Airbnbeware of the User Covenant

Airbnbeware of the User Covenant

A recent judgment handed down by the Upper Tribunal has provided guidance in relation to the legal status of short-term lets out of leasehold property through Airbnb.

Although the precedent will not apply universally to all tenancies, the clause in question is a relatively common user covenant in long leases such as those commonly taken on by investors who sub-let their interest to management companies which, in turn, sub-underlet to residential tenants.

In Nemcova v Fairfield Rents, it was agreed in the lease that the property was only to be used as a ‘private residence’. The Upper Tribunal held that this covenant was breached by using the property for short-term lets that were advertised as an alternative to hotel accommodation on the internet.

Although Airnbnb refers to its arrangements as ‘home-sharing’, it is difficult to see how this sort of arrangement could overcome a lease term which prohibits use other than as a private residence. The Upper Tribunal gave guidance that a ‘degree of permanence’ is required in order to establish use as a private residence which is not met by short-term, Airbnb style lets.

Airbnb, a company that uses an online platform for users to provide travel accommodation, has established itself as one of the biggest companies in the world in recent years and has been a figurehead in the rise of the ‘Sharing Economy’.

However, public opinion on the benefits of the company has been divided. Some champion the organisation for its use of technology to cater to modern consumer demands and others deride it, both for contributing to upward pressure on house prices and for attracting loud, disreputable guests to the detriment of helpless neighbours and landlords.

The recent case has potentially given the former an opportunity to address the situation as it provides authority that Airbnb style letting will be a breach of a user covenant of this kind. Landlords now have a clear argument to prevent such use or, alternatively, have strong bargaining power to secure a premium for amending the lease.

Despite the Upper Tribunal’s emphasis that this decision was based mainly on the facts at hand, the application of this case could well be widespread. Thousands of tenants who use sites such as Airbnb to advertise their properties as holiday accommodation are undoubtedly at risk of having their leases forfeited for breach of covenant.

In light of the news, landlords and tenants alike would be well advised to check their leases for this sort of restriction and seek professional advice if clarification is needed.