When leasing there are advantages and disadvantages to both long term and short term lets. Long term tenants provide a steady stream of income and are relatively easy to manage, but only if you find good tenants. Short term lets however, can provide a higher return so it’s easy to see why you might be persuaded to move into this arena.
One of the disadvantages of short term letting is the amount of work that’s involved in managing the constant turnover of guests. That’s why companies such as Airbnb have become so popular.
Utilising a modern platform for both landlords and tenants, the site creates a way to get your properties marketed, booked up and processed with much less effort. But while this looks like a straightforward way to gain a good income from your property portfolio, there are things you may not be aware of.
Short term let risks
If you have ventured into short term letting, especially using popular sites to manage those lettings such as Airbnb, you need to be aware of the following risks:
Short term let mortgages
If you have purchased your property or properties with a view to letting, then you might think that you’re ok to change from hosting long term tenants to short term tenants. Be warned that in most cases lenders don’t allow this on a standard buy-to-let mortgage. Research by Telegraph Money revealed that just two out of nine mainstream mortgage lenders allow Airbnb-type lettings without prior consent. Those who go behind lenders’ backs and list their property on Airbnb regardless would be in breach of their contract and the lender could ask them to repay the mortgage immediately.1
In London, local authorities can serve enforcement notices on a property owner who has breached planning law if they change the use without planning permission. If the property owner does not comply with the notice they are liable to a £20,000 fine.2
Even if you own the leasehold property outright, your lease may still prohibit you from subletting so you will still need permission from the freeholder. Freeholders are increasingly aware of websites such as Airbnb for subletting properties and are increasingly prepared to take action against leaseholders who breach their lease.3
Insurance for Airbnb hosts
You must make sure that you advise your insurance company if all or part of your property is to be used as a short let. Some insurers don’t cover Airbnb type lets so you need to make sure that your building is covered or risk having your policy voided.4
Change in risk
A recent example from our claims department highlights the impact of not disclosing property usage to your insurer.
A property owner who failed to disclose one of their flats was being used as an Airbnb, had a claim for water damage rejected. The insurer said the client had breached the change in risk condition. As the insurer doesn’t write Airbnb risks they wouldn’t have wanted to continue cover, and wouldn’t have offered renewal terms based on this information.
Not only has the client been left with the huge financial burden of the repair work, they also have the added complication of declaring to potential new insurers, a previously cancelled policy, and repudiated claim. Such declarations limit the number of insurers that will quote and the cost of cover is likely to be a lot higher.
Failure to disclose changes in circumstances to insurers, lenders and other authorities can have major consequences not only in the short term but long term as well. Having a record of policy cancellations, breached mortgage terms and court injunctions might see your property business fail completely. Before assuming that small changes don’t need to be communicated, just a quick call to one of our property experts could save you and your business from a potential insurance disaster.