Subletting, sharing possession or occupation
- Short term holiday lets - AirBnB - Booking.com - breach of the lease?
- Short term subletting by sub-tenant - liability of head-lessee
- Was sharing of occupation a breach of the lease?
- What did it mean to share possession or occupation?
- A case in which the court, at the request of the head landlord, ordered an unlawful sub-tenant to give the property back to the tenant.
Breach of Covenant?
 UKUT 180 (LC)
A lease that contains a covenant against use other than as a private dwellinghouse is breached where the tenant opts to let the property out on short term lets through sites such as Airbnb and Booking.com.
However, where the tenant still makes regular use of the property as a residence in and around those bookings, the tenant will not be in breach of a separate covenant not to carry on a business from the property (as distinct from a covenant not to use the property for a business).
Triplerose is the Beatties landlord of a flat pursuant to a 125-year lease granted in 2009. Under Paragraph 18 of Schedule 4 to the lease, lessees covenanted:
|“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 one time.”|
Paragraph 31 of Schedule 4 to the lease also included an absolute prohibition on assignment, sub-letting or parting with possession of part of the flat, and a qualified covenant against sub-letting the whole of the flat without T’s consent (except that ASTs granted for 6 months or less, and underleases giving effect to shared ownership schemes, did not require any consent).
The lessees had initially lived in the flat, but then relocated. Whilst trying to sell the flat, they made arrangements with a company for the flat to be advertised on Airbnb and Booking.com for short-term lettings. The company would advertise the flat for let mainly over the weekends, as they continued to make regular use of the flat on weekdays.
The company would provide laundry services between lettings, leave breakfast goods for visitors, and handle both check-in and check-out.
The landlord applied under s168(4) of the Commonhold and Leasehold Reform Act 2002 for a determination that the lessees were in breach of the above covenants.
The FTT distinguished the decision in Nemcova v Fairfield Rents Ltd  UKUT 303 (LC), in which the UT found that use of a flat for short term occupation by guests sourced by internet booking agencies was a breach of a covenant prohibiting its use “other than as a private residence”.
It did so for two main reasons:
(1) Because Paragraph 18 of Schedule 4 to the lease suggests “that the purpose of the clause is to prevent a trade or business being operated from the property, thereby maintaining residential use”; and
(2) The qualified covenants contained in Paragraph 31 of Schedule 4 to the lease “suggest that use as temporary accommodation, whether as a tenant, licensee or lodger, is envisaged.”
As a result, the FTT found that the lessees were not in breach of the terms of their lease.
There were two distinct points on appeal. Whether permitting the flat to be used as a serviced apartment advertised for short term occupation through internet booking agencies was a breach of Paragraph 18 of Schedule 4 to their lease because that covenant prohibited:
- Use “for any purpose other than as a private dwelling house for occupation by one family at one time”; and/or
- To “carry on or permit to be carried on upon the Property any trade or business whatsoever”
Decision on appeal
Martin Roger QC directly followed Nemcova. The correct question was whether the person who was in occupation of the flat at any particular time was using it for “any purpose other than as a private dwelling house for occupation by one family at one time”.
At para 20, he made clear that “short-term occupation by paying strangers is the antithesis of occupation as a private dwellinghouse. It is neither private, being available to all comers, not use as a dwellinghouse since it lacks the degree of permanence implicit in that designation.”
Martin Roger QC considered that it was very clear that the lessees had breached the first limb of Paragraph 18 of Schedule 4 of their lease, because the individuals who occupied the flats for weekends or other short periods were not using the flat as a dwellinghouse for occupation by one family at one time.
Although that covenant did give express permission for assured shorthold tenancies of a duration not exceeding six months, it certainly did not envisage that a succession of short-term occupiers would be permissible. It is a condition of an AST, pursuant to Section 1(1)(b) of the Housing Act 1988, that the tenant occupy the dwellinghouse as their only or principal home, which is perfectly consistent with the requirement that the flat be used “as a private dwelling house”. But a short term letting to someone who did not use the flat as their only or principal home (and therefore is not an assured shorthold tenant) would plainly require the landlord’s consent, which was not given to the lessees by the landlord.
Another key mistake the FTT made was in treating this question as subordinate to the other limb of Paragraph 18 of Schedule 4 of the lease, which is the other issue under appeal. Effect should have been given to each limb of the covenant independently, instead of allowing one limb to subvert the other.
Martin Roger QC determined that the lessees had not carried on or permitted to be carried on “upon the Property any trade or business whatsoever”.
The FTT had directed itself to the decision in Florent v Horez (1948) 48 P&CR 166, where the Court of Appeal determined that it was 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”. And the FTT had made a finding of fact that the lessees did continue to make use of the flat as a residence. Third party use of the flat was “both ancillary and subordinate” to the lessee’s use of the flat, and in that context no business was being carried out in the flat. Martin Roger QC agreed with that conclusion.
And importantly, there is a real distinction between using premises for a business and carrying out a business upon premises. As Paragraph 18 of Schedule 4 to the lease only prohibited the latter, it was irrelevant whether the property was being used for a business by the company that contracted with the lessees bto manage the short-term lettings.
Given this, the lessees had not breached the second limb of Paragraph 18 of Schedule 4 to the lease.
It appears that it was crucial, in respect of the second limb of Paragraph 18 to Schedule 4 of the lease, that the lessees continued to make regular residential use of the flat during the week. Had the lessees ceased regularly to make use of the property, third party use of the flat would not have been ancillary and subordinate.
Short term lets by sub tenant
Liability of lessee
A leaseholder was found to have breached a covenant relating to user of a flat as a private residence only in circumstances in which his tenant had marketed the flat on Airbnb, notwithstanding that he had not caused the breach.
The Applicant is the freeholder of Bevan House (“the Property”). The Respondent is the long leaseholder of one of the Property’s 33 flats (“the Flat”).
The Flat’s lease (“the Lease”) contained the following covenants:
a) “The Lessee shall not do or permit or suffer to be done in or upon the Demised Premises anything which may be or become a nuisance or annoyance or cause damage or inconvenience to the Lessor or to the owner or occupier or any other part of the Estate or in any way to behave in such a manner as to cause offence to the Lessor or to such owners or occupiers or whereby any insurance for the time being effected on the Estate or any part thereof may be rendered void or voidable or whereby the rate of premium may be increased and shall pay all costs and expenses incurred by the Lessor in abating a nuisance in obedience to a notice served by a competent authority”
b) “Neither the Demised Premises nor any part thereof shall be used for any illegal or immoral purpose nor shall any trade or business be carried on there nor shall any boarder or lodger be taken but the Lessee shall use the Demised Premises for the purpose of a private residence only”
The Applicant alleged that, in breach of these covenants, the Respondent’s tenant had let the Flat on a short-term, holiday basis between June 2018 and February 2019 and was therefore in breach of the covenant requiring user as a private residence and a breach of the prohibition against business user. It was also alleged that the user of the Flat for this purpose compromised the Property’s insurance. The Applicant had informed the Property’s insurer of the user of the Flat and it stated that, as a result, it was contemplating withdrawing cover and in the interim they would continue to insure but on more onerous terms.
The Respondent admitted to having sublet the Flat to on assured shorthold tenancies since 2007 (this was not in breach of the Lease) and denied a breach of the Lease on the basis that his tenant, who had let the Flat since 2014, had placed the Flat on the short-term holiday let market without his consent. The Respondent was however aware that his tenant let the Flat on a short-term basis while travelling for work.
- Given that the breach of the Lease had been committed by the Respondent’s tenant, was the Respondent in breach of the Lease?
- Was the placement of the Flat on the short-term holiday let market a breach of the covenant against business user?
It was held that as the covenant relating to user was in the “passive voice”, i.e. “shall not be used” as opposed to the active, e.g. “not to use”, it did not matter who was responsible for the breach, all that mattered was that a breach had occurred. The authority of Roadside Group-v-Zara Commercial Limited  EWHC 1950 was cited in support of this proposition.
The case of Borthwick-Norton and Others-v- Romney Warwick Estate Ltd  1 All ER was cited in support of the proposition that it did not matter that the Respondent was not directly responsible for the breach, and that it was sufficient that the Respondent had knowledge of the breach in the form of letters from the Applicant’s solicitor.
The Tribunal was satisfied that the requirement to use the Flat as a private residence only had been breached by the Respondent’s tenant and therefore the Respondent.
The Tribunal made no finding upon whether there was a breach of the prohibition against business user.
The Tribunal found that the use of the Flat for short lets did affect the Property’s insurance and was therefore also a breach of covenant on that basis.
This case is a brief yet interesting exploration of the distinction between passive and active covenants. It was held that the covenant was phrased in passive terms and therefore it did not matter who was breaching the covenant it simply mattered that it was being breached.
However, there is a strong argument that the covenant is in fact in the “active voice”. There is no reference in the covenant to not permitting or suffering to be done and therefore the covenant could reasonably be interpreted to have been binding only on the Respondent himself in accordance with Riverside.
If the covenant had been held to be in an active voice, it is likely that the following passage in Woodfall at 11.199 would have been applied:
|“A covenant not to do something will not generally be broken if the prohibited thing is not done by the covenantor but by a third person. Accordingly, the use covenant in a lease is often widened to prohibit the permitting or suffering of the prohibited activity. A covenant not to permit the carrying on of a prohibited activity will generally be broken if the prohibited activity is carried on by the covenantor himself”.|
The Borthwick Norton decision may be distinguished on the basis that the covenant in that case contained a covenant not to do nor suffer to be done and was therefore wider.
Sharing occupation - breach of covenant?
 EWCA Civ 160
Question:Was there a sharing of occupation in breach of the lease?
The user clause provided that the tenant was not to use the property or any part of it "otherwise than as a licensed snooker and social club together with a restaurant discotheque and bar on the ground floor".
The alienation clause provided that the tenant was no to "share the possession of occupation of part only of the Property nor permit nor suffer any other person company or firm to occupy or share the occupation of the Property or any part of parts thereof whether as a licensee or otherwise". T operated the venue by offering the club to external promoters who on their own account would stage club nights, taking full responsibility for admission revenues, advertising and administration burden. The promoters and artists were admitted one hour before the nightclub opened to prepare and set up. They were not provided with keys nor did they have access to any private parts of the club. The judge held that there was no breach of covenant and the Court of Appeal agreed.
- ".. this is one of those questions .. sometimes described as one of mixed fact and law, where there is no precise test... In my view, the starting point here was the nature of the permitted use, which involved such things as a social club, a discotheque and a restaurant... It involved the admission of the public ..[the judge] was entitled to treat the fact that the respondent in this case remained 'exclusively responsible for everything concerned with the property as opposed to the event' as being indicative of the fact that it had not shared occupation." (Carnwath LJ at paras 31-35)
- "This was a question of interpretation of a contract, and therefore a question of law.. The test, in my opinion, is whether the promoter ... is operating a separate business on the premises from that carried on by the tenant... If, on the other hand, the tenant is carrying on a business and the promoter participates in that business under the tenant's supervision and control, I would not say that the promoter is sharing the occupation of the property. There would simply be one business run by the tenant and the promoter is participating in it." (Sir Christopher Staughton at paras 39 to 41).
 EWCA Civ 1296
The covenant in the lease was in the following terms:
- "Not to .. part with possession of a part of the demised premises nor to share possession of the whole or any part of the demised premises nor to part with possession of the whole of the demised premises (except as hereinafter permitted) all of which are expressly prohibited."
It was held that there is a distinction between possession and occupation so that the covenant would only be breached if T parted with, or shared possession, but was not infringed if T merely parted with, or shared, occupation:
- Neuberger LJ: ".. it is perfectly possible for a lessee to permit a company, in which he has an interest, to occupy the demised premises for the purpose of its business, without parting with possession of those premises to that company."
In fact T had shared possession with a limited liability company, and that represented a breach of the covenant. The "elusive nature of the distinction" between sharing occupation and sharing possession; or between sharing possession or parting with possession was difficult to assess. The question boiled down to this:
- "Did Mr Akici retain possession in himself alone and merely permit the company to occupy the premises or did the company share possession with Mr Akici?" (Neuberger LJ at para 44)
The company ran a takeaway pizza business from the premises. In coming to the conclusion that there had been a sharing of possession the following factors were relevant: the company enjoyed a degree of control over the premises that amounted to its having possession (albeit non-exclusive); the business was a relatively intensive one involving employees, all of whom were employed by the company; both the tenant and at least one of the employees of the company had a key; the company paid the rent directly to the landlord; and although at the relevant time the tenant did not have a direct interest in the company there was "little doubt that there was something of value to Mr Akici in this arrangement".
(See also the forfeiture page for consideration of whether or not the breach was capable of remedy and the inaccurate s146 notice that landed the landlord in a lot of trouble.)
Order to restore
 EWHC 805 (Ch)
L managed to obtain an order requiring a sub-tenant to surrender the property to the tenant that had been sublet in breach of covenant. Facts The lease required any underlease to be on like terms to that of the lease:
- "Any permitted Underlease shall be granted subject to like covenants and conditions as are herein contained except as to the rent thereby reserved and the length of the term thereby granted."
The headlease contained a standard form full repairing covenant. The sublease included a repairing covenant but it was subject to the limitation that the subtenant was not required to put the premises into any better state of repair and condition than as at the date of the Underlease as evidenced by a schedule of condition that was attached.
The property was in a bad state of disrepair and a schedule of dilapidations had been served on T. L sought an injunction requiring that the underlease be surrendered. T sought a declaration that L had unreasonably refused consent to sublet so that it was free to do so without consent. (The reason given in fact had nothing to do with repair. T was in breach of an insurance obligation contained in the licence to assign under which T had taken the tenancy).
(1) The sub-lease was not in like terms to the head lease. Lightman J:
- "The term "like" does not import "identical" covenants, as is imported by the term "same": it imports similarity in substance without the need of similarity in form, detail or wording. Tesco plainly failed to include the "like" covenant in respect of repairs in the Underlease. The limitation by reference to the schedule of condition was substantial and meaningful: it was necessitated by the continuing default by Tesco to comply with its repairing covenant in the Lease."
(2) The requirement that the sublease be on like terms was a condition precedent to the ability to ask for consent to assignment. As the sublease did not satisfy the condition the question of reasonableness of Ls refusal did not arise (Allied Dunbar applied).
- "Accordingly by reason of the absence of a like repairing covenant in the Underlease the condition precedent to the existence of any obligation on the part of the Landlords to consider the application for consent to the grant of the Underlease to Magspeed was never satisfied. Tesco at all times therefore remained subject to an absolute obligation not to underlet and the Landlords at no time were under any obligation to consider Tesco's application for consent to underlet, section 1 of the Landlord and Tenant Act 1988 had no application and the grant of the Underlease to Magspeed constituted a breach of covenant by Tesco."
(3) It was possible to grant a mandatory injunction against the sub-tenant requiring it to give up the sub-lease because by agreeing to take the sublease it had committed the tort of wrongful interference with a contract. It was right to grant the injunction because the interference had been done knowingly and intentionally in the financial interests of T and the subtenant. Lightman J at paras 69 and 70:
- "The Landlords have accordingly in my judgment established that Tesco knowingly in breach of contract granted, and Magspeed tortiously accepted, the Underlease. In the circumstances in the absence of any equitable defence and any plea that its grant would be oppressive (and there is none pleaded, established or maintained) the Landlords are prima facie entitled to mandatory orders for surrender of the Underlease and should not be required to accept damages in its place.
- ... the Landlords in justice should be granted the mandatory order which they seek and the grant of any lesser relief would be inadequate, for interference with their rights was knowing and deliberate to serve the Defendants' financial interests."
(4) The judge also awarded L damages against both T and the subtenant, to be assessed by reference to the sum L might reasonably have demanded at the date of the breach of covenant, or commission of the tort, for relaxing the alienation covenant so as to permit the underletting. However, Im not quite sure why the judge considered that damages should be awarded given that he granted an injunction and damages are usually awarded on the basis suggested in lieu of an injunction. He simply said this at para 75.
- "Tesco then took the point that the experts in their joint report contemplate the award of damages in lieu of and not in addition to an injunction. This is correct, but the failure to contemplate the eventuality of an award of damages in addition should not preclude such an award unless to make such an award would occasion injustice to the Defendants. It has not been suggested that the award would occasion any injustice. No injustice can be occasioned so long as the Defendants are afforded the protection which they are afforded by this judgment."