Serviced apartments, AirBnB and other short-term lettings are growing in London and other cities. Often these utilise apartments in residential blocks where the apartment owners are investors who have acquired the property on a long lease, specifically to rent out on a short-term basis either direct to the end occupiers or by underletting their property to a serviced apartment operator who in turn will enter into short-term lets.

Such owners and serviced apartment operators should beware of the specific terms of the long lease of the apartment. A very common restriction in such leases, to use the apartment as a private residence only, has now been held by the Upper Tribunal to prohibit short-term lets (Iveta Nemcova v Fairfield Rents Limited). This now gives disgruntled neighbours, disturbed by the disruption caused by short-term occupants, and head landlords looking also to prevent such use (or to secure a premium for varying the lease) a clear argument that the use is in breach of the lease.

A further potential problem is the permitted use for the purposes of the Planning Acts. A private residence is a Class C3 use and leases often permit use for C3 purposes only, or at least include an obligation on the tenant not to breach planning laws. Use as serviced apartments or short-term lets is being challenged by some local authorities on the basis that it is a C1 use, not C3.

Action points:

  • Check the lease for a private residence only restriction, and also for other covenants that might prevent such use, such as a prohibition on letting for short periods or against use other than Use Class C3;
  • If acquiring a lease with the intention of granting short-term lets, negotiate provisions that allow this use;
  • If granting an underlease to a serviced apartment operator where the headlease contains provisions that might prevent short-term lets, agree with the operator who will take the risk of enforcement action and what will happen if the use is successfully challenged (e.g. either party may terminate the lease).