Short-term letting? Check your Tenant Lease before you Breach

As the pandemic continues, those who own residential property may be looking to the future and considering whether there is money to be made by short-term lets (e.g. Airbnb) or by permanently relocating their business and operating from home.  However, the recent upper tribunal case of Triplerose Ltd v Beattie and another [2020] UKUT 180 (LC) serves as a timely reminder to those who own leasehold property that their lease is likely to contain restrictions around how they use and occupy their property.

In the case of Triplerose Ltd v Beattie the tenant (Mr Beattie) was the owner of a long leasehold flat.  He relocated due to his work and while he still used his flat between 1-3 nights a week, he decided to advertise his flat on Airbnb and Booking.com to let for short-term occupation.  The flat was used to provide serviced accommodation with the check-ins, check-outs and laundry services provided by the booking company.

The Landlord (Tripelrose) objected to this on the basis that Mr Beattie’s lease contained covenants:

1. Not to carry on or permit to be carried on upon the property any trade or business whatsoever; and
2. Not to use the property for any purpose other than as a private dwelling house for occupation by one family at any one time.

The First-Tier Tribunal found in favour of the tenant and did not find that the covenants had been breached.

The Landlord however, appealed to the Upper Tribunal where they held that when looking at whether or not the property was being used as a ‘private dwelling house’ it was important to ask whether the use of the flat by the occupier for the time being was “as a private dwelling house” i.e. being in occupation was not enough.  The Upper Tribunal found in favour of the Landlord and held that case law demonstrated that the use of residential property for short-term occupation by a succession of paying guests was a breach of a covenant requiring use only as a private residence or dwelling house.

However, the Upper Tribunal did not think that there had been a breach of the covenant in respect of operating a trade or business at the flat.  They held that no activity was carried on at the property which amounted to a business, since the lettings and laundry services were not actually carried out at the flat.

The Upper Tribunal upheld the Landlord’s appeal and this decision reflects emerging case law in this area that a succession of short term lets to paying guests (like the Airbnb model) is likely to be in breach of covenants in respect of use as a private dwelling house.

While landlords will no doubt welcome this decision, it is important to remember that decisions will be made on a case-by-case basis and it is important to consider the specific wording of the relevant lease clause to check that this type of letting is prohibited.  Tenants also need to be aware that they run the risk of legal action if they let their property on a number of short term lets in breach of similarly worded residential use covenants.

In addition, this case also provides some useful commentary on what constitutes the carrying on of a business.  Landlords may need to consider careful drafting if there are certain ‘trade or business’ activities they want to prohibit.  This may be even more important in the current climate where tenants may wish to operate their business from home.