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Housing Law Bulletin: long leases and short-term lets

Is the hiring out of property on AirBnb a breach of the lease?

Bermondsey Exchange Freeholders Limited v Ninos Koumetto (as Trustee in Bankruptcy of Kevin Geoghehan Conway) (2018) (Unreported)

This was an appeal before HHJ Luba QC on whether the short term letting/commercial hiring of a flat on Airbnb was prohibited by the terms of a lease, and whether the granting of an injunction by the court was an appropriate remedy under the circumstances.

The Facts

Mr Conway (“the Defendant”), as lessee of a 999-year lease, was accused by his lessor (“the Claimant”) in 2015 of being in breach of the terms of his lease by using his flat to provide short term accommodation through online portals such as Airbnb. The Defendant refuted such allegations but argued that even if he had been doing so (which in any event was denied) such use of his flat did not constitute a breach of terms of his lease. As a result, the Claimant brought proceedings against the Defendant seeking an injunction restraining the Defendant from continuing such activity. The evidence in support of the Claimant’s claim consisted of website listings, booking calendars, e-mail reviews and photographs.

At trial, due to there being “substantial and even compelling” evidence to support the Claimant’s allegations, the Defendant was found to have “widely advertised the flat on Airbnb and similar websites for letting” and that all the evidence before the Judge pointed towards “short term commercial hire”. As a result, an injunction was granted.

The Judge’s reasoning for breach of lease

The Judge found that the Defendant was in breach of the following clauses:

• Clause 2.10 (2)

“Not to part with or share possession of the whole of the Demised Premises or permit any company or person to occupy the same save by way of an assignment or underlease of the whole of the Demised Premises”.

The Defendant was in breach because he had parted with possession of the property, or, in the alternative, he had “allowed other persons to occupy the property other than by way of assignment or underlease of the whole”.

• Clause 2.10 (3)

“Without prejudice to the absolute prohibitions hereinbefore contained not to assign or underlet the whole of the Demised Premises without the prior written consent of the Landlord.”

The Defendant was in breach because he had failed to obtain the prior written consent of the Claimant before underletting the whole of the premises.

• Clause 2.4

“Not to use or permit the use of the Demised Premises or any part thereof otherwise than as a residential flat with the occupation of one family only…”

The Defendant was in breach because in letting out the flat through Airbnb, which in itself amounted to “letting, akin to holiday lets”, the flat was not being used by such Airbnb customers as a residential flat. The Judge drawing a distinction between letting out a property on an assured shorthold basis to a person or family and letting the property on a short term let through Airbnb.

The Appeal

The Defendant appealed, and two issues fell to be determined before HHJ Luba QC, namely:

  • Was the Judge right to hold that the Defendant had breached his lease?
  • Did the Judge exercise her discretion wrongly when deciding to grant an injunction, and should the Judge either have refused the order entirely or granted the injunction on different terms?

Upon construing clause 2.10 (2), HHJ Luba QC identified a potential issue in that “where a tenant parts with possession of the whole to another, that would usually provide the other with exclusive possession and amount to a letting. Where the Tenant allows another to ‘share’ possession that would usually be a reference to a licence to occupy.”

It was argued on behalf of the Claimant, and accepted by HHJ Luba QC, that on a proper construction of clause 2.10 (2), “it prohibits both parting with or sharing possession of the premises, on the one hand, and, on the other hand, permitting someone to occupy the premises”.

As to whether the court should finally determine that situations involving letting out a property on Airbnb would be classified in law as tenancies or licences, HHJ Luba QC felt that this was not a question that needed to be determined in this case. Instead, what was determined was that the clause clearly “prohibits the tenant from allowing occupation of ‘the whole’ by others, without qualification as to the circumstances” and that all the trial Judge needed to do was to ascertain whether “the whole flat had been occupied by others by arrangements made by, through, or on behalf of, the Defendant at a time when he was not himself occupying it.” In doing so, HHJ Luba QC upheld the trial Judge’s determination.

In relation to the user clause under clause 2.4 of the lease, HHJ Luba QC upheld the decision by the trial Judge in finding that a series of arrangements for short-term, transitory, occupation by strangers constituted commercial hire and hence a breach, as it clearly prohibits the use of the flat for “commercial” purposes.

It was also determined that the injunction (save for its particular wording) was an appropriate remedy under the circumstances.

Commentary

In a climate which sees an ever-rising trend in the hiring out of properties to the public through platforms such as Airbnb (and the like), this case would undoubtedly send shockwaves throughout the leasehold community. Whilst it is to be acknowledged that this is only an appeal at the county court level, and thus not binding, it is certainly influential.

One must not forget, however, that HHJ Luba QC was of course only concerned with this particular lease’s construction, and so, as all leases are different, this case could very well be distinguished in due course.

Nevertheless, the lesson to be learned here is that where leaseholders decide to rent out property on Airbnb in the absence of having sought prior permission to do so, they could be found to be in breach if the user and alienation clauses are similar to the ones found above.

 

DISCLAIMER: This bulletin is no more than a summary of the topic or topics, chosen selectively for the purposes of discussion only. It is not legal advice and should not be treated as such. It should not be relied or acted upon in any respect. Recipients should always seek legal advice if proposing to take action following this commentary.

Michael Grant is a member of the Housing team at 42 Bedford Row and specialises in all aspects of housing law.


12.11.2018