Riccardo Calzavara offers a need-to-know guide to potential pitfalls for would-be landlords seeking to enter the short-letting market
Landlords – whether large and professional or owner-occupiers – have, at least apocryphally, flocked to Airbnb and other similar short-lettings platforms. Few understand what is permitted, and to what extent, which leaves many clueless as to the possible consequences.
Taxation
Landlords who let (or licence – see section 802 of the Income Tax (Trading and Other Income) Act 2005 (“the 2005 Act”)) a furnished room in any property (including a caravan or houseboat – see section 787 of the 2005 Act) which is their “only or main” residence for at least some of the tax year are, subject to exceptions (see section 785(1)(b)), eligible for rent-a-room income tax relief (under section 784). From the 2016-2017 tax year, the relief is worth £7,500, a substantial increase from the £4,250 previously allowed. Those who earn less than the threshold needn’t file a tax return in respect of those monies.
Clearly, there is a difference between whether a property is someone’s “only” or merely their “main” residence. The former needs no explanation. Whether a property is a person’s main residence is a question of fact (Islington LBC v Boyle and another [2011] EWCA Civ 1450; [2011] PLSCS 287). A leaseholder occupying part of a property and subletting the rest has been held still to occupy the whole as her main residence (Harris v Swick Securities Ltd [1969] 211 EG 1125). A tenant may have two homes (Langford Property Company Ltd v Tureman [1948] 152 EG 271).
A property may remain the tenant’s “only or principal” home even if he lives elsewhere for a year where his intention was to return (Crawley Borough Council v Sawyer (1987) Times, 16 October). A husband and wife may (rarely) occupy two properties as their main home(s) (Fowell v Radford (1970) 213 EG 757).
From the 2017-18 tax year, landlords will not be required to declare, nor pay tax in respect of, any property-related income up to £1,000. How this is to be enacted, including whether it will permit the deduction of expenses, remains to be seen. According to InsideAirbnb.com, the average nightly price of the 42,646 properties available in London is £97 – equivalent to a little over 10 tax-free short-let nights each year.
In 2015’s summer budget, the government announced that (like homeowners) landlords would no longer be entitled to seek mortgage interest relief.
There will be incremental restrictions from the 2017-18 tax year so that, for that year, 75% of what would otherwise be allowable in respect of any “dwelling-related loan” shall be allowed; for 2018-19, 50%, for 2019-20, 25%; and from 2020-21, nil.
A dwelling-related loan is a sum borrowed in relation to the generation of income from a dwelling-house, normally a mortgage. The sum that would otherwise be allowable is a factor of the basic rate of income tax, currently 20%.
Planning
The biggest hurdle – theoretical rather than properly policed – to the use of accommodation in London for Airbnb-type short-lets has recently been removed. Landlords should be pleased. It applied as follows.
Local authorities may serve an enforcement notice on a property owner requiring remedy of a breach of planning control consisting in the carrying out without planning permission of a “development”. Development includes making any “material change in use” of property. Failure to comply with an enforcement notice renders the owner liable to a £20,000 fine.
From 1973, the use of residential premises in Greater London as “temporary sleeping accommodation” (occupied by the same paying person for less than 22 consecutive nights) amounts to a material change in use. This would bite Airbnb-type lettings. However, from 26 May 2015, an exemption was introduced (under section 44 of the Deregulation Act 2015): there is no breach if the property is let as temporary sleeping accommodation for up to 90 days each year so long as the person providing the accommodation was, throughout that period, liable to pay council tax in respect of it.
This exemption does not apply to commercial premises, in respect of which business rates are payable.
Landlords in London should ensure that the relevant local authority has not elected to exclude the effect of the new provisions.
Regulatory
Properties occupied pursuant to short-term letting agreements are probably not houses in multiple occupation (“HMOs”) because they are unlikely to be the occupiers’ only or main residence (section 259 of the Housing Act 2004 (“the 2004 Act”)). Landlords will not be required to acquire a mandatory (section 61 of the 2004 Act) or additional (section 56) licence, nor to adhere to the onerous requirements that come with them. They may, however, be required to acquire a selective licence (section 80).
Whether an area is designated as a selective licensing area can be ascertained from various sources, including the relevant local authority itself.
Airbnb-type lettings are unlikely to be assured (or assured shorthold) tenancies for the same reason (section 1 of the Housing Act 1988 (“the 1988 Act”)). There are two consequences. First, there is no deposit protection requirement. Second, landlords will not need to serve formal notice to terminate the agreement, nor are they likely to require a possession order.
Eviction without due process of law is a statutory tort and a criminal offence, and landlords should seek independent legal advice prior to resorting to such means.
Mortgages, leases and other agreements
It is not all good news for Airbnb landlords.
Freeholders and leaseholders are increasingly likely to be mortgagors. Their mortgage conditions likely to provide that the interest rate applies so long as they occupy the property as their only (and/or main or principal) home.
Third-party lettings will likely cause the (higher) buy-to-let rate to be payable and will likely require explicit consent. Failing to seek consent may result in a demand for repayment of the whole principal sum and/or foreclosure on the mortgage.
Long leases normally contain a covenant to use the property only as a dwelling-house. Arguably, short-term lets of the Airbnb sort – often being more like hotel or hostel accommodation – will breach such a covenant. The consequence, if correct, is that a lessee-landlord will be susceptible to having his or her lease forfeited.
Tenants – whether on secure, assured, assured shorthold tenancies or otherwise – are likely to find that their tenancy agreements provide that they will be responsible for any nuisance and/or annoyance caused by visitors.
These tenants may find that the frequent footfall of transient occupiers with little regard for the maintenance of good relations with neighbours causes them to fall foul of this, and may find themselves subject to possession proceedings.
Secure and assured tenants will lose security of tenure if they do not occupy the property as their only or principal home (section 79 of the Housing Act 1985 (“the 1985 Act”); section 1 of the 1998 Act) and will be susceptible to the termination of their contractual tenancy by notice to quit.
Security is irrevocably lost if they part with possession or sublet the whole of the property (section 93 of the 1985 Act; section 15A of the 1988 Act).
More worryingly, they will commit a crime if (knowing it to be a breach or acting dishonestly) they sublet or part with possession of the whole of the property, or sublet part without consent, and cease to occupy it as their only or main home.
Such an offence is punishable by two years’ imprisonment and/or an unlimited fine. An unlawful profit order may also be made. This applies to Airbnb landlords like any other unless it is established, for example, that the relevant agreement amounts only to a licence (Street v Mountford [1985] 274 EG 821).
Any claim by a tenant for housing benefit (or the housing element of universal credit) while a property is let to a third party will likely constitute benefit fraud.
All occupiers (whether owners or tenants) may find that their contents and/or buildings insurance will not settle any claim where the property is occupied under Airbnb-style lettings. At the least problematic, the loss of a damaged trinket will not be recoverable; at the most problematic, the public interest component will not pay out, with much more dire consequences.
Airbnb provides (as do other similar platforms) a useful forum in which to join those seeking accommodation with those providing it. It has the potential to improve mobility for tenants while allowing those with extra space to monetise it.
Those attempting “to Airbnb”, though, should be aware of the risks.
Riccardo Calzavara is a barrister at Arden Chambers
Read an interview with the founders of the YourWelcome short-letting platform >>
