Why Airbnb (and other holiday letting) can be a breach of covenant.

Putting a flat on Airbnb to make some extra cash sounds tempting – but advice to leaseholders remains the same, always check the terms of the lease first!

The media* has reported that an elderly woman is being evicted from her leasehold flat in London after she let it out on Airbnb and her neighbours complained of noise. She was given six months to sell up and leave.

Holiday lets – whether using Airbnb or traditional methods – have long been a cause of angst when it comes to residential leasehold property.

Subject to the fine wording of the lease, there is plenty of case law confirming that it can be a breach of covenant to turn a leasehold flat into a holiday let.

Most leases have a clause to the effect that the property is for continuous residential occupation by a single family (not a string of holidaymakers).

There may be other relevant clauses such as one stating that the property should not be used for commercial purposes.

But leaseholders may be unlikely to suffer the wrath of their freeholder/neighbours if they’re simply typing quietly on a laptop in a bedroom office. The ‘commercial use’ clause is more likely to kick in if any business activity becomes a nuisance to others.

Could A Leaseholder Lose Their Home If They Are In Breach?

Yes, in theory. Forfeiture of the lease is a very real danger. And it’s commonly the first thing a freeholder will threaten to do – for two reasons:

  1. It’s a very effective threat. It might sound like a sledgehammer to crack a nut but it works. So freeholders will often have little hesitation in adopting this stance from day one.
  1. The lease is likely to contain a clause which says the freeholder can charge the leaseholder for some or all of the legal costs involved. (That said, this should be looked at very carefully.)

In most cases it never happens because the leaseholder has no choice but to follow the covenants they agreed to when they signed the lease. It’s either that or they face losing their home.

Beware These Common Restrictive Covenants

  • Residential occupancy – the property is for continuous occupation by one family. This may restrict its use a holiday let.
  • Sub-letting –restricting letting the property out to someone else. Also, this may also be a clause in any mortgage conditions.
  • Alterations – while it may be okay to refurbish a kitchen or bathroom, such a clause may restrict other alterations such as moving, removing or inserting walls.
  • Parking – a lease may grant access to only one designated parking space in the communal forecourt. Or it may restrict parking to garages only.
  • Commercial use – restricting use for any business purposes.
  • Nuisance – this typically means being noisy but can cover other forms of nuisance. There may also be a specific clause in the lease banning the playing of musical instruments or conducting DIY during certain hours of the day/week.

Covenants vary from lease to lease and from area to area – even within the same town. As a rule of thumb, they tend to be stricter in high net worth properties.

The sole purpose of this article is to provide guidance on the issues covered. This article is not intended to give legal advice, and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. In preparing this article, we have relied on information sourced from third parties and we make no claims as to the completeness or accuracy of the information contained. You should not act upon (or should refrain from acting upon) information in this publication without first seeking specific legal and/or specialist advice. Arthur J. Gallagher Insurance Brokers Limited, trading as Deacon, accepts no liability for any inaccuracy, omission or mistake in this publication, nor will we be responsible for any loss which may be suffered as a result of any person relying on the information contained herein.

FP546-2017  (Reviewed 28 February 2022)