Under most construction contracts, the contractor takes on the ground conditions risk. However, a recent case has demonstrated that the risk can fall on the employer.
The issue in this case was simple:
A long lease contained a covenant not to use the demised premises, or permit them to be used, for any illegal or immoral purpose whatsoever other than as a private residence. There were no covenants prohibiting subletting.
If the leaseholder advertises for short-term lettings via AirBnB and grants a series of such lettings, is this a breach of that covenant?
Nemcova confirmed that she let out her flat for about 90 days a year on short-term lettings, which were almost exclusively to business visitors working in London. She said that she stayed at the flat herself for three or four days a week.
Nemcova argued that the only meaning that can be ascribed to the words ‘private residence’ is whether the flat retained the physical characteristics of a private residence, i.e. the presence of a kitchen, bathroom and living area. Therefore, even when sub letting on short-term lets, the property was still being used as a private residence and so was not a breach of covenant.
The Upper Tribunal determined that it is the duration of the letting that is material to whether the premises is being used as a private residence; there must be a degree of permanence to the occupation:
“I do not consider that where a person occupies for a matter of days and then leaves it can be said that during the period of occupation he or she is using the property as his or her private residence”
Where the occupation is “transient”, the occupier would not consider the property to be their private residence during the time that they were using it. The Upper Tribunal (Lands Chamber) therefore determined that Nemcova had breached the covenant in her lease by using the premises other than as a private residence.
This case is precedent that where a leaseholder grants short-term AirBnB type lettings, this will be a breach of the covenant to use the property ‘as a private residence’.
However, a word of caution! Each case is fact-specific and will depend on the construction of the clauses in the lease and the factual context.
If you become aware that a leaseholder is advertising or granting short-term lets, it is important that you check the terms of the lease carefully. Carry out investigations at the property to try and establish the nature of these occupancies, the frequency of stays, the number of occupiers, and any nuisance caused to neighbours etc.
It is also worth noting that the emphasis on the duration of the occupancy means that this decision does not cover long-term subletting, where an occupier may be in occupation for months or years. (Of course, there may be other clauses in other leases that expressly prohibit sub-letting).
For more information
For more information or advice on subletting, rental agreements and other housing management issues please contact Natalie Moustache on 0121 212 7440 or via email at email@example.com.
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