Airbnb rentals are attractive to landlords as they can bring in higher revenue with short-term lets than with long-term tenants. According to an investigative report by The Times, councils say that Airbnb landlords can earn up to three times as much per night as in long-term rentals. However, as has been widely reported, if landlords are not careful, they can easily find themselves in trouble both with their mortgage provider and the authorities.
Landlords need to be careful of the terms of their lease (if they have one)
Flat-owners may be contravening the terms of their leasehold if they let out their property on a short-term basis for more than 90 days per year. Their lease may restrict them to longer-term lets, something which was introduced in order to help protect the residential market. Despite this, many landlords are doing it; The Times found more than 13,600 Airbnb listing in London for more than 90 days per year.
However, some of these landlords have been coming up against legal challenges. A recent September ruling by the Upper Tribunal found that a leaseholder who was sub-letting was in breach of a covenant in their residential lease. It prohibited the property’s use as anything but a “private residence”. A “private residence” is generally considered to be one where the resident has it as their main home and is there with a degree of permanence that is more than a weekend or a couple of nights a week.
RICS has outlined the case in more detail with insight from solicitors and the implications of it on landlords:
“This issue is particularly important as the need for flat owners to obtain planning authorisation before granting short lets in London fell away last year. The Deregulation Act 2015 relaxed the restrictions imposed by the Greater London Council (General Powers) Act 1973 (GLCGPA 1973) that required Londoners who wanted to rent out their homes for less than 90 consecutive nights to apply for planning permission from their borough council.
“To benefit from the relaxation, the person who provides the accommodation must be liable for council tax in respect of the premises (to ensure that the relaxation only applies to residential premises). The relaxation can be dis-applied in respect of particular residential premises or areas if it is considered necessary to protect the amenity of a locality.”
Flat owners therefore need to look at the terms of their lease carefully before letting on a short-term basis. They also need to be sure that letting through Airbnb is something that their home insurers are comfortable with, otherwise a claim could be void.
Landlords need to make sure they are not breaking the terms of their mortgage
Although many lenders have eased their rules on homeowners letting out their property after moving out or who take in a lodger, most do not permit borrowers on a buy-to-let or residential mortgage to rent out their whole property on a short-term basis. According to measurement site InsideAirbnb, 51% of the over 49,000 listings in London are renting out their whole home. It is likely that many of these are buy-to-let landlords capitalising on the trend.
At the moment, these landlords are likely to be breaking the terms of their mortgage, which is problematic for both them and the lender. Most lenders insist on a standard Assured Shorthold Tenancy agreement between landlords and tenants in order for the tenancy to be within the rules of their buy-to-let mortgages. Currently there are holiday let mortgages, but in many cases even here Airbnb is not acknowledged as a reputable letting agent.
If landlords do break the terms of their mortgage, they risk not only a rate rise, a black mark on their credit file, but also the possibility of their home insurance becoming invalid. The lender is even within its rights to seek immediate repayment of the whole mortgage debt.
Time will tell whether lenders will start to adapt their rules, or whether landlords will continue to break them. In any case, currently landlords should check the terms of both their mortgage agreement and their leasehold (if they have one) closely.