REAL ESTATE  

Airbnb Reasons to ‘B’ Careful

The growth of the ‘on demand’ economy, driven by our increased access to mobile phones and internet, has been a dramatic trend in recent years. We now take it for granted that there is an app on our phone for ordering food, a taxi or even having your house cleaned. The selling point of many of these new e-businesses is that they ‘cut out the middle man’, providing more flexibility for the provider of the service and a more competitive price for the buyer.

Airbnb brings this ethos to the hospitality sector, permitting ‘hosts’ with spare rooms or properties to arrange short term lettings to ‘guests’ who contact them directly via the internet. The service is increasingly popular, and in Belfast area alone at any one time there are normally over 300 listings, with the average price per night being £59. The obvious appeal to the host is that renting their property on this basis can be significantly more profitable than a traditional tenancy. However there are some significant risks that anyone considering advertising their property on this basis should be aware of.

Covenants in your Title

Almost all Airbnb properties are residential apartments or other residential dwellings. The majority of such properties in Northern Ireland will have a covenant in their title to the effect that the owner will only permit them to be used as a “private residence”. These covenants are often enforceable not only by the original property developer, but also by the neighbouring householders. The question of whether hosting on Airbnb fell foul of such a covenant was recently considered by the Appeal Courts in England in a case heard in September 2016. This case found in against the host and held that Airbnb style letting was in breach of such a covenant. Whilst in a different jurisdiction, this decision would create a strong precedent if a similar case was brought in Northern Ireland. If a Court Order was made against a homeowner they could be presented with bills for significant legal fees.

Home Insurance

You will also need to confirm your insurer’s attitude towards Airbnb. This varies considerably between insurance companies and you should make the necessary enquiries to ensure that a claim will not be refused if the insurer becomes aware that Airbnb guests were in possession when the damage occurred. If the insurance was invalidated this will also very likely be a breach of covenants your title and of your mortgage terms.
Whilst Airbnb does offer a certain level of ‘Host Protection Insurance’ you would also need to consider if this is adequate or if it is worth arranging your own public liability insurance.

Vacant Possession

It is also worth giving some consideration to the risk that once you have handed the keys to your property over to a guest, they simply refuse to leave your property at the end of the agreement. With a traditional tenancy this is also a risk, however statistically you are dealing with far fewer tenants over the course of a year. If a guest does refuse to leave a property the legal process involved in extracting them can be a lengthy and costly process.

Breach of your mortgage terms

If you used a mortgage to buy your property it is very likely that hosting on Airbnb will be a breach of your agreement with your lender. This is as most mortgages will contain a covenant by the borrower not to sub-let the property. Potentially, a bank could use such a breach of covenant as a reason to call in their loan and this could ultimately lead to the property being repossessed. It would therefore be advisable to reach agreement with your bank before hosting your property.

Conclusion

The above points are some of the main risks involved in listing your property on Airbnb. However there are also considerations around whether House in Multiple Occupation regulations apply if individual hostings of multiple rooms in a single dwelling are arranged and also whether any issues arise under planning legislation.

Consequently whilst it may seem easy and profitable to download an app, take some photos and list your property on Airbnb; if you fail to make the necessary preparations some significant legal headaches could be the result. Millar McCall Wylie LLP would be able to advise fully on any of these issues on a case by case basis

 

 

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