Common sense would tell us that it should be difficult to create a lease accidentally, but in reality it is not that hard. In fact, it is not that uncommon for parties to enter into a lease arrangement when they thought what they had was merely a licence to occupy. Property owners need to ensure when entering into holiday lets or licences to occupy, that they are not inadvertently creating a lease with secure tenure, as the recent case of St. Andrews Forest Lodges Ltd v Grieve demonstrates.
In 2015, Mr and Mrs Grieve’s holiday cabin business went into administration and the cabins themselves were sold by administrators to St Andrews Forest Lodges Ltd (SAFL). The Grieve family, who lived in one of the lodges, wanted to retain their family home by buying it back from SAFL. To allow vacant possession at the time of sale, the Grieves vacated the property for a short time. When the Grieve family returned, the property was let to them through SAFL’s standard form of holiday letting agreement. Several months later, the sale back to the Grieves fell through, and SAFL asked the Grieves to vacate the lodge. The Grieves refused, claiming they had an assured tenancy. The ensuing legal proceedings provide some insight into the differences between licenses to occupy and leases, and have important ramifications for those who let their properties on a short term basis.
Lease or Licence?
One of the main points of contention in this case was whether the holiday let agreement was a lease or a license to occupy. Mr and Mrs Grieve argued that the four essential elements of a lease were present – the parties, the property, the rent and the duration – meaning they had an assured tenancy. SAFL argued that as there was no intention to create a tenancy, it could not be created. Instead, relying on the wording of the agreement, they argued that it was a licence to occupy, which offered much weaker legal protection. It was determined however, that the Grieves had a lease and that the lack of intention was not fatal. The main difference between a licence and a lease is not intention, but whether the tenant had partial or exclusive occupation. A lease requires exclusive occupation, in effect the fifth essential element of a lease.
Assured Tenancy or Holiday Let?
After it was decided that a lease had been created, the legal question became whether or not the lease constituted an assured tenancy. An assured tenancy provides the tenant with security of tenure, meaning there are only very limited circumstances under which the landlord can evict them.
To create an assured tenancy, the following criteria must all be met:
- The property is let as a separate dwelling,
- The tenant is an individual, not a company,
- The tenant occupies the property as their principal home, and
- The tenancy does not fall into one of the excluded categories, such as let to students, properties let for the purpose of holidays, a let on a property that is a licensed premises, and properties let for a very low rent.
SAFL argued that the lease was excluded as it was a holiday let, as it had been entered into on the basis of their standard holiday let contract. This argument was unsuccessful as regardless of what the agreement said, the tenants weren’t on holiday. They were occupying this residence as their principal home, and planned to continue to occupy it in that way. If it was declared to be a holiday let, contrary to the factual evidence, this would create a route for landlords to contract out of the statutory regime which creates assured tenancies. A holiday let is a tenancy, but one which is exempt from being an assured tenancy, so long as the purposes of the let is to confer on the tenant the right to occupy the house for a holiday. The Grieves’ occupation was clearly inconsistent with such a purpose.
The Impact on Landlords
There is a salutary lesson to learn here. Despite the name you give an agreement, if it contains all of the elements required for a lease – parties, property, rent, duration, and the fifth of exclusive possession – it can be construed as a lease.
If you wish to rent out property on a holiday let basis, ensure the tenant understands the temporary nature of this let and ensure the whole agreement is consistent with a holiday let. If the property is intended to be let out on a more permanent basis, be aware that even if the agreement is called a holiday let, if the essential conditions are met, it may be deemed to be a more permanent lease by a court.
The goalposts will shift slightly in the near future when the current forms of short assured tenancy and assured tenancy will be scrapped in favour of a new form of Private Residential Tenancy. It will no longer be possible to create a short assured tenancy, and any tenancy that satisfies the essential conditions will provide security of tenure.
The holiday let exemption, which prevents holiday lets from becoming assured tenancies, will still apply, but there will be no option to create a short assured tenancy for guests staying for a longer period. The short assured tenancy has been a feasible alternative to the holiday let if you wanted to let residential property for a longer period, but to qualify as a short assured tenancy, which allows the landlord to recover possession at the end of the period of the lease, certain statutory procedures must be followed. These procedures were absent in this case.
With the increasing popularity of holiday letting through companies such as Airbnb, more homeowners are taking advantage of the ability to derive additional income from their home by letting it out on a temporary basis for holiday use. Using an online broker in this way should ensure that terms and conditions of the letting for holiday purposes are clearly understood.
However, private individuals and organisations brokering their own holiday letting arrangements need to ensure they have clear and properly constituted letting agreements to ensure that homeowners do not inadvertently grant occupancy rights to visitors, and holiday tenants do not unwittingly take on long term obligations.
The Impact on Individuals
If you are renting your home direct, make sure you enter into a written lease which accurately represents the position you want to be in. If you are a tenant who intends to occupy the property as your principal residence for a longer period of time, the lease cannot be a holiday let. Although courts will look at the circumstances rather than the name given to the lease, if you sign a lease that gives the impression that you will only be staying for a short period of time, it is difficult to argue that an assured tenancy has been created.
If you would like more information on how these changes could affect you, please contact a member of our property team.
Article contributor: Emma De Sailly, Solicitor, Shepherd and Wedderburn