I read the harrowing post of a gentleman who had recently taken a rent to rent contract on the verbal agreement of the agent that he could use the property for a short-term let business. Two weeks after taking over the property in central London and renovating it, the agent has now given him notice to leave the place because the landlord doesn't want a short-term let. The gentleman is understandably distraught about this and is seeking advice.
First, I would like to express my sympathy towards the gentleman in question. It is not fair! And that must be the worst possible outcome he could have imagined when signing the contract.
Let's define the key terms.
Rent to Rent or Rent to HMO is regulated. As long as the premises have an HMO license, you are not in breach of regulations by taking it as a company let. You are just an agent, taking a commission for finding people into the property while offering guaranteed rent to the landlord and pocketing the difference. If you are interested in long-term tenants who will pay you rent monthly, then go for it, but this does not automatically give you the right to use these premises for short-term let business.
If you intend to use this property for a short-term let on platforms such as Airbnb, VRBO, or booking.com, you need to consider the followings very carefully, or you can get into severe financial debt.
Rule 1
Never take the agent's/sourcer's spoken words as a guarantee for anything. An agent will say just about anything to get the deal over the line, so make sure that you have it in writing that you can use the property for short term let and that you are allowed to list the property on Airbnb, Vrbo, and Booking.com for that purpose. (Be explicit about your intentions, and if they are unwilling to include that in the contract, then walk away! Don't let your greed or impatience be your undoing)
Rule 2
This is something that most people gloss over, but I believe it is critical from a business perspective. There are government regulations for a short-term let. If you use a whole property with people checking in and out regularly, then you are running a hotel, and using a house or flat for that purpose will need an application for change of use. In London, the government permits such activity for 90 days in a year without requiring a change of use application. But after 90 days, you need to apply for a change of use if you are to continue your business in line with the government regulations. (The 90 days rule is for London)
If you plan to use the whole property for short-term let; All year round, you should consider the following.
Rule 2, section A.
You may receive a stop and desist letter from your local council, which may put your business on hold or at risk of closure or fine. ( I fought the Birmingham council over this for one of my properties for the better part of 15 months before the case was closed in my favour). Each letter from the council about the breach requires careful consideration and a thoughtful reply. Don't just ignore it. Engage with them, explain yourself, explain why your activity may not be breaking the rule, and explain why you have not changed the use of the property. In the end, this may prove to be nothing more than delaying tactics, and you may still be forced to shut and return the property to its proper use or apply for a change of use) Bare this in mind.
Rule 2, section B
If you apply for a change of use, it is unlikely to be granted because your neighbours will most likely object strongly to it, and that will be taken into consideration by the council. Secondly, if you get it, you are in for a world of hurt, as you are now a hotel, and you have to comply with the regulations and cost of running a hotel. Your place is no longer residential; it is now a business premise. Business rate, the commercial rate for electricity and gas bills, everything goes up, not down, and it may no longer be financially viable to continue with such increased expenses. Currently, service accommodation sits uncomfortably between `C1 and C3 planning use without an explicit category for it, but the council who are prosecuting it are doing so as a violation of C3 and conducting business as C1.
Rule number 3
Have an exit clause! Given that, at best, even with the landlord's permission, you are still skirting the law, and remember that the landlord is not in charge of planning permission; that job belongs to the council. The council can still tell you to stop and desist, even if you have the landlord's written guarantees, so it is essential to insert an exit clause into the contract. The contract should state that the tenancy agreement will become null and void, and without prejudice, to either party, if you cannot continue your primary business activities due to council or government interference.
Essentially, you will be able to surrender the contract to the landlord without incurring liability for the remainder of the tenancy term. This is extremely important! And if this clause is not there and the council stops you, the landlord still has the legal right to take you to court and collect the rent. Ensure that you consider all three rules before signing a rent-to-rent contract. You can gain a lot if done correctly, and you can also lose a lot if done incorrectly.
I will conclude on a note of optimism. The reality is that the UK government, at least for the present, encourages the home-sharing economy in practice, and it has been great as a wealth distribution tool for the nation. It is also important to acknowledge that the council doesn't go around looking for short-term lets to shut down. Generally, no one will report you if you don't become a nuisance. If no one reports you, the council doesn't care, but if your place becomes the source of neighbourhood disturbance, you won't last long, and if you have a neighbour who hates the idea of a short term let next to his property, then you have a problem.
I hosted a free zoom training on short-term let where I answered all your questions on the industry of hosting a short term rental. Stay tuned if you would like to watch this on our Umbrella Properties Youtube, I will happily send you a link.
Thanks for reading
Franklin Folahan
Disclaimer: While I have attempted to provide broad and accurate information on this topic, My article mainly focuses on England. It is essential to acknowledge that other countries within the union, such as Scotland, have their own rules that may be different from the English laws. Also, different local councils within England have shown differing appetites for enforcement, from downright hostile to the outright welcoming of the economic benefits it brings their inhabitant, so consult with your local council before going ahead. This article is intended as a springboard for your own research into the industry.
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