Short-term lettings frustrated by user covenant

by Dentons
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The decision of the Upper Tribunal in Iveta Nemcova v. Fairfield Rents Limited [2016] UKUT 303 (LC) is a reminder that it is not just the alienation covenant that must be considered when a tenant seeks to deal with its lease. In this case a covenant not to use the premises "other than as a private residence" was sufficient to prohibit short-term Airbnb-style lettings.

Background

Iveta Nemcova was a long leaseholder of a flat on the Enfield Island Village housing estate. Fairfield Rents Limited was the freeholder and landlord.

Under the terms of the lease the tenant was free, at any time prior to the last seven years of the term, to assign, underlet or part with possession of the whole of the premises without landlord's consent. Believing that there were no restrictions on disposals, the tenant granted a series of short-term lettings of the flat, having previously advertised the same on the internet.

Citing the user clause, the landlord brought an action seeking a declaration that the tenant had breached the lease covenants. Under the relevant clause the tenant had covenanted "not to use the Demised Premises or permit them to be used for any illegal or immoral purpose or for any purpose whatsoever other than as a private residence".

Decision

The Upper Tribunal held that there had been a breach of the user covenant.

While the user clause did not require the tenant to occupy the premises herself it did require that whoever was occupying was doing so "as a private residence". In determining what that meant neither the demand and acceptance of payment by the tenant from the occupier nor the reason for the occupier being in occupation was decisive in this particular case.

However, what was material here was the duration of the occupier's occupation. There had to be a degree of permanence otherwise the occupation would be so transient that "the occupier would not consider the property he or she is staying in as being his or her private residence even for the time being". Lettings for a very short term (being of days and weeks rather than months) would not constitute occupation as a private residence.

Conclusion

The judgment in this case highlights:

  • When considering what a tenant is allowed to do it is essential to consider all the terms of the lease. Here the user covenant operated as an effective prohibition on a certain type of disposal, namely short-term lettings. In another case earlier this year, Roundlistic Limited v. Jones and Seymour [2016] UKUT 325, a user clause was construed as prohibiting all forms of underletting.
  • Each case will turn on its own facts and in particular the wording of the relevant covenants. As such the same or a similar user clause could be construed differently in other circumstances. To avoid uncertainty, if a party intends to preclude short-term lettings it would be preferable for this to be stated explicitly rather than being made implicit through the user covenant.

With the increasing popularity of short-term lettings of residential space this case may well prompt many to dig out and review more than just the alienation covenants in their leases.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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