Investing in a holiday let? What 3 words you should know

Charlotte Hunter, Principal in our Residential Property team, discusses an important legal issue for buyers of holiday let properties.

Have you ever looked on Airbnb and wondered why there are so few apartments to let for a holiday in Norwich city centre considering the amount of developments that exist?

There's a reason. And this reason is sometimes made very clear to purchasers but sometimes hidden away in the small print of leases which, when we as lawyers reveal it, throws up a very difficult dilemma for the buyer.

It often comes down to 3 little words. 

I'm talking about an innocuous little phrase, part of a covenant, we are seeing cropping up more in residential leases which state the property is restricted to being used as a 'single private dwelling.'

Covenants are obligations/conditions - common with most properties and which vary. 

These restrictions can include all sorts of things such as ‘not to keep poultry on the property’, ‘not to park a caravan or commercial vehicle on the property’, ’not to obstruct any private footpaths or driveways’ and, pertinent to this article, 'not to use the property for any trade or business’ or ‘not to use the property for any use other than as a (single) private dwelling.’

What this means is you are unlikely to be able to let the property for short-term ie: holiday/Airbnb use.

Its not always apparent when you start the process of a property purchase and usually comes to light when we as lawyers painstakingly check the lease, or in the case or a freehold, the title, for any covenants which can seriously affect your use of the property. 

If, for example, you intend to let a property out, you may need to consider whether it would breach a covenant (s) to do so.

It seems in Norwich, many leasehold properties are for sale with the right to let on an AST, Assured Shorthold Tenancy basis as a buy-to-let.

However, many are not extending the right to let to short term or holidays - sometimes to do with the freeholder's insurance which can be potentially invalidated if people are allowed to come and go from a property who do not live there as their main home.

Some covenants specifically restrict or prohibit letting of any nature. Other covenants might be more vague. 

So, before granting a short term letting or deciding to buy purely for that purpose, the covenants need to be considered along with any other restrictions in a lease or conditions made by a management company on a leasehold development and any mortgage conditions that might be relevant.

Covenants should be analysed on the facts of the situation and on a case-by-case basis. 

If the covenant is enforceable then if the freeholder becomes aware of behaviour which constitutes a breach, they could take action. 

The freeholder/management company could also impose other regulations which are not specifically mentioned in the lease.

There may be some negotiation possible with the freeholder on the covenant which we can advise on but it's certainly something buyers need to be aware of in the early stages.

For more information, please contact Charlotte Hunter, Principal, Residential Property, Cozens-Hardy on 01603 625231 or email CEHunter@cozens-hardy.com