With over 2,000,000 properties listed worldwide on AirBnB alone, the number of home owners seeking to leverage income from their homes through short term lettings has expanded exponentially in recent times. Taken at face value, it seems a straightforward way for property owners to realise some extra income from what may otherwise be underutilised space, and provides travellers with cost effective alternative accommodation. Both the business idea and the underlying concept of “collaborative consumption” have had a huge amount of press coverage, with daily newspaper articles and television programmes appearing almost daily. However there are pitfalls for the unwary, one of which is highlighted by a recent case heard before the Upper Tribunal: Nemcova v Fairfield Rents Ltd. [2016] UKUT 303 (LC)

Where the property is leasehold (typically a flat), the leaseholder’s occupation of the property will be governed by the terms of the lease, which typically restricts the way in which the property may be dealt with and occupied. Any leaseholder who is thinking about subletting, whether short or long term, must therefore always consider whether their lease contains any express restriction on subletting, or whether there are any conditions that must first be met for a subletting to be permitted (for example, is the consent of the landlord required?).

Somewhat unusually, in this case the lease in question contained no material restriction on subletting, but Fairfield Rents Ltd (Fairfield) instead sought to challenge the short term lettings on the basis that they breached the user provision in the lease. Ms Nemcova owned a long lease of a flat which, like many residential leases, allowed the flat only to be used as “a private residence”. She advertised the flat on the internet and let it to business travellers and holiday makers on a series of occasional short term lets. Fairfield claimed that this use did not constitute use as a private residence and thus she was in breach of her obligations under the lease. Ms Nemcova, on the other hand, argued that for the duration of their respective tenures each of the short term subtenants had used the flat as a private residence and the restriction in the lease had therefore been complied with. The First-tier Tribunal and then, on appeal, the Upper Tribunal both found in Fairfield’s favour.

The crux of the decision by the Upper Tribunal was that the occupation of the flat by each of the short term subtenants lacked sufficient permanency for it to be considered occupation of the flat “as a private residence”. Each of the short term occupiers most likely had their own private residence which they had left to occupy the flat temporarily for a specific short term purpose (e.g. for business travel), in the same way as they would otherwise occupy a hotel room. The issue for the Tribunal here was the transient nature of the sublets and it is clear from the decision that a longer term subletting would have been deemed compliant, although there was no specific guidance as to the required minimum length of occupation.

Perhaps aware of the potential can of worms it was opening, the Upper Tribunal, in its conclusion, sought to confine its ruling to the facts of this case and suggested that any subsequent cases would depend on the wording of the restriction on use and the particular factual context. Nonetheless, it is clear that any leaseholder considering short term sublets as an income stream should carefully review any restrictions on use contained in their own lease and seek specialist advice and/or the consent of their landlord where necessary.

This article originally appeared on the LEASE website: