Air Today – Gone Tomorrow
Nemcova –v- Fairfield Rents Limited  UKUT 303 (LC)
Very short term lettings, such as those offered on Air B’n‘B and its competitors, are becoming increasingly popular. The tenant in this case had been granting short term sublettings of this nature.
The landlord applied to the First Tier Tribunal (“FTT”) for a declaration that this was a breach of the covenant to use the property as a private residence. The FTT found in favour of the landlord, and the tenant appealed to the Upper Tribunal (“UT”). The UT considered the covenant and agreed with the FTT.
The case sounds a warning bell for flat owners who are engaging in similar lettings, but it also gives some very useful reminders on how the Courts will approach the interpretation of leases.
The case concerned a flat in a purpose-built block in Enfield. The tenant owned a 99 year lease that had very few restrictions on sublettings or assignments. However, it did contain a covenant not to use the flat for any illegal or immoral purpose or for any purpose whatsoever “other than as a private residence”.
The tenant did not live in the flat full-time and had been subletting the flat for very short periods. To facilitate this, she had set up a website advertising her and her partner’s homes as alternatives to hotels. The website used the services of a reservation system that also listed the flat on other short-let websites.
The landlord applied to the FTT for a determination under Section 168(4) of the Commonhold and Leasehold Reform Act 2002 that the tenant had breached the terms of the lease.
Key points to note were:
- The tenant continued to pay the council tax and all other utilities for the flat;
- The flat was still her main residence even if she did not live there full-time;
- She stayed in the flat herself about 3-4 days a week;
- She had sublet the flat for about 90 days of the year;
- She had sublet the flat about 7 times in the last 12 months; and
- The sublettings were almost all to business visitors rather than holiday lets.
The First Decision
The FTT found that the tenant was in breach because people were renting the flat on a short-term subletting and therefore were not occupying it as their home. Consequently the tenant could not be using the flat as a private residence.
The tenant appealed to the UT on the basis that the FTT had misconstrued the covenant and sought a declaration as to its true meaning.
The Appeal Decision
At the outset, the UT asked itself this question: “If the leaseholder advertises on the internet the availability of the premises (a flat) for short term lettings and grants a series of such lettings, do the leaseholder’s actions breach the covenant?”
To find the answer, the UT started with a consideration of how to construe the covenant, noting that long residential leases were notoriously difficult contracts. The key point had to be the meaning of the particular words used in their particular, fact-specific, context.
The UT did not agree with the tenant that the FTT had erred in law. However, in light of the fact that every covenant and every set of facts will be different, the UT did feel that the FTT had given too much weight to previous cases. Instead, it should have carried out a more detailed analysis of the lease, the covenant, and the general context.
Given the breadth of the alienation provisions, which allowed the tenant substantial freedom to deal with the whole of the flat, the key covenant was not any restriction on subletting, but rather the obligation to use the premises as “a private residence”. It was this covenant that required detailed analysis.
The UT duly carried out this analysis, finding that the covenant did not require the flat to be used as “the private residence of the tenant”. Instead, the flat had to be used as “a” private residence. There was no requirement that the property had to be used as the “only” or “principal” residence. The UT drew a very clear distinction between the words “the” and “a”, because a person can have more than one residence. For example, he might have a permanent residence that he calls home and a temporary residence for holidays.
Consequently the UT felt that it was irrelevant whether the subtenants had other properties that were more permanent residences, but it was still necessary for them to think of the flat as their residence, however short-term. So long as the occupiers were using the flat as their private residence, the covenant could be observed.
So far, so good for the tenant. However, the UT went on to say that the duration of the occupation was critical. To be a true “private residence” there had to be some degree of permanence, which meant residing in the property for more than a few nights. If the use of the property were very fleeting and transient in nature, the occupier would not consider the property to be his private residence – even for the time being. Consequently the UT agreed with the FTT that the tenant’s short-term sublettings were a breach of the lease.
However, its overall answer to the opening question was a clear message not to rely too heavily on previous authorities, as each case will be different: “It is not possible therefore to give a definitive answer to the question posed at the beginning of this ruling save to say somewhat obliquely that ‘It all depends.’”
As the UT made clear in its conclusion, this case was fact-specific and every single case will require the same degree of analysis of the key covenants in their own factual context.
However, the case is very important given the current trend for residential property owners to offer their homes for such short-term lets, and it is very common indeed for leases to contain a similar covenant restricting the use to that of a private residence. Unless a higher court reaches a different conclusion, the decision might well affect anyone currently using their property for this purpose, or anyone looking to acquire an investment property.
The decision will also be relevant to landlords of existing leases, or developers selling new-build flats, who may wish to insert appropriate covenants into the leases.
Jill Carey – Senior Associate