Short-term lets – considerations and pitfalls
Posted on 9th July 2020
Hotels, hostels, bed and breakfast accommodation, holiday apartments/homes, cottages/bungalows, campsites, caravan parks, boarding houses in England were allowed to re-open from 4th July 2020. We are now permitted to stay overnight away from our residential home with our own household or support bubble, or with members of one other household.
This has undoubtedly led to a surge in bookings for staycations across the country, especially with the summer holiday looming and travel abroad still looking less than certain.
In January 2020 (even before COVID-19), the London Councils research suggested that 1 in 50 London homes were being let for short term use.
However, for property owners who want to cash in on short term lets, they should do so with caution as there are many rules and regulations governing the ability and restriction on the ability to do so.
If you own a flat, then you should check whether your lease will allow you to let part or all of the flat for short term stays.
Most leases will contain a standard term for residential use, similar to the following clause:
Not at any time to carry on or permit to be carried on upon the Property any trade or business whatsoever nor to use or permit the same to be used for any purpose other than as a private dwelling house for occupation by one family at one time.
In addition there will also be some prohibition on assignment, sub-letting or parting with possession of part of the flat and/or sub-letting of the whole of the flat without the freeholder’s consent unless for Assured Shorthold Tenancies of less than 6 months.
This issue came up for determination in the recent case of Triplerose Limited v Beattie and Beattie (2020) which was considered in our blog. In essence it was decided that there was not a breach as the owners were carrying not out a business ‘upon’ the property; the letting was ‘ancillary or subordinate’ to the owners residential use (as they continued to use the flat during the week around the bookings). Using the property for a business was not prohibited by the lease.
Obviously if consent is required by your freeholder, it is prudent to seek the same in the first instance (which was not done in the above case).
Flats and houses are usually classed as C3 (residential dwellings) for planning purposes under the Use Classes Order 1987. You would need planning permission for change of use to C1 (Hotels and the likes).
Moore v Secretary of State for Communities and Local Government  EWCA Civ 1202 gives guidance on when a commercial short-term let would amount to a ‘change of use’, including things like arrivals and departures (traffic movement), frequency of disruption to neighbours due to party like activities, etc)
This was more recently considered in Scotland (Reference: ENA-230-2164 – 5/6 Castle Wynd South, Edinburgh). It was decided that there was a change of use because:
The number of arrivals and departures, with associated traffic movements within a communal stairway and landing was likely to be much greater than that associated with a single permanent resident.
Across the country it is normally down to individual local authorities to determine when a change of use is required. However, some guidance is contained in section 44 of the Deregulation Act 2015 makes it illegal for London properties to be let for more than 90 days a year without planning permission.
There is concern that with the rise of short-term lets, this could lead to an increase in crime and anti-social behaviour and there are calls for mandatory registration schemes (like those in Paris and Barcelona) to be introduced.
Earlier this year the Housing Minister for Scotland announced that measures would be introduced to allow local authorities to implement a licensing scheme for short-term lets from Spring 2021.
Consideration also needs to be given to whether a property is classed as a House in Multiple Occupation (HMO) as an additional license would be required and stringent conditions complied with.
Clearly any rent you receive from a short term let will be deemed as income and potentially liable for income tax, but there are a number of reliefs that you may claim.
For example, Rent-a-room relief is available if you are renting a furnished room in your only or main residence and the gross rental income (before deduction of expenses) is less than £7,500 (in the tax year 2018-2019).
Please note that if the property is jointly owned you are only entitled to half the relief.
There are also special rules if your property is considered a Furnished Holiday Letting (FHL) which allows the following:
- you can claim Capital Gains Tax reliefs for traders (Business Asset Rollover Relief, Entrepreneurs’ Relief, relief for gifts of business assets and relief for loans to traders)
- you’re entitled to plant and machinery capital allowances for items such as furniture, equipment and fixtures
- the profits count as earnings for pension purposes
If in doubt it is advisable to obtain advice from an accountant. If you are in need of a legal advice, please contact our specialist dispute resolution experts on 0808 231 6369 or request a call back online.