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

March 3, 2022
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 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. 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, pandemic issues aside, 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.

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

As the popularity of short-term lettings has grown in recent years, there have been widespread calls for greater regulation of the sector. And Airbnb itself has proposed that a registration system should be introduced for those who operate short-term lets, to help maintain standards.

In response, the Government has already committed to launching a consultation on the possible introduction of a Tourist Accommodation Registration Scheme in England and plans to publish a call for evidence in 2022.

The Welsh Government is looking at amending its planning policy to help local authorities manage holiday lets and is also exploring the idea of a registration scheme for holiday accommodation.  

Meanwhile, licensing schemes are already due to be introduced in Scotland in 2022.

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 October 2022.

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 ensure that all properties let on a short-term basis are registered with the local authority and operated by a suitable person.

Existing hosts and operators will have until 1 April 2023 to apply for a licence for every property they operate as a short-term let and the fee will be between £214 and £436 (depending on variable local council costs) for a three-year licence.

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 by Vanquis Bank published in October 2020 showed that in many cities, landlords could expect to earn between 30 and 86 per cent 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’ve seen during the pandemic

Tips on 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
  • 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 – 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 the 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

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