With the changes tothe tax rules many buy-to-let landlords are thinking of creative waysto overcome the loss of income. Their inability to claim tax reliefon their mortgage interest and the removal of their wear and tearallowance has made a big difference to the average landlord'sbottom line.
One creative way isto look to running properties as holiday lets or short-term Airbnblets. This can get around many of the restrictions of the HousingActs, also the tax rules on buy-to-let (classed as investments) andit gives the freedom and flexibility of holiday lets which areclassed for tax purposes as running a business.
However, short termand holiday lets need to be managed. Change-overs occur in days orweeks as opposed to months or years. This creates a good deal of workand administration. Granted landlords can use one of the establishedholiday letting sites or Airbnb, but it still takes time. Cleanersand maids need to be employed unless the landlord is willing to dothe work herself.
With a holidaycottage set-up correctly as a business operation, and providing itsin the right location where holiday traffic is in demand, then thiscan work out very effectively as a viable business. There are stricttax rules to follow with furnished holiday lets (FHL) governing theamount of time the property is available to let and not in your ownuse, but generally they are classed as a business with many taxbenefits. This can be a nicely profitable occupation.
For the first 12months of being a FHL, your property is effectively in a'�probationary' period and during this time, the potential andactual availability of your property will be established and for yourFHL status to become permanent your property must:
Short- term Airbnbtype lets in flats, are a bit different. With an average flat, forexample, an Airbnb let for one week may gross you �1,200 or more,something equivalent to a month's let with a standard buy-to-let onan assured shorthold tenancy. Much of the above caveats apply, but,are you sure that letting your flat in this way is lawful?
Airbnb is an onlineplatform that allows property owners to let their homes, rooms andflats to visitors on an ad hoc basis. But flats are almost certainlyleasehold, and leaseholders in England and Wales must comply withtheir lease terms as well as a host of other rules and regulations ifthey are to let in this way. The first obstacle might be that thelease forbids the leasehold from carrying on a business in what isotherwise a residential property.
Health and safety
As a landlord (andthe Responsible Person) you are responsible for the safety of theoccupants of your property under common law. You are obliged tocomply with all health and safety laws. When you are a leaseholderwith a long lease, and you decide to let the property as holidayaccommodation, the health and safety laws would apply to you as youwould be considered to be the Responsible Person and a landlord underthe law.
The RegulatoryReform (Fire Safety) Order 2005, s.3 says that a responsible personfor complying with the Order is the person who has control of thepremises in connection with the carrying on of a trade, business orother undertaking (for profit or not). Airbnb is considered a holidaylet and the leaseholder would be carrying on a business, which meansthat they would need to comply with the fire safety Order.
Since 2015, thegovernment approved the Smoke and Carbon Monoxide Alarm (England)Regulations 2015 which apply in England and Wales and are required tobe installed, at least one smoke alarm on every storey of a propertyon which there is a room being used wholly or partly as livingaccommodation, and a carbon monoxide alarm in any room used wholly orpartly as living accommodation which contains a 'solid fuel'�appliance, coal fire or wood burning stove for example. The guidancecurrently provided by the Ministry of Housing, Communities and LocalGovernment's (formerly the Department for Communities and LocalGovernment) indicates that '�solid fuel' is coal or wood, so doesnot apply to gas or oil appliances, though it is wise to provide onefor these also.
Most leaseholdagreements for flats place the responsibility for insuring thebuilding (the block) on the freeholders, leaving the leaseholder tochoose whether to insure its own contents by obtaining contentsinsurance. However, landlords' insurance goes further, insuringagainst third party and accident claims which is a vital part ofcover.
It is vitaltherefore that any leaseholders intending to let their property as aholiday let on Airbnb establish with their insurance company thatdoing so does not invalidated their insurance cover. Should theirinsurance be invalid for this reason, they may also be in breach oftheir mortgage obligations. Airbnb offers Host Guarantee and HostProtection Insurance, but this will only go so far, its small printstates that 'this (cover) does not take the place of homeowners orrenters insurance or of adequate liability coverage.'�
Leaseholders whohave their flat on a mortgage must also make sure that by lettingtheir property as a holiday let on Airbnb they are not in breach ofthe terms of their mortgage. The Council of Mortgage Lenders handbookstates that the lender should advise the borrower that consent is tobe obtained if the borrower wishes to sublet the property. Lendersalso reserve the right to change the terms of a mortgage, or requirea higher rate of interest if the borrower requests a change to allowsub-letting.
Mortgage interestrates are usually set for as long as the owner occupies the propertyas their only or main residence. Subletting usually requires consentin writing from the lender. Failing to obtain this can technicallyresult in a demand for full repayment of the loan, or repossession ofthe property.
Letting a home for short periods does not normally need planningpermission '� it is still a family dwelling. However, a morepermanent use of a property for short term lets, especially if it mayin any way affect neighbours, is likely to be considered a change ofuse, and it will then require consent.
In most instances so far, planners have been reluctant to use theirpowers in this area but if complaints are generated it is likely thata local authority enforcement officer will issue a notice requiring alandlord to cease letting their property on a short-term basis.Failure to comply with this notice would be subject to a fine of upto �20,000.
In London, there is specific legislation which limits short termAirbnb type lets to no more than 90 nights per year, unless fullplanning permission is obtained. There are no such rules outside ofthe capital, meaning planning officers must decide on a case-by-casebasis whether the short-term letting is causing unreasonable harm toneighbours.
The Deregulation Act2015 amended earlier legislation for London to allow landlords to lettheir properties as temporary accommodation for up to 90 days, aslong as the host remains liable to pay council tax. Local authoritiescan remove the 90 days rule from certain types of residentialpremises and in certain areas, so landlords should check with theirlocal council before letting short-term.
Flats and housescome under the Use Classes Order 1987, this is a 'C3'� use forresidential dwellings for planning law purposes, so from a planningpoint of view the authority would want to determine if there had beena change of use and whether planning permission would be needed. Doesoperating a short-term let Airbnb type business on a more or lesspermanganate basis with its associated disruption for neighboursrepresent a change of use?
There have been acouple of cases which could go against this use. In Nemcova vFairfield Rents Ltd the Judge ruled that what was important was theduration of the stay ''�for the property to be used as theoccupier's private residence there must be a degree of permanencegoing beyond being there for a weekend or a few nights in the week.'�Therefore granting short-term lets for days or even weeks as opposedto months and years would breach the planning laws without gainingplanning permission and would also breach most standard leaseagreements, which usually contain a clause to use the property as aprivate residence only.
Another ruling, thistime in Edinburgh, where the council took enforcement proceedingsagainst a landlord which resulted in a court case due to theincreased comings and goings of tourists causing inconvenience toneighbours. The landlord's argument was that even though theproperty was used for short term holiday lets, it was stillessentially a single residential dwelling. However, the courtdetermined that there was a 'material change of use'� which wouldrequire planning permission. The landlord therefore would need toapply for change of use to Class C1 use, which is the same as forhotels, guest houses and hostels. Given the disturbance andcomplaints it would seems he would be unlikely to get it.
Landlords who let orlicence a furnished room in a property which is their main or onlyresidence can benefit from the '�rent-a-room' income tax reliefscheme with tax relief is worth �7,500. But given the recentpopularity of short Airbnb type lets, thegovernment has added an additional test of '�shared occupancy' forrent a room relief to be available. In essence it means that thetaxpayer must be living in the property for at least some of the timethat the accommodation is let. So letting out the property whileabsent will no longer qualify for the rent-a-room relief.
Leaseholders shouldensure that they are not prevented from sub-letting by the wording oftheir lease. It is common for leases to contain such clauses andordinarily leaseholders would need permission in writing from thefreeholder if they intend to do short-term letting on a permanentbasis.
Unfortunately, shortterm lets are usually in breach of flat leases and the flat owner runthe risk of the freeholder taking enforcement action against themthat could ultimately result in the forfeiture of their lease.
Leases sometimesprevent owners from keeping certain types of pets, so any short-termletting where the occupants have pets could breach the lease terms.It has been known for Airbnb lets to be used for rave parties, whichwould inevitably, as the landlord has no control, result incomplaints and possible legal claims from other leaseholders.
So, although Airbnband other online accommodation websites like it have revolutionisedshort-term holiday lets and have created opportunities for propertyowners to maximise rental income, it also presents potentialshort-term landlords with problems to overcome. Airbnb operates withminimal regulatory control and in England and Wales leaseholders needto be aware of the law, planning laws, lease restrictions, health andsafety, insurance, taxation and other regulatory controls if theywant to enter into this business.