The platform has attracted its fair share of controversy and has received fierce opposition from some, including many cities across the globe who claim that such sites remove affordable housing from the market by converting rentable apartments into unofficial hotels. At the time of writing, a quick search reveals that there are 131 rentals available in Jersey with 119 rentals in St Helier alone. It is perhaps not surprising that the platform is well used here in Jersey, as it is of course an attractive destination, with tourists representing the mainstay of those choosing to use Airbnb. However, for all the benefits and convenience, there are some potential pitfalls that should be considered by responsible homeowners before seeking to rent out their home, room or apartment in Jersey.
Lease and title restrictions
The first matter which any potential host should consider is whether or not they have authority to rent out their home, room or apartment. What many potential hosts who are themselves tenants do not appreciate is that in most cases, their lease may not allow them to sublet their property, either at all or without first obtaining permission from the landlord. Homeowners should check to see if there are any applicable restrictions in the freehold title to their property. In the case of a share transfer or flying freehold property, the relevant articles of association or declaration of co-ownership, and any associated rules and regulations, should be checked.
A host who is in breach of the terms of their lease, freehold title or articles of association/declaration (as the case may be) risks potentially serious repercussions as any breach is likely to be serious. In the case of a breach of tenant covenants in a lease, the breach may well be regarded by the court as sufficiently serious to enable the landlord to recover possession of the premises. A landlord may also have a claim in damages for any losses suffered as a result of the breach, which could even extend to compensating the landlord for any void period suffered whilst trying to secure new tenants for the property.
Another matter that prospective hosts will need to consider is the terms of any mortgage facility. The loan and security documents entered into by mortgage borrowers routinely contain restrictions on any form of letting or licensing of the property in question without the lender’s consent. Failure to obtain such consent could constitute an event of default, potentially enabling the lender to call in the loan and claim damages.
There are also potential regulatory issues that may need to be considered. Persons intending to make accommodation available to tourists need to ensure that they comply with the Tourism (Jersey) Law 1948 (the “Tourism Law”). The basic rule is that “…no person shall conduct any business in the course of which lodging, with or without board, is provided for reward, unless the premises in which such business is conducted are registered” under the Tourism Law. However, the Tourism Law contains an exemption under which registration is not required for “any premises in which lodging for reward at any one time is provided for 5 persons or less”. If a homeowner were sub-letting to five persons or more, then on the face of it, they would be required to register under the Tourism Law.
The type of letting undertaken on Airbnb will also have important implications in the matter of buildings and contents insurance. Insurers can refuse to pay out when a property has been used otherwise than in accordance with the strict requirements of the insurance policy and often there will be limitations against using the property for short term lets without prior express consent of the insurer. This could have potentially catastrophic results for not just the homeowner but also any other apartment owners within the same block in the event they were to suffer loss or damage. It is also possible that insurers would refuse to pay out where a property has been sub-let without consent. Whilst we are not aware of any such rejected insurance claims, it is likely only to be a matter of time given there is wide scope for litigation arising from unlawful sub-letting.
Potential hosts would be well placed to consider their potential legal exposure before advertising on Airbnb. Landlords could also take the opportunity to check insurance policies and review lease terms to ensure that, if required, suitable restrictions are in place.
Corporate, Real Estate Finance, Property, High Value Residential Property, Residential Property, Regulatory Advice
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