Thursday, 1 June 2017

To Airbnb or not to Airbnb?

This week, I have a guest post from my colleague Grace Laws in our Property team, with her advice on the legal dos and don'ts of Airbnb letting:

Airbnb has become known as the world’s largest accommodation provider but it owns no property. It gives property owners an opportunity to let their properties out on a short-term basis with relative ease and gives consumers an opportunity to stay in a home and ‘live like a local’ in their location of choice. As a result of this it has become well known in recent years and is used frequently by many.

For property owners it has become an easy and profitable way of generating additional income, particularly for those with residential properties in desirable city centre locations. However, if you choose to use Airbnb or any other short-term letting website for letting your property, it is important that you consider the legal consequences of doing so alongside the financial benefits.
The key legal factors to consider are:

Are you properly insured?

Airbnb offers the following insurance as part of its business terms:

  • Host Guarantee: Airbnb agrees to pay you to repair or replace certain covered property (i.e. your belongings) which is damaged or destroyed as a result of certain covered losses.
  • Host Protection Insurance: Airbnb agrees to provide primary liability coverage up to a certain amount if a guest makes a claim for bodily injury or property damage.  It may also cover claims if a guest damages the property itself.

Whilst this does provide comfort to property owners, as is the case with any insurance policy, the terms and conditions should be read carefully for exclusions and limitations.  You need to ensure that the insurance provided applies to your property and your individual situation.  This is particularly important where you do not have anyone managing the property on your behalf and monitoring whether guests are using the property appropriately.

Remember that the Airbnb insurance does not replace the need to have your own buildings and contents insurance.  If you have a mortgage, the terms of the mortgage deed will require you to maintain buildings insurance too (or ensure that your landlord insures if the property is leasehold).  Again, you need to check the terms of these policies too to ensure they are not invalidated by renting out your property. Usually a notification to your insurer is required when your property is being let out for short-term lettings.

Will you breach your mortgage terms?

Your mortgage is likely to contain restrictions on how you can use your property (in both the facility letter and mortgage deed).  You need to check the terms to ensure that short-term lettings are permitted.  If they are not, entering into a short-term letting will breach the mortgage terms and may be an event of default under the mortgage allowing the lender to enforce its security (i.e. take steps to call back the loan).

Will you breach planning regulations?

Planning controls are also important to consider, both at local and national level. In some areas a short-term let may be considered as a material change of use (i.e. a change of use from residential use without planning consent).  This has been a problem for Airbnb in cities around the world and has resulted in penalties being issued on some occasions.

In 2015 an exception was introduced to allow properties in London to be used as temporary sleeping accommodation without this being considered a change of use, provided the total number of nights the property is used for short-term lettings does not exceed 90 nights in a calendar year.  There are restrictions to this exception, so if you are considering using it you need to ensure the exception applies to your property. Airbnb has been trying to assist with making their service more compliant with local and national laws.  As a result the Airbnb system now automatically limits entire home listings in the Greater London area to 90 nights a year unless the property owner confirms that they have the required planning permission.

If your property is leasehold (rather than freehold) will you breach your lease terms?

Many leases restrict the ability of the tenant to sublet their property or only allow sublettings if landlord’s consent is obtained.  Leases usually restrict the use of your property (i.e. to residential use) and require you to comply with planning laws affecting the property. A recent case held that a tenant had breached a covenant which prohibited use of their flat for any purpose other than as a private residence, as they had advertised the flat on the internet for short-term lettings and granted a series of such lettings.

Most leases will allow the landlord to forfeit (i.e. terminate the lease by bringing court proceedings) for breach of covenant.  A landlord would also be able to bring a claim for a monetary payment if it could prove it had suffered a loss.  A tenant can apply to court for relief from forfeiture but will need to remedy the breach (i.e. stop entering into short-term lettings) in order to prevent the lease being terminated.

Many residential leases also include regulations controlling how all tenants in the building use the building (for example, restricting noise levels, pets, use of common parts).  Even if landlord consent is not required for short-term lettings, guests need to observe these regulations during their stay at your property.  Airbnb allows property owners to set “house rules” during the booking process and you need to ensure these include complying with any building regulations imposed by your lease.

Should you make arrangements to have the property managed?

Although Airbnb and similar sites offer an opportunity for individuals to maximise rental value from their properties they do not provide a management service.  Some owners have code accessed boxes to allow guests to pick up keys but it is prudent to have someone assist in managing your property (making keys available and dealing with any issues arising).  As a property owner you might expect guests to be using your property for holiday or business stays but there are instances of properties being used to host parties.  Airbnb allows you to vet your guests by viewing their profile, which is important (as are reviews from previous Airbnb stays).  However, having someone on hand to deal with issues is advisable.  From a security perspective, this also helps to ensure that the property is not seen by the public as being left unattended for long periods of time.

To Airbnb or not to Airbnb?

An increasing number of property owners regard Airbnb and other short-term letting sites as offering a unique opportunity for them to maximise rental value from their properties.  However, it is important property owners have assessed the legal issues involved to ensure that they are making an informed choice, and that the financial benefits outweigh the legal and practical considerations.  When deciding whether to “Airbnb or not to Airbnb” make sure you consider the legal issues involved.

Grace Laws, Associate, Fladgate LLP (