Q&A: The problem of short-term lets

Question

I am a landlord of a residential block of flats let on long leases. I have been receiving complaints from a number of residents that one of the flats is being used for short-term lets; they have noticed a stream of visitors going in and out of the property with suitcases on a regular basis. I have also had complaints that the flat is often used for loud parties. When I raised these concerns with the leaseholder, he denied that he was using the property for short-terms lets and said he had just been letting his friends and family use the flat on a couple of occasions. What can I do to stop this type of activity?

Answer

First, the use of flats for short-term lets is likely to be a breach of planning use. In addition, while each case will turn on the provisions of the lease in question, it is likely that most standard leases will enable landlords to take enforcement action against leaseholders who use their flats for this purpose. Such use may constitute a breach of the alienation, user, planning or even nuisance covenants. It is important that landlords gather enough evidence of the breach in case the leaseholder simply denies that the flat has been used for commercial short-term lets.

Explanation

The use of residential flats for short-term lettings is becoming increasingly common. Landlords and other residents are often concerned about this, given the potential for security issues and nuisance where there is a high turnover of unknown and unregulated visitors. While many residential leases do not contain provisions specifically prohibiting short-term “holiday” lets, tribunals and courts have found this type of use to be prohibited by relatively standard lease clauses.

In Nemcova v Fairfield Rents Ltd [2016] UKUT 303 (LC), the Upper Tribunal (Lands Chamber) found there were no material restrictions in the leaseholder’s lease in relation to underletting or granting short-term tenancies or licences, nor was the leaseholder required to use the flat as her principal home. There was no express covenant prohibiting commercial use or holiday lettings. However, the lease provided that she was “not to use the premises other than as a private residence”.

The lease did not require the flat to be used as the leaseholder’s (or any other occupier’s) sole residence. However, the tribunal determined that the user clause required there to be enough of a connection between the occupier and the flat that the occupier would think of it as their residence and be using it as such. For this to be the case, there would need to be “a degree of permanence” which went beyond a stay of a few days or a weekend. The tribunal explained that there was a “transience” associated with holiday lettings, so that the occupier would not regard the flat as his private residence. Such use was, accordingly, in breach of the user provision.

The question of whether Airbnb-type short-term lets were in breach of covenant was considered again by Judge Luba QC in the recent case of Bermondsey Exchange Freeholder Ltd v Nino Koumetto (as Trustee in Bankruptcy of Kevin Geoghan Conway) (Central London County Court, 1 May 2018). Again, there was no covenant specifically prohibiting short-term lets, but the lease included the following relevant provisions:

• Not to part with or share possession of the whole of the flat or permit any company or person to occupy the flat except by way of an assignment or underlease of the whole. 
• Not to use the flat otherwise than as a residential flat with the occupation of one family only. 
• The judge upheld the first instance decision that the leaseholder was in breach of the alienation and user provisions in the lease, and agreed that such breaches should properly be restrained by an injunction.

As regards the alienation covenant, it was unnecessary to decide whether on the facts the short-term holiday lettings amounted to tenancies or licences, since both were prohibited as either a parting with possession (by the grant of a tenancy) or permitting others to occupy the flat (by the grant of a licence). It should, however, be noted that this question might arise in another case with less stringent alienation provisions. The leaseholder sought to argue that the requirement that nobody should occupy the flat except by way of an assignment or underlease was unworkable as, if interpreted literally, it would prevent the leaseholder from having family members or a friend reside in the flat on their own on an informal basis. The judge rejected that submission, deciding that the words meant what they said, even if they were impractical.

In relation to the user clause, the leaseholder sought to argue that a flat may be occupied for residential purposes where it is occupied by short-term paying guests. He referred to various authorities, including Westbrook Dolphin Square Ltd v Friends Life Ltd [2014] EWHC 2433 (Ch); [2014] PLSCS 216 in support of this submission. The judge did not consider that case to be of any assistance, stating that the context in which the user provision fell to be understood was a private residential development of flats let on long leases with common terms, with residents living together. He held that the use of the flat “as short-term temporary accommodation for transient visitors paying for the same by way of commercial hire” was a clear breach.

Provided that the terms of the lease support the prohibition of short-term lettings, it is crucial that any landlord wishing to take steps against a leaseholder engaging in such use assembles sufficient evidence to make its case to the court. This includes taking print‑outs and screen shots of booking websites, any email reviews and photographs, and obtaining statements from building porters or other employees and also from other residents.

Given the widespread use of flats for short-term lettings, there is no doubt there will be plenty more cases dealing with these issues. However, landlords have to date enjoyed the upper hand in persuading the courts that such use is in contravention of standard-form alienation and user covenants.

This article was written by Lauren Fraser and Edward Francis (Enterprise Chambers). For more information please contact Lauren on lauren.fraser@crsblaw.com or +44 (0)20 7427 6418.