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Airbnb - is sharing caring?

Posted: 02/08/2018

The Airbnb ads are all over social media: 'Find out what you can earn from your home'. On the face of it, this is an enticing proposition - rents from Airbnb are at least 30% higher than you would expect from a standard AST letting, even taking occupancy breaks into account.

The company has expanded worldwide and is certainly doing well out of the ‘sharing economy’ proposition but what about everybody else? 

The Airbnb host

If you are a homeowner thinking about renting out a room, or your whole house or flat on Airbnb, should you be worried? 

Leasehold flat
If your home is a flat that you own on a long lease, then, yes, you probably should be cautious. Flat owners tend to sometimes forget that they have a long lease, particularly if they also have a share in the freehold company which owns the block. But the head lease of the property matters as its terms (specifically the promises which the landlord and tenant make in the lease, known as ‘covenants’) give freeholders rights that they can enforce. And freeholders, even where they are companies owned and run by the residents of the block as in the Bermondsey case, have shown a willingness to enforce those covenants. Both the Upper Tribunal (Nemcora v Fairfield Rents (2016)) and the County Court have now separately held that use of a property for short term lettings is a breach of a tenant covenant, found almost universally in long residential leases, which states that the property should be for residential use for a single family. The County Court went further than the Upper Tribunal in specifically characterising the Airbnb letting as a sub-letting or licence. Based on that finding, and on the facts of that case, the court held that the flat was not used for residential purposes but for commercial hire as short term accommodation. As such, the County Court also found that the Airbnb letting breached the lease’s prohibition on parting with or sharing possession of the property. The landlord was granted an injunction to restrain further use of the premises for Airbnb. Bermondsey Exchange Freeholders v Ninos Koumetto (County Court at Central London). 

Planning for flats and houses
In London, but not elsewhere in the UK, use of a property for Airbnb for more than 90 days a year is a material change of use from a residential property. Section 44 of the Deregulation Act 2015 amends section 25 of the Greater London Council (General Provisions) Act 1973.

Westminster City Council actively polices the 90 day limit and so far this year has issued 75 planning contravention notices and 10 planning enforcement notices for non-compliance with the 90 day rule.  There is an unlimited fine for non-compliance with an enforcement notice.

Elsewhere in the UK there is no legislative guidance on the number of days that a property can be let. As long as the property is used to provide residential accommodation for the occupiers, Cambridge Council takes the view that there is no breach of the C3 residential use class. Cambridge is formulating a planning policy for short term lettings including Airbnb which will look at a range of issues, the type of property, how it is let, the number of rooms used and also the number of days for which the letting takes place.

Insurance and mortgages
Whether or not a homeowner is insured for use of their property as an Airbnb will depend upon the terms of the policy. It is unlikely that a standard home insurance policy would provide sufficient cover although Airbnb says that it does provide its own cover for homeowners.

Similarly whether or not short term lettings are a breach of mortgage terms depends upon the policy.  Some lenders are seeking to profit from the uncertainty.

The sharer

It’s true that if you don’t mind that your rented room potentially contains someone else’s clothes, then Airbnb looks to offer some sweet deals on your holiday accommodation.

Concerns have however been expressed in the press lately that this accommodation isn’t necessarily safe.

In common with other ‘sharing platforms’ such as Uber, Airbnb operates in what is otherwise a highly regulated sector. But how much of the regulation to ensure the safety of paying guests in all accommodation applies to Airbnb?

Fire safety
The Regulatory Reform (Fire Safety) Order 2005 applies to anyone who has paying guests in a property. This includes an Airbnb host letting out a few rooms in their own home and requires a fire risk assessment to be carried out and kept.   

Airbnb hosts who let out the whole of their property must also comply with the Smoke & Carbon Monoxide (England) Regulations 2015 by, no surprise here, installing smoke and carbon monoxide alarms. However, this does not apply where the homeowner is resident in the property and only letting out some of the rooms. So if you just rent a room in a house, it may well not have a smoke alarm. Airbnb states on its site that smoke and carbon dioxide alarms are a universal requirement and will even supply them to hosts, but it has no means of policing the requirement other than reports from guests who have rented premises that don’t have alarms.

The issue is that the local authority, which is charged with enforcing these regulations, has no way of knowing if your property is being let on Airbnb. The Airbnb website doesn’t give addresses of host properties and without a system to identify them other than having the work experience kid check the Airbnb website against Google Street View every three days, how can there be any sanction for a breach

Converting a private residence to a conventional bed and breakfast property would be a change of use for planning purposes. Consent from the local authority for that change of use would require the installation of fire doors, and suitable means of escape in addition to the mandatory alarms. A house in multiple occupation (HMO) offering self-catering for a number of people must be registered with the local authority and provide suitable fire safety equipment. None of this equipment is likely to be present in your Airbnb.

More regulation

It seems inevitable that more regulation of this sector is coming. The Airbnb platform operates worldwide - with the result that smart cities are using this as an opportunity to learn from each other about how to deal with the problems that Airbnb is said to cause. These include loss of properties to the local rental market, properties being used as party houses and causing nuisance to neighbours, and problems with illegal use of properties, the unfortunately named ‘pop-up brothel’ being one example.

New York City has enacted legislation requiring Airbnb to pass on details of all hosts using the platform to rent out property. Interestingly, Bloomberg reports that this has led to a 50% decrease in the number of properties in New York being offered for rental on the site.

Once New York has the data on what property is being rented, and who is renting it out, then it has the key to enforce any regulations it chooses to enact regarding safety, frequency of lettings or crucially taxation of the revenues received.

Where New York leads, others may follow, particularly cities visited by high numbers of tourists such as London, Oxford and Cambridge. Regulation will inevitably increase prices, but, for some, an empty wardrobe full of unused hangers, a lock on the door and their very own smoke alarm in a nice hotel will be a better option.

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Penningtons Manches Cooper LLP