What you need to know before buying a short term holiday let

With the UK staycation market growing year on year, more and more people are considering purchasing properties to use as short term holiday lets with companies such as Airbnb.

While it can be a useful way to generate additional income, you should be aware that there might be restrictions affecting the property that prevent you from doing so.

Many people believe that buying a freehold property means buying a property free from restriction on how it is used, subject to the usual planning permission or building regulation rules set by the Local Authority.

However, this is not necessarily the case and it is very common for land to be bound by rules that govern what you can and can’t do with it.

These rules are known as covenants and often apply to both freehold and leasehold properties. Positive covenants require you to do something whereas restrictive covenants prevent you from doing something.

Covenants are usually imposed by previous owners of the land, such as builders or local authorities and restrictive covenants continue to bind the land even when it is sold.  These rules are set out in the title documents.

You may think that you are looking for a rule that explicitly states that the property cannot be used as a short term holiday let, however this is not the case. Some covenants can have meaning that is not immediately obvious from the wording used.

In this situation, the covenant we are concerned with is one that requires the property to be used as a “private dwelling”.

The recent case of Nemcova v Fairfield Rents Ltd 2016 held that in order for a property to be a private residence there must be “some degree of permanence going beyond being there for a weekend or a few nights in the week”.

If you have purchased a property with the intention of offering guests an alternative to a hotel stay then income will be made from temporary visits and therefore there is no such permanence.

Although the judgement in the case was more nuanced than this, it was a major point of the decision.

The 2016 case referred to a previous 2000 case of Caradon District Council v Paton which also placed significance on the duration of the occupier’s (guests) stay in the property.

It is fair to say that each case will be decided on its own facts but the shorter the duration of the letting, the more likely it is that the covenant to use a private dwelling would be breached.

If you are buying a leasehold property there will also be various other covenants to consider in terms of potential issues with using the property in this way and therefore it is important to speak to a conveyancer if you are considering this route.

Options

If you are looking to buy a property for the sole purpose of using for short term holiday let it is important to establish whether the property is bound by this covenant as early as possible in the transaction.

This allows you to make an informed decision on how to proceed without wasting valuable time and money. If the property does have a covenant to use as a private dwelling, you can:

1. Look for a property without such a restriction;
2. Investigate the possibility of having the covenant released (cancelled). The likelihood of success depends on who the party who originally imposed the covenant (covenantee) and if they are easy to locate. You may be asked to pay for the covenant to be released (which could amount to thousands of pounds) and there is no guarantee that the covenantee will agree.

Non-compliance and Risk of Enforcement

You may be wondering what would happen if you use a property as a short term let in breach of such a covenant and how likely it is that anyone would take action against you.

The primary remedy for breach of a restrictive covenant is an injunction to stop you from using the property in a way that breaches the covenant in question. However, the courts also have the power to award damages, such as monetary compensation.

The risk of enforcement should be looked at on a case-by-case basis but factors to consider are:

1. The age of the covenant – if the covenant was imposed on a new build property built within the last few years there is a higher chance that the builder of that property could take action against you than a person who owned land in the early 1900s and has now completely disposed of their interest in the land;
2. The party with the benefit of the covenant – if the party who imposed the covenant (e.g. the builder or council) still exists, there is a higher chance of enforcement than if they don’t. For example, if the covenant was originally imposed in the 1900s and the person who imposed it has now passed away there is less chance that they will take action than the council or builder who is still building a new estate.

Essentially, your solicitor is best placed to advise you on the specific facts of your case and help you avoid any nasty surprises further down the line.

If you are buying a property and considering using it as a short term let, contact our Residential Conveyancing Partner and head of the team, Emma Liddle, on eliddle@mincoffs.co.uk or call the office on 0191 281 8069.