Section 167 of the Commonhold and Leasehold Reform Act 2002 introduced new legislation designed to prevent residential leaseholders from being faced with forfeiture of their leases as a result of a breach of covenant, by adding another level on top of the requirement to serve notice under s146 of the Law of Property Act 1925.
Because of the 2002 legislation, a landlord may not serve a s146 Notice until either a leaseholder admits that they have breached the lease, or there is a determination from either the Court or the First Tier Tribunal (Property Chamber) that there has been a breach.
Leaseholders will rarely admit they are in breach; and if put on notice that they might be found to be in breach, they generally stop, before action is taken against them. So, for practical purposes, claims for forfeiture have often been considered to now only have real utility in leases of commercial property.
AirBnB
But with the advent of AirBnB and casual holiday lettings, that position is changing, at least in one respect. More and more people are using second homes or holiday homes in the region to make money by hosting holidaymakers and strangers, genuinely believing it not to be in breach; landlords and management companies may disagree.
We have recently seen leaseholders, having taken informal advice or believing what they read on the internet, disregarding the covenants in their lease and publicly advertise their properties as AirBnBs, believing, for example, that it is safe to do so as long as they themselves remain in occupation at the same time, so that part of the accommodation is shared.
Whether or not there is a breach will depend on the actual use of the property, and the precise words of the covenant. For example, Nalders LLP have recently acted for a management company which controlled premises where the relevant covenant was:
Not to use the flat nor permit the same to be used for any purpose whatsoever other than as a private dwellinghouse in the habitual and regular occupation of one family nor for any purpose from which a nuisance can arise to the owners lessees and occupiers of the other part of the Building or in the neighbourhood nor for any illegal or immoral purpose nor for holiday letting
The leaseholder alleged that she treated her AirBnB guests as family. But that was not good enough, when they evidently weren’t actual family. The First Tier Tribunal was satisfied that the use of that flat as an advertised AirBnB was in breach of the covenant insofar as it required the property not to be used for any purpose whatsoever other than as a private dwellinghouse in the habitual and regular occupation of one family.
We expect that more and more people will jump on the AirBnB bandwagon, but if they do so in breach of a covenant, they are at risk of an injunction from restraining them from doing so, and (in the case of leasehold land) proceedings in the First Tier Tribunal and then potentially forfeiture of their lease if they persist in doing so. The evidence of their breach will be on public display, and if they have properly considered the consequences, it could be an expensive decision.
If you have any intention of using a property in that way, we recommend checking any restrictions against business use and on using the property as a single private dwelling before purchasing, and certainly before entering into any holiday lettings. Taking advice in advance is better than being in breach later.
Forfeiture and breach of lease are specialist areas of law; Nalders LLP has the direct experience required to help both landlords and tenants, residential and commercial, get it right from start to finish.