Short Shrift for Short Letting

11th June 2020

The lettings sector as a whole has been facing significant challenges due to COVID-19. David Smith commented on the newly extended possession proceedings stay here.

Short-term lets have been particularly badly hit by COVID-19, as they were impacted by the obligation to close from 26 March 2020 and they remain closed for the time being.

There is an additional aspect to the struggle for short-term lets, which have been under fire since before the pandemic. There have been concerns about the impact of the huge growth in short letting on local housing markets, on local authorities’ resources to deal with planning enforcement, and on compliance with tax obligations, to name a few. Some of these concerns have also been expressed by Sadiq Khan, the Mayor of London, in a letter sent to MPs, as reported by The Times. In fact, most of these concerns are mirrored in other cities around the world with notable interventions by Amsterdam and New York City who have both struggled to gain control of a proliferating short letting market.

On 26 May 2020, the House of Commons published a report which examines the growth in short-term lettings. This report looks into the exponential growth in short-term lettings which is believed to stand at around 88,100 listings in London in March 2020, almost five times the number in April 2015. Naturally, this figure would be considerably lower now, since the lockdown began at the end of March 2020. However, there is clearly a desire to put some limits on growth before the market opens up again.

Currently, outside of London, landlords are not normally precluded from letting their property on a short-term basis. However, local authorities may make a judgement as to whether there is a material change of use as a result of the letting and, accordingly, whether a planning permission is required. In London, properties let on short-term basis for more than 90 nights in any calendar year must obtain a planning permission from their local authority.

In addition, short-term lets are likely to violate a tenancy, lease or a mortgage agreement which prohibits or restricts short-term lettings. The Upper Tribunal has again upheld this position recently in the case of Triplerose Ltd v Beattie & Anor. Although the Upper Tribunal held that short letting was not in breach of a clause prohibiting the carrying on of a trade or business they were clear that it amounted to a breach of a clause requiring use of the premises as a private dwelling house. Therefore, it remains the case that where short letting is being carried out in a flat, as it frequently is in London, there is a high chance that the freeholder will be able to object and prevent this continuing.

The London Mayor as well as London Councils are pushing for a mandatory registration system to be introduced for short-term lets. Scotland has already announced in January 2020 that it will be taking steps to regulate short-term lettings, such as introducing licencing for short-term lets. Similar measures already exist or are in the pipeline for other European cities.

So far, the Government has made it clear that it does not plan on banning the use of residential properties for short-term letting. Naturally this is the line being taken by the main players in the short-letting industry as well and the Short Term Accommodation Association is working on a new code of practice to encourage responsible self-regulation that stops short of mandatory registration or licensing.

However, one of the trends driven from COVID-19 has been that landlords who previously relied on short-term lettings are now having to consider longer-term options. Especially in light of the new quarantine measures which came into effect yesterday, the immediate future of short-term lets is, for now, unclear. In addition, it may be that some landlords, having had their fingers burned by recent events, will not wish to return to the short letting market where the financial rewards are greater but the exposure to market fluctuation is also more substantial.

All in all the future for short term letting, especially in London, is less than rosy. Even once tourism returns to the UK it may well be the market will be far smaller than before.

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David Smith is a Partner located in Londonin our Commercial Litigation department

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Neli Borisova is a Solicitor located in Londonin our Commercial Litigation department

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