the local authority), meaning you could also be in breach of planning laws.
Obtaining Vacant Possession
Another potential concern for a host are guests who refuse to leave after their stay has ended. When compared to the most common form of residential tenancy, the assured shorthold tenancy (AST), there is an obvious lack of safeguards available for an AirBnB host. A landlord letting their property under an AST has a well-trodden path (set out in the Housing Act 1988) to follow when regaining possession of the property at the end of the tenancy. But what happens if an AirBnB guest overstays their welcome? In California, a host had let her “condo” to a guest who then subsequently overstayed. To make matters worse, the guest then threatened to sue the host if she decided to shut off utilities to the property. What ensued was months of time-consuming, expensive litigation – while the guest remained in the house, essentially rent free. Could a similar situation arise in the UK?
Under the Protection from Eviction Act 1977, it is an offence for any person to unlawfully deprive a residential occupier of the premises (or any part of it) that they occupy. A “residential occupier” is defined as a person “occupying the premises as residence,” whether under a contract or not. There would be a strong argument that this extends to an AirBnB guest. As a result the host may be guilty of an offence if they do anything “likely to interfere with the peace or comfort of the residential occupier” or “persistently withdraws or withholds services reasonably required”, such as utilities.
The Protection from Eviction Act 1977 does not protect those occupying premises “for a holiday only”. However, although AirBnB lets are generally considered to be “holiday lets”, they are also widely used for business trips so perhaps it could be argued that an AirBnB licence falls outside of the scope of the Act’s exclusions. As far as we know this has not been tested in the Courts.
Hosts could very well find themselves in a position where the only way to evict a guest would be to obtain a court order.
Security, damage and compensation
Using the traditional route of renting out a property arguably offers more safeguards than going through AirBnB. For example, you (or the agents you instruct) are likely to meet your potential tenant at a viewing and references are likely to be taken before the tenancy commences. Furthermore, you will have a tenancy agreement (provided it is properly drafted) that outlines each parties rights and responsibilities.
AirBnB hosts have the benefit of what is called a “Host Guarantee”, which claims to cover up to £770,000 of damage caused by guests. It is worth noting however, that this guarantee is not an insurance policy and has many exclusions and limitations that should be considered before becoming an AirBnB host is considered. A recent story involved the theft of an original print by the artist Banksy. The Host Guarantee does not include loss or damage to artwork so the hosts were not entitled to make a claim against it. AirBnB were, due to their data protection obligations, unable provide details of the guest to assist with the police investigation.
Under a traditional tenancy agreement the landlord would normally have the benefit of a security deposit which would, subject to the statutory tenancy deposit rules, provide the landlord with a compensation fund for damage to the property or theft.
Please note that this article is provided for general information only. It does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by Field Seymour Parkes LLP.