Almost daily we see articles in the press about the rise of the ‘Sharing Economy’ and companies like Airbnb and Under The Doormat which enable people to let their homes or spare rooms on a short-term basis. This sector is expected to continue to grow rapidly, with PWC reporting that it will grow from £15bn in 2013 to £335bn by 2025. Whilst Airbnb may now be an established name and one of the biggest companies in the world, the legal position in relation to short-term lettings is still evolving.

The legal position depends to a large extent on whether the property to be let is leasehold or freehold but the following general principles apply across the board in England:

  • you are able to let your home on tenancies for up to a maximum of 90 days in any year without planning permission. You will need planning permission for short-term lettings for more than 90 days in any year;
  • you will need to comply with all of the relevant legislation that applies to the letting of residential properties such as having gas safety and electrical certificates;
  • you will need to pay any taxes which are payable on the income you receive. However, if you rent your whole home with a sharing economy business, the first £1,000 of income is tax free and if you are only letting part of your home, the first £7,500 of the rent you receive is tax free under the government’s rent a room scheme; and
  • you will need to check the terms of your buildings and contents insurance policies and the insurance provided by any operator you work with as some insurance policies have exclusions in relation to short-term lettings and may even be rendered void by letting your property on a short-term basis.

Freehold Properties

If you own a freehold property and are considering letting it on a short-term basis then you need to do the following:

  • check your deeds to make sure that there are no historic covenants that might prevent short lets;
  • check the terms of your mortgage to see if that allows you to let the property on a short-term basis and notify your lender and obtain their consent, if necessary.

Leasehold Properties

Leaseholders will be looking to be able to let their properties whilst freeholders will be looking at how they can control short-term lettings and deal with any complaints they receive from other residents and there is a need to balance these competing interests.

As a leaseholder, as well as checking for historic covenants and checking the terms of your mortgage as above, you will also need to:

  • check the alienation provisions of your lease to see if they allow underletting and sharing of possession. It is likely that your lease will prohibit you from letting part only of the property which will rule out letting your spare room;
  • check the provisions of your lease that govern the use of the property. There have been a couple of recent cases where freeholders have successfully argued that the user provisions of leases effectively prohibited leaseholders from letting their properties on a short-tem basis;
  • check whether your freeholder has issued any relevant regulations as many leases provide that in addition to the terms of the lease you must also comply with any regulations issued by the freeholder.

As a freeholder, you will need to review the leases for your properties to see whether or not these allow tenants to enter into short-term lettings and what mechanisms they provide to enable you to try and control such arrangements. In particular, you should be looking at the alienation and user provisions and also your ability to issue regulations.

In our experience, many of the standard leases used in England and Wales do not adequately deal with the position as they were drafted long before the ‘Sharing Economy’ was even a concept. Whilst there have been recent cases where freeholders have successfully used the user covenants in leases to restrict short-term lettings, these cases may still be appealed and we would recommend adopting specific provisions and regulations dealing with short-term lettings. There are a range of possible provisions that you might wish to include.