Short-Term letting, not without its problems…

Holiday Lets:

With the changes to
the tax rules many buy-to-let landlords are thinking of creative ways
to overcome the loss of income. Their inability to claim tax relief
on their mortgage interest and the removal of their wear and tear
allowance has made a big difference to the average landlord’s
bottom line.

One creative way is
to look to running properties as holiday lets or short-term Airbnb
lets. This can get around many of the restrictions of the Housing
Acts, also the tax rules on buy-to-let (classed as investments) and
it gives the freedom and flexibility of holiday lets which are
classed for tax purposes as running a business.

However, short term
and holiday lets need to be managed. Change-overs occur in days or
weeks as opposed to months or years. This creates a good deal of work
and administration. Granted landlords can use one of the established
holiday letting sites or Airbnb, but it still takes time. Cleaners
and maids need to be employed unless the landlord is willing to do
the work herself.

With a holiday
cottage set-up correctly as a business operation, and providing its
in the right location where holiday traffic is in demand, then this
can work out very effectively as a viable business. There are strict
tax rules to follow with furnished holiday lets (FHL) governing the
amount of time the property is available to let and not in your own
use, but generally they are classed as a business with many tax
benefits. This can be a nicely profitable occupation.

For the first 12
months of being a FHL, your property is effectively in a
‘probationary’ period and during this time, the potential and
actual availability of your property will be established and for your
FHL status to become permanent your property must:

• be available
  for 210 days (30 weeks),
• be let
  commercially as a holiday property for 105 days (15 weeks)
• and if occupied
  for more than 31 days by the same person/people, there must not be
  more than 155 days (total) of such longer lettings.
• The days when
  you, or your friends and family stay at the property, even for free
  or at a discounted rate, then these stays do not count towards the
  total occupation requirements.

Short- term Airbnb
type lets in flats, are a bit different. With an average flat, for
example, an Airbnb let for one week may gross you £1,200 or more,
something equivalent to a month’s let with a standard buy-to-let on
an assured shorthold tenancy. Much of the above caveats apply, but,
are you sure that letting your flat in this way is lawful?

Airbnb

Airbnb is an online
platform that allows property owners to let their homes, rooms and
flats to visitors on an ad hoc basis. But flats are almost certainly
leasehold, and leaseholders in England and Wales must comply with
their lease terms as well as a host of other rules and regulations if
they are to let in this way. The first obstacle might be that the
lease forbids the leasehold from carrying on a business in what is
otherwise a residential property.

Health and safety

As a landlord (and
the Responsible Person) you are responsible for the safety of the
occupants of your property under common law. You are obliged to
comply with all health and safety laws. When you are a leaseholder
with a long lease, and you decide to let the property as holiday
accommodation, the health and safety laws would apply to you as you
would be considered to be the Responsible Person and a landlord under
the law.

The Regulatory
Reform (Fire Safety) Order 2005, s.3 says that a responsible person
for complying with the Order is the person who has control of the
premises in connection with the carrying on of a trade, business or
other undertaking (for profit or not). Airbnb is considered a holiday
let and the leaseholder would be carrying on a business, which means
that they would need to comply with the fire safety Order.

Since 2015, the
government approved the Smoke and Carbon Monoxide Alarm (England)
Regulations 2015 which apply in England and Wales and are required to
be installed, at least one smoke alarm on every storey of a property
on which there is a room being used wholly or partly as living
accommodation, and a carbon monoxide alarm in any room used wholly or
partly as living accommodation which contains a “solid fuel”
appliance, coal fire or wood burning stove for example. The guidance
currently provided by the Ministry of Housing, Communities and Local
Government’s (formerly the Department for Communities and Local
Government) indicates that ‘solid fuel’ is coal or wood, so does
not apply to gas or oil appliances, though it is wise to provide one
for these also.

Landlord
Insurance

Most leasehold
agreements for flats place the responsibility for insuring the
building (the block) on the freeholders, leaving the leaseholder to
choose whether to insure its own contents by obtaining contents
insurance. However, landlords’ insurance goes further, insuring
against third party and accident claims which is a vital part of
cover.

It is vital
therefore that any leaseholders intending to let their property as a
holiday let on Airbnb establish with their insurance company that
doing so does not invalidated their insurance cover. Should their
insurance be invalid for this reason, they may also be in breach of
their mortgage obligations. Airbnb offers Host Guarantee and Host
Protection Insurance, but this will only go so far, its small print
states that “this (cover) does not take the place of homeowners or
renters insurance or of adequate liability coverage.”

Mortgage

Leaseholders who
have their flat on a mortgage must also make sure that by letting
their property as a holiday let on Airbnb they are not in breach of
the terms of their mortgage. The Council of Mortgage Lenders handbook
states that the lender should advise the borrower that consent is to
be obtained if the borrower wishes to sublet the property. Lenders
also reserve the right to change the terms of a mortgage, or require
a higher rate of interest if the borrower requests a change to allow
sub-letting.

Mortgage interest
rates are usually set for as long as the owner occupies the property
as their only or main residence. Subletting usually requires consent
in writing from the lender. Failing to obtain this can technically
result in a demand for full repayment of the loan, or repossession of
the property.

Planning laws

Letting a home for short periods does not normally need planning
permission – it is still a family dwelling. However, a more
permanent use of a property for short term lets, especially if it may
in any way affect neighbours, is likely to be considered a change of
use, and it will then require consent.

In most instances so far, planners have been reluctant to use their
powers in this area but if complaints are generated it is likely that
a local authority enforcement officer will issue a notice requiring a
landlord to cease letting their property on a short-term basis.
Failure to comply with this notice would be subject to a fine of up
to £20,000.

In London, there is specific legislation which limits short term
Airbnb type lets to no more than 90 nights per year, unless full
planning permission is obtained. There are no such rules outside of
the capital, meaning planning officers must decide on a case-by-case
basis whether the short-term letting is causing unreasonable harm to
neighbours.

The Deregulation Act
2015 amended earlier legislation for London to allow landlords to let
their properties as temporary accommodation for up to 90 days, as
long as the host remains liable to pay council tax. Local authorities
can remove the 90 days rule from certain types of residential
premises and in certain areas, so landlords should check with their
local council before letting short-term.

Flats and houses
come under the Use Classes Order 1987, this is a “C3” use for
residential dwellings for planning law purposes, so from a planning
point of view the authority would want to determine if there had been
a change of use and whether planning permission would be needed. Does
operating a short-term let Airbnb type business on a more or less
permanganate basis with its associated disruption for neighbours
represent a change of use?

There have been a
couple of cases which could go against this use. In Nemcova v
Fairfield Rents Ltd the Judge ruled that what was important was the
duration of the stay “…for the property to be used as the
occupier’s private residence there must be a degree of permanence
going beyond being there for a weekend or a few nights in the week.”
Therefore granting short-term lets for days or even weeks as opposed
to months and years would breach the planning laws without gaining
planning permission and would also breach most standard lease
agreements, which usually contain a clause to use the property as a
private residence only.

Another ruling, this
time in Edinburgh, where the council took enforcement proceedings
against a landlord which resulted in a court case due to the
increased comings and goings of tourists causing inconvenience to
neighbours. The landlord’s argument was that even though the
property was used for short term holiday lets, it was still
essentially a single residential dwelling. However, the court
determined that there was a “material change of use” which would
require planning permission. The landlord therefore would need to
apply for change of use to Class C1 use, which is the same as for
hotels, guest houses and hostels. Given the disturbance and
complaints it would seems he would be unlikely to get it.

Taxation

Landlords who let or
licence a furnished room in a property which is their main or only
residence can benefit from the ‘rent-a-room’ income tax relief
scheme with tax relief is worth £7,500. But given the recent
popularity of short Airbnb type lets, the
government has added an additional test of ‘shared occupancy’ for
rent a room relief to be available. In essence it means that the
taxpayer must be living in the property for at least some of the time
that the accommodation is let. So letting out the property while
absent will no longer qualify for the rent-a-room relief.

The Lease
Agreement

Leaseholders should
ensure that they are not prevented from sub-letting by the wording of
their lease. It is common for leases to contain such clauses and
ordinarily leaseholders would need permission in writing from the
freeholder if they intend to do short-term letting on a permanent
basis.

Unfortunately, short
term lets are usually in breach of flat leases and the flat owner run
the risk of the freeholder taking enforcement action against them
that could ultimately result in the forfeiture of their lease.

Leases sometimes
prevent owners from keeping certain types of pets, so any short-term
letting where the occupants have pets could breach the lease terms.
It has been known for Airbnb lets to be used for rave parties, which
would inevitably, as the landlord has no control, result in
complaints and possible legal claims from other leaseholders.

So, although Airbnb
and other online accommodation websites like it have revolutionised
short-term holiday lets and have created opportunities for property
owners to maximise rental income, it also presents potential
short-term landlords with problems to overcome. Airbnb operates with
minimal regulatory control and in England and Wales leaseholders need
to be aware of the law, planning laws, lease restrictions, health and
safety, insurance, taxation and other regulatory controls if they
want to enter into this business.

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