Short-term tenancy agreements: what landlords need to know - Total Landlord Insurance

June 25, 2024
Total Landlord Insurance
Short-term tenancy agreements: what landlords need to know - Total Landlord Insurance

As a landlord, you have various different options for letting residential property to a tenant.

You could let a whole property to one household on an assured shorthold tenancy (AST), which is commonly an initial six or 12 month agreement. According to the latest English Housing Survey report, the average tenant stays in this kind of rented accommodation for more than four years.

But, at the other end of the spectrum, some landlords prefer to let on an all-inclusive, short-term basis using a short-term rental agreement. That could be a holiday home they also want to use themselves every now and then; it could be a high-end corporate let investment in a city centre for short-term business stays – or they may choose to target the rapidly growing Airbnb-style tourist customer base.

Short-term letting is generally defined as any tenancy under six months in length and properties used to be rented for weeks or even months at a time.

However, since Airbnb really took off around a decade ago, many landlords have been prepared to let their properties for just a few nights and, for some of those, it’s proving a very lucrative investment.

But what form should a short-term rental agreement take, and what restrictions and requirements should you be aware of if you’re thinking of letting to someone on a short-term basis?

What is a short-term tenancy agreement?

A short-term tenancy agreement is generally for lets of less than six months and can be used for as little as one night. The type of agreement will depend on what kind of accommodation you’re letting and for how long:

1. A holiday letting agreement

This can be used for lets where the tenant is temporarily using the accommodation specifically for holiday purposes – i.e. they have a main home elsewhere.

Unlike an AST, there is no model government agreement for a holiday let, although many holiday letting specialists and legal companies produce templates you can use.

The agreement will usually include:  

  • Details of the parties – including the tenant’s permanent address – the property and length of the let
  • Details of any deposit payable
  • Cancellation information – such as whether a proportion of the rent is payable for late cancellations
  • Tenant covenants – e.g. careful use of the property, allowing access by the landlord for inspections and pet clauses
  • Landlord covenants – e.g. allowing the tenant quiet enjoyment and provision of linen and towels, etc.
  • Forfeiture, outlining the circumstances under which the landlord can bring the tenancy to an end if the tenant has breached their obligations.
  • A clear statement that the property is being let solely for the purpose of a holiday

2. An AST with a short fixed term

If the following conditions are met:

  • You as the landlord do not live at the property
  • The tenant is an individual (or individuals) – i.e. not a company or organisation
  • It is the tenant’s sole or main residence
  • The annual rent is under £100,000

Then the law considers the let to be an assured tenancy and you should use an assured shorthold tenancy agreement (AST).

While an AST can be for any length of time, the important thing to note as a landlord is that it is up to the tenant whether they want to move out at the end of the agreed specified (fixed) term.

If they refuse to leave, the only way you can evict them (assuming they haven’t breached any terms), is by following the Section 21 procedure.

That means the earliest point you can issue notice is the end of month four, requiring them to leave at the end of month six.  If they don’t leave voluntarily, then you’ll need to evict them through the courts. Find out more in our ultimate guide to handling the eviction process.

3. A lodger agreement/licence agreement

If you’re temporarily letting accommodation within your own home, you can use a lodger agreement, which will invariably be a ‘licence to occupy’.

This essentially gives a lodger permission to use facilities in your home and sets out the rights and responsibilities of both parties.

In this case, there are far fewer legal requirements for the landlord than with a lease or a tenancy agreement, and your lodger has fewer rights.

You only have to give them four weeks’ notice to leave and you would be able to evict them without going to court. However, it’s important to be aware that if a licence is not set up correctly, the let may be viewed as a tenancy – in which case, the conditions of a standard AST would apply.

Be aware that if the accommodation is not in your own home, the ‘occupier’ is not classed as a lodger and the eviction process would be different.

In that case, it is worth considering and consulting with a legal expert to use an AST for a short fixed term instead, so that there is a clear process for regaining possession under Section 21.

Although it is technically possible to create a residential licence where you’re not renting out a room in your own home, that’s not an easy thing to do and the legal status of the occupier will depend on the circumstances of the let, rather than the wording of any agreement they sign.  

“If you’re a landlord providing short-term accommodation, it’s vital that you understand the legal status of your tenant or lodger and have the correct contract with them. Someone renting a flat as their primary residence for a few weeks or months has very different rights to someone in a holiday let – and it’s different again if you have a lodger renting a room in your own home. Hopefully, you’ll never need to evict those occupying your property, but if you run into difficulties, we’d always recommend you try to resolve things either directly or via mediation. If that’s unsuccessful and you need to formally evict them, you’ve got to make sure you follow the correct legal process, according to their status and as defined in the legal agreement you have with them – whether that’s an AST, a holiday let agreement or a licence agreement. Unfortunately, when it comes to evicting a short-term tenant, there simply isn’t a ‘one size fits all’ rule!” – Paul Sowerbutts, Head of Legal at Landlord Action

As with any legal agreement – and particularly if you’re not using an AST – it’s advisable to consult a legal lettings specialist to make sure you have the most appropriate contract for your short-term let and that you have set up the let properly.

Please note: Airbnb is just an advertising platform! It is not a type of let and, regardless of any template documents or advice they might give, using Airbnb does not change the regulations that apply to rented property.

Five key differences between holiday let agreements and ASTs

  1. For a holiday let, the tenant must have a primary residence elsewhere, whereas an AST is used when the property is their main or only home.  
  2. ASTs come with additional legal requirements that landlords have to abide by.
  3. There is no government ‘standard’ holiday let agreement, whereas there is a model AST.
  4. Holiday lets are usually all-inclusive. That’s fully-furnished – with landlords expected to also provide linen, towels and a fully-equipped kitchen – and with internet, television and utilities included in the rent.
  5. Landlord insurance policies will be different for each type of let, so make sure your insurer understands which kind of occupancy you’re offering.
“When securing UK holiday home insurance, it’s important to make it clear to your insurer how the property will be used, as the terms, premiums and excess can vary significantly, depending on whether you have paying guests – and how many – or if it’s just for personal family use. We know that many of our current clients struggled in the past to find appropriate and cost-effective insurance for their holiday homes, so we’ve put together a comprehensive, tailored policy that can provide cover for up to ten paying guests – including accidental damage, malicious damage and theft. The standard excess is £250, but that drops to £100 if the property is used by the family only. Investing a little time in making sure you have the right holiday home insurance means you can be confident that your property is always protected, whether you’re there or not.” – Steve Barnes, Associate Director at Total Landlord Insurance

Can any property be let on a short-term tenancy agreement?

Generally speaking, outside London there is no limit on the number of days you can let a property on a short-term basis in England.

However, in terms of residential planning law, short-term lets fall into a different use class to single household properties (C3) and large Houses in Multiple Occupation (C4) – they are ‘sui generis’.

It’s up to the local planning authority to decide whether a short-term let amounts to a material change of use of the property and, if they do, then you may need to apply for planning permission.

Also, each local authority has the power to impose ‘selective licensing’ schemes.

That means they can make their own rules for different types of residential accommodation within an area – for example, they may have a policy that every rented property in 20 named streets requires a licence.

Given that both licensing and planning permission for rented properties are legislated for at a local level, if you’re thinking of offering short-term lets, your first port of call should be your local council, to find out exactly what their policies are.

Finally, it’s essential to check the conditions of your mortgage, insurance and any lease, as short-term letting may be prohibited.

The 90-night rule in London

If you own a property in Greater London and want to offer short-term lets, you’re limited to 90 nights per calendar year – regardless of whether you’re letting the whole property or just a room.

If you breach this rule, the council could simply serve you with a notice to desist, or they could issue a fine of up to £20,000.

To let on a short-term basis for more than 90 nights, you must apply to your local planning authority for permission to change the property use class.

Possible future regulation of short-term lets

There has been growing concern in England and Wales that buy to let landlords are switching from long-term to short-term letting. The purchase of second homes, either for private use or for holiday lets, is reducing supply, preventing locals from owning properties and impacting local communities negatively, with residents being ‘pushed out of their communities’. It also reduces the amount of long-term rental accommodation available for seasonal workers in holiday destinations.

To address this, there have been ongoing government consultations regarding possible future changes to the planning rules, council tax and business rates regulations for short-term lets, and also the setting up of national registers of short-term holiday accommodation.

Currently, in England, holiday homes qualifying as a Furnished Holiday Let (FHL) must be available for letting for a minimum of 210 days per year, and be let for a minimum of 105 days of the year. They must not be occupied by long-term tenants for more than 155 days of the year and not be occupied by any tenants for 31 days of the tax year.

Recent planned legislation changes mean you may eventually need planning permission from the local authority to convert a home to a short-term let. There are also plans for the eventual introduction of a mandatory national registration and licensing scheme. These rules will not apply to people renting out their main home for less than 90 nights a year.

A residential house is categorised as a planning class C3. What the Government is now proposing is that FHLs must change from C3 to a new planning class C5 before they can start holiday letting. In some areas councils may insist that you have to apply for permission through the planning application process, and they could reject applications if they deem there to be pressure though over-supply of holiday lets. If and when this legislation hits the statue book in England, existing holiday lets will not be affected – they will automatically be reclassified as C5.

Where your holiday let qualifies for FHL status it will more than likely have to pay business rates, which are a tax to help towards the cost of local services. However, depending upon the profit your property makes, you may be entitled to small business rates relief.

Where a holiday let does not qualify for holiday home business rates, then owners are required to pay council tax. The amount to be paid will depend on the value of the property, its location and what the council decides to charge – some may charge premiums of 200% to 300% for holiday lets.  

Currently in Wales, holiday let businesses must be let out for 182 days a year, or six months, to qualify for business tax. If not, it could be classed as a second home meaning the owners could, in some locations, pay a council tax premium - up to 300%. The Welsh Government has said it plans to introduce a statutory registration and licensing scheme for all visitor accommodation in Wales before the end of 2024.

For more information visit the Welsh Government website.

The UK Government announced in its Spring Budget in March 2024 that it will abolish the Furnished Holiday Lettings (FHL) tax regime from April 2025. It promised to publish draft legislation, explanatory notes, and  tax information in due course. For more information see this House of Commons Library research document on the taxation of furnished holiday lettings.

Given the general election on 4 July, 2024, any further information on this, and any other legislation changes, are likely to be delayed until well after the election. A change of government may mean that some of the rule changes will be revised. Keep an eye out for updates and consult your local authority before making any changes.

Licensing of short-term lets in Scotland

In January 2022, the Scottish Parliament approved legislation requiring all local authorities to establish a licensing scheme for all short-term lets by October2022.

This new law was developed after concerns were raised by residents across Scotland over the impact of short-term lets on their communities. Some of the key issues were noise, antisocial behaviour of tenants and the knock-on impact on the supply of housing for longer-term residents.

Among other things, licensing will make sure that all properties let on a short-term basis are registered with the local authority and operated by a suitable person.

Further information can be found on the Scottish Government website.

What are the pros and cons of short-term letting for landlords?

As with any type of rental, there are upsides and downsides that every landlord should consider carefully before moving ahead with short-term letting.

Here are our top three pros and cons:

Benefits of short - term letting

  • Higher rental rates

Short-term tenants are prepared to pay a significantly higher pro-rata weekly rent than long-term tenants, in return for high-quality, all-inclusive accommodation.

Research has shown that in many cities, landlords can expect to earn between 30 and 86% more by letting rooms by the night, compared to having a long-term tenant.

And if you let your own holiday home for most of the year, that could generate enough revenue to cover the costs of owning the property – even while you’re using it yourself! – with some extra income on top.

  • Flexibility

It allows you to make money at any point in the year from a room or property that might otherwise be sitting empty.

  • It should be easier to evict troublesome tenants with a holiday let!

If you’ve let a property on an AST, a troublesome tenant can take many months and be very expensive to evict.

However, on the rare occasion that you might get a less-than-desirable short-term tenant in a holiday let, the good news is that they’ll hopefully be gone fairly soon.

Downsides of short term letting

  • More time-consuming to manage

With short-term lets, you’re often more a ‘host’ than a landlord, and your tenants are more like ‘guests’.

Given that they may only be staying in the property for days, rather than weeks – and particularly if it’s a holiday for them – it’s even more important than usual to check them in properly, making sure they know where all the facilities are and how everything works.

You also need to be on hand in case they have questions or there are any problems during their stay in the property, and then the property will need a complete turn-around before the next guest arrives.

Because of this extra level of management and service required, many landlords choose to use a professional short-term let company to operate the let on their behalf

  • Higher maintenance costs

With higher rental prices come higher expectations, so – especially given the high level of ‘traffic’ through your property – you’ll have to spend more on maintaining the décor, furnishings, fittings, linen and equipment than you would in a long-term furnished rental. And don’t forget to budget properly for a thorough clean between occupiers

  • Inconsistent income

Although pro-rata daily rental income might be substantially higher than with a longer-term tenancy, there will naturally be more void periods.

And, because many short-term lets are dependent on tourism, tenant demand can peak and trough depending on the time of year and various economic forces beyond your control, as we saw during the pandemic

Tips for successful short-term letting

If you want to make sure you attract the best short-term tenants, you’ve got to stand out against your competition. So here are some top tips on how to shine in the short-term rental market:

  • Aim for boutique hotel quality
  • Have professional marketing photos taken for your advertising and to help with marketing your property
  • Keep an eye on similar short-term lets being offered in your area, so you can make sure you stay competitive
  • Online reviews and ratings are important, so go the extra mile to welcome tenants with a thoughtful tenant welcome pack – perhaps with a bottle of wine on the table and some basic supplies in the fridge
  • Put together a ‘home and local area’ folder, with information on all equipment in the property; attractions and excursions; local taxis, bus and train timetables; restaurants and home-deliveries etc.
  • Take out a suitable short-term let insurance policy that will cover any tenant damage.
  • Most importantly, make sure you are always fully compliant with lettings law and the various regulations that govern your type of let. If you fail to comply with things like gas, furniture and licensing rules, that can result in substantial penalties and fines

Short-term lets insurance for landlords

Whether you use your home purely for your family, or you let it out for short-term holidays, it’s important to make sure you have insurance cover. Our UK holiday home insurance provides comprehensive cover for up to 10 paying guests, including accidental damage and malicious damage.

  • If you’re looking to move into short-term lets or Airbnb, read our ultimate guide to short-term lets and holiday let insurance. It explains everything you need to know, from how to choose a property and get it ready for short-term letting, through to financing and insuring your short-term holiday let in the right way.

Become a Total Landlord.
Get a quote for our award winning landlord insurance.