06/06/2020

Not not Nemcova

Triplerose Ltd v Beattie & Anor (LANDLORD AND TENANT – BREACH OF COVENANT) (2020) UKUT 180 (LC)

Another Upper Tribunal decision to add to the now large pile of cases on airbnb/short let use and breach of lease. In this case, the FTT had found the short let use not to be in breach of lease (for cunning reasons I’ll come back to) and the head lessor had appealed to the Upper Tribunal. The decision upholds the Nemcova line on ‘private residence’ use, but also has a finding of interest on ‘business use’.

The flat in Newcastle was used as a ‘serviced apartment’ advertised via internet booking agencies such as Airbnb or Booking.com.

The lease contained covenants:

“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 any one time.”;

and

“Not to sub-let the whole of the Property without the consent of the landlord, such consent not to be unreasonably withheld or delayed save that the following are permitted without the Landlord’s consent:

31.2.1 The grant of assured shorthold tenancies for a duration of no more than 6 months; and

31.2.2 The grant of underleases giving effect to a shared ownership scheme, or any similar or equivalent scheme.”

The FTT had distinguished Nemcova v Fairfield Rents Ltd (2016) UKUT 303 (LC) (our note here) on the basis that

“Lord Millett in Uratemp describes the ordinary meaning of the word “dwelling” and indicates that it has no specialised legal meaning.  Even so, the interpretation adopted by Lord Millett (suggesting a greater degree of settled occupation than “residence”, in accommodation forming the centre of the occupier’s existence) does not appear to the tribunal to represent the intention of the parties in the present case.  In the tribunal’s view the reference to “private dwellinghouse” in the lease has to be seen (i) in the context of the words that precede it, which suggest that the purpose of the clause is to prevent a trade or business being operated from the property, thereby maintaining residential use, and (ii) in the context of the particular features of the alienation provisions allowing occupancy on terms which suggest that use as temporary accommodation, whether as a tenant, licensee or lodger, is envisaged.”

So, the restriction on use otherwise than as a private dwelling house was, according to the FTT, in the context of a restriction on not carrying on a trade or business upon the property, Secondly, that the wording refers to “a” private dwellinghouse and not “his or her” private dwellinghouse; thirdly, that the lease also specifically permitted short term assured shorthold tenancies not exceeding 6 months; fourthly, that it was common ground between the parties that the taking of a lodger was not prohibited; and finally that the lease did not prohibit other forms of occupation under licence.

The Upper Tribunal held otherwise.

The user covenant might have two limbs but there was no reason to treat one as subordinate to the other. That the lease did not specify his or her private dwellinghouse was neither here nor there – indeed the original lessee of the flat was a limited company – it was the use as a dwellinghouse that was key.

The FTT had gone awry in considering the permission for assured shorthold tenancies of up to 6 months:

The FTT appears to have regarded what it called the “express permission for short term assured shorthold tenancies of a duration not exceeding 6 months” as a critical feature in its analysis.  But to read into this an indication that the parties contemplated a succession of short term occupiers is to misunderstand the covenant.  Paragraph 31.2 of Schedule 4 to the lease does not prohibit subletting for terms of any duration; rather it provides that if a letting is for more than six months or does not create an assured shorthold tenancy the consent of the landlord is required, and may not unreasonably be withheld.  Since an assured shorthold tenancy is simply an assured tenancy granted after the commencement of the Housing Act 1996 (section 19A, Housing Act 1988), and since it is a condition of an assured tenancy that the tenant occupies the dwellinghouse as their only or principal home (section 1(1)(b), 1988 Act), there is no possible tension or inconsistency between the requirement that the flat be used only as a private dwellinghouse and the possibility of a letting for less than six months.  A short term letting to someone who did not use the flat as their only or principal home (and who therefore was not using it as a private dwellinghouse, but as a pied a terre) would be a breach of covenant unless the landlord’s consent had first been obtained.  The FTT’s suggestion that the parties intended “use as temporary accommodation” whether by means of short term letting, licensing or lodging is not justified.

The parties had agreed that taking in a lodger was not a breach. The Upper Tribunal was not so sure, given the ‘one family’ element of the clause, but in any event, even if permitted, it wold not be equivalent to letting to a series of unconnected individuals.

And lastly the absence of an express prohibition on the grant of licenses is not a factor of any weight when the lease includes a prohibition on use other than as a private dwellinghouse.

So, the FTT was wrong to depart from Nemcova and short let use was a breach.

On the issue of whether paying short let guests amounted to carrying on or permitting a trade or business to be carried on upon the property, the Upper Tribunal held (and I’ll quote in full because it is significant for future cases):

There is no challenge to the FTT’s finding that no trade (in the sense of buying or selling) was being carried on upon the property. But Mr Harrison argued that the FTT had been wrong to disregard the decision of the Court of Appeal in Tendler v Sproule that the taking in of paying guests was a breach of a covenant not to use premises for a business.

The covenant in Tendler v Sproule obliged the tenant “not to use the premises or any part thereof for any business”, and it was held that the taking in of paying guests constituted a breach of that obligation. Mr Crossley drew a distinction between using premises for a business (as a “business resource” as he put it), and carrying on business upon the premises. In this case it was not in dispute that the flat was being used for the business of short term letting, but that business was being carried on from elsewhere, not “upon the property”, and those who were at the property were using it for residential purposes. In other words, the prohibition is against conducting business in the flat, not against using the flat for short term residential purposes albeit as part of a business.

I was not shown any authority in which this distinction has been considered. The FTT directed itself by reference to the decision of the Court of Appeal in Florent v Horez (1948) 48 P & CR 166, a case concerning a tenant who held numerous meetings of a Turkish Cypriot cultural committee at his flat. It was said by the Court of Appeal to be a question of degree whether on the one hand, the use of premises was ancillary or subordinate to their residential use and therefore not a breach, or, on the other hand, amounted to carrying on business (in the widest sense) on the premises. In this case the FTT considered that the flat continued to be used for residential purposes by Mr Beattie, that nobody was operating a business on the property, and that the third-party use was a temporary expedient pending the sale of the flat and was “both ancillary and subordinate” to Mr and Mrs Beattie’s use. For those reasons the FTT concluded that there was no breach of the covenant against permitting a business to be carried on upon the property.

Mr Harrison pointed out that the covenant in this case prohibits carrying on upon the premises “at any time … any trade or business whatsoever” and suggested that carrying on any amount of business at any time would therefore be a breach. I agree, but that does not meet Mr Crossley’s point that no business was being conducted “upon the Property”. No activity was carried on upon the property which in itself amounted to a business. I consider that the provision of laundry services between lettings, leaving breakfast goods for visitors, and handling check-in and check-out (which was not said to happen at the flat) do not alter that assessment and do not amount to carrying on business on the property. I therefore consider the FTT was right to find that letting the flat for short term residential use did not breach the covenant against carrying on business upon the property.

As this kind of prohibition is a clause that if often cited as in breach by short let use, this is worth noting.

Lastly, the leaseholders had sought to argue that a demand for sub-letting fees and payment of them had waived the breach. But there was no evidence that those fees authorised use of the flat for any purpose other than as a private dwellinghouse.

Appeal allowed. The use was in breach.

Comment

Two things worth noting. First, the knots that the FTT had tied itself up in over interpretation of the lease, which the UT swiftly corrected. And second, the finding on business use, which is more significant for future breach of lease applications/claims. This is not wholly a surprise, after all company ownership of a flat being let on ASTs would not be ‘business use’ of the property, for all that letting the property would be a business. The use in occupation would not be a business.

Giles Peaker is a solicitor and partner in the Housing and Public Law team at Anthony Gold Solicitors in South London. You can find him on Linkedin and on Twitter. Known as NL round these parts.

4 Comments

  1. otto

    I would like to add this small comment without any presumption of authority.

    The first head of claim is refusal of business use. This has been disposed of by the upper but a bit more later.
    The second relies on 31.2.1 The grant of assured shorthold tenancies for a duration of no more than 6 months
    The difficulty with the statement in the judgement of the UT which is relied upon to dispose of the first instance decision, –

    “Since an assured shorthold tenancy (AST) is simply an assured tenancy granted after the commencement of the Housing Act 1996 (section 19A, Housing Act 1988), and since it is a condition of an assured tenancy that the tenant occupies the dwelling house as their only or principal home (section 1(1)(b), 1988 Act), there is no possible tension or inconsistency between the requirement that the flat be used only as a private dwelling house and the possibility of a letting for less than six months.” (emphasis added)

    – is that an assured tenancy is not the same as an assured shorthold tenancy (AST), “simply or not” and that Part 1: Assured tenancies S1(1)(b) does not apply. Neither is there any allowance for tenancies under S96 / S19A Part 2: Assured shorthold tenancies of less than 6 months, by definition.
    This distinction, Part 1 & Part 2 of HA 1988 and as recently in the Coronavirus Act 2020 Sch 29 6&7 has been consistently made.
    The distinction between Part 1 S8 and Part 2 S21 HA 1988 are repeated in Sch 29(6) and 29(7) Coronavirus Act 2020 respectively.
    Also, it is worth noting that residential tenancies associated with business are excluded in the 1998 Act Sch 1 Part 1 : Tenancies which cannot be assured tenancies, Business tenancies (4) as defined in 1954 Act Part 2.
    Therefore, sublets less than 6 months cannot be assured shorthold tenancies. Assured tenancies (less than 6 months in these cases) are excluded as business tenancies in HA 1988 as defined in L&T 1954 Pt 2 S23.
    Neither are rentals less than 90 days in any one year held as business requiring planning change of use from residential Class C to business Class B (Greater London Council (general powers) Act 1974 as amended, Town and country Planning Act 1990)
    It should also, perhaps be noted, that whilst a sublet in residential occupation of whatever length is recognized under the law of property per ca and does not appear to be a business for the purposes of the lease restriction, whether company owned or not; the use of a residential property for business as a registered address at companies house and all that that entails and implies in law would be a breach of use, arguably.

    2 cents worth.

    Reply
    • Giles Peaker

      Not even 1 cent’s worth I’m afraid. An Assured shorthold tenancy can be of any length as a fixed term. A week, a month, whatever. And it is a requirement for an assured shorthold tenancy that the premises is the tenant’s only or principle home.

      I can’t make out much of what you are trying to argue, because, I’m afraid, it is gibberish. An AST is a form of assured tenancy.

      Reply
      • James Martin

        Do privately owned Freeholders (flats) and their managing agents have clear liabilities in addition to the actual Leaseholders for Airbnb rentals? I have been looking at immigration checks liabilities but this seems to be implicitly on “Landlords” but not Freeholders? Do the relevant prohibitive Lease articles for unknown renters imply the Freeholder should do immigration checks? Looking for angles to force more rigorous action other than removing unauthorised combination locks for flat keys. I know most managing agents agents don’t budget for tenancy management, maybe this is another angle for a FTT, regarding service not done, in addition to the standard lack of price control for parts and labour.

        Reply
        • Giles Peaker

          No, the freeholder doesn’t.

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