Our recent Law Now (link attached) highlighted an English case with potential consequences for people wishing to let out the homes they own on Airbnb and similar sites.
The decision means that English homeowners thinking of becoming short term landlords should check their leases to see if they are entitled to do so, as they could be in breach of their own lease obligations.
However it is worth mentioning that in Scotland, homeowners who wish to gain an income by temporarily leasing out their homes will not face any consequences as a result of the case.
This is because in Scotland, residential properties owned by individuals are owned under freehold, not under leasehold.
Leasehold means that someone owns the property, but that the land upon which the property is built is owned by the freeholder. This gives the homeowner the right to occupy the property for as long as the lease is valid. Freehold, on the other hand, means that the homeowner owns both the property AND the land upon which the property stands.
Estimates vary as to how many leasehold-owned properties there are in England, but it is widely accepted that there are several million.
When buying a residential property in Scotland, there is no freehold and leasehold distinction. Generally, what you buy in Scotland is 100% yours and you can say everything is ‘freehold’ in Scotland. In Scotland, once you buy a property, you can usually give a tenancy to someone else so they can occupy it for a rent. The desirability of having 100% ownership (obtained under the freehold system) is that there is no other superior landlord controlling how the property is managed, so as a homeowner in Scotland you don’t have to worry that any superior landlord could stop you renting out your home.
However, that doesn’t necessarily mean that all Scottish homeowners always have complete freedom to rent out their homes, as sometimes even freehold title deeds contain prohibitions against certain uses, some of which could cut across Airbnb use.
It’s almost certain that if you buy a new home in Scotland from a commercial housebuilder there will be a deed of conditions in place regulating the housing estate, and possibly containing a prohibition against using homes other than as private residences. Whether such a prohibition would ever actually be enforced is a different issue – many homeowners don’t know what is in their title deeds and it seems unlikely that neighbouring owners would resort to attempting court action to stop a particular owner using Airbnb. Even if they did, it is possible that a Scottish court could rule that an Airbnb type occupation did not breach a ‘private residence’ title condition. It’s also the case that the title deeds to many older properties often don’t contain any prohibitions as to how houses may be used.
It should be remembered that the above applies to Scottish homeowners wishing to use Airbnb. In instances where tenants of Scottish properties (tenants being people who have been granted short term residential leases by homeowners as landlords) wish to advertise rented properties on Airbnb, it is almost certain that these tenants would be in breach of the leases granted to them by homeowners. This is because in Scotland (as in England) most residential leases expressly disallow tenants from sub-letting or giving any rights of occupation to any other parties. So if you are the tenant of a residential Scottish property, sub-letting the house you occupy (whether via Airbnb or otherwise) is unlikely to be an option.
If you are a homeowner of a Scottish property, letting your house out on Airbnb is not going to be problematic from the point of view of potential leasehold restrictions, as there is no leasehold breach risk comparable to the risk that which exists in England. However, that’s not to say that even in Scotland, Airbnb type lettings don’t have other potential complications. These include bank consent (where there is a mortgage in place), regulatory and statutory requirements which may apply to the occupation, liability if something goes wrong, and the extent to which responsibility for the property can legally be passed to a short term occupant. It’s likely that as Airbnb and similar arrangements continue to grow in popularity, we will see disputes emerging between owners and occupants. Anyone considering a short term letting arrangement (whether as landlord or as tenant) should ensure they are well informed and get appropriate advice before proceeding.