Short-term letting: Greater regulation, licensing and control in Scotland in a post COVID-19 world?

Short-term letting accommodation across Scotland has grown exponentially in recent years, with estimates suggesting there are around 32,000 properties registered with Airbnb alone. Although good news for tourism, in some cities such as Edinburgh it was reported that (before COVID-19) there were more properties available for short-term lets than there were for the more traditional private rental market.

The rise of flexible accommodation has been welcomed by tourists and businesses, yet residents in certain areas have become frustrated at the volume of visitors, increased anti-social behaviour and the pressure on private rented accommodation available.

What regulation currently exists? In reality, not a great deal. Hotel and bed and breakfast operators argue the light touch regulatory regime around short-term lets puts their operations at a disadvantage.

In response to the wide and varied criticisms, the Scottish Government recently announced the introduction of a licensing system for short-term lets within the remit of the local government licensing regime.

I am a neighbour, what are my rights?

At present, neighbours have limited remedies to challenge short-term letting activity. Commentators have analysed the planning process, anti-social behaviour legislation and property law responses to some of the issues arising, but without identifying many solutions. There has been criticism that local authority responses can only be retrospective rather than preventative, although even then the perceived efficacy of these approaches is limited by cost and lack of local authority resource.

Licensing Scheme

On 8 January 2020, the Scottish Government announced that local authorities would be able to implement a licensing scheme for short-term lets from early 2021. Edinburgh and Highland Councils, two of the areas most affected by short-term lets, have both welcomed the move.

The Civic Government (Scotland) Act 1982 already covers a wide range of areas for which a civic licence is required: examples include taxis, scrap metal dealers and window cleaners. There is therefore precedent for expanding the remit of this Act to include new sectors.

I am a property owner: what might the Licensing Scheme look like, and what should I be thinking about?

1. The existing Private Landlord Registration scheme may act as a starting point for the new licensed regime for short-term lets. However, the absence of “grandfather rights” (in effect, an automatic entitlement and which would have been similar to that employed during the transition of the liquor licensing regime) has raised some eyebrows. What that means is that operators who offered short-term lets prior to any licensing requirement coming into force will still need to apply for a licence. There will also likely be additional costs, potential publicity and ongoing compliance requirements that operators will need to consider.
2. The proposed licensing system may include a limit on the number of days the property can be let before a licence is required. A 28 day per year limit has been mooted by some authorities as the trigger for requiring a licence. Councils may have powers to cap the number of licensed properties within an area, similar to the overprovision rules for pubs and nightclubs.
3. HMO Licences may also give us a flavour of the future of short-term letting regulations. Landlords are currently under strict requirements around electrical testing and internal alterations to their property such as the installation of fire proof doors. The local authority must be satisfied that the owner and any manager is ‘fit and proper’ to hold the HMO Licence and that the property is suitable for use as an HMO. Rules on basic amenities, condition of the property and sub-division of rooms may be transposed from this setup to short-term lets.
4. Sanctions for non-compliance including heavy fines both feature under the HMO and liquor licensing regimes. We might also start to see an attempt to introduce further energy efficiency and environmental compliance rules by the back door of the short-term letting licensing regime.

Impact on Landlords and Local Authorities

It seems a certainty that the days of simply renting your spare room (or a spare property) on a casual basis are numbered. Both property owners and local authorities can expect a surge in applications when the new regime comes into force.

In addition to any increased workload for licensing departments, there will likely be an impact on the Police, Fire Service, Building Standards and others who may be required to comment on applications. It will therefore be vital that the Scottish Government ensures the necessary resources are in place together with sufficient publicity to facilitate a smooth transition to the new licensed regime.

Impact of COVID-19

Despite demands from locals for greater regulation, and the Scottish Government's response, it may well be that the post-Covid world is a very different landscape for online letting platforms. It has been reported that short-term letting booking numbers have fallen off the cliff as a result of governments around the world introducing lockdowns, travel restrictions, and social distancing. Travellers have become more wary, and locals are more suspicious that the transient tourist trade may exacerbate the spread of the virus.

When lockdown restrictions are eased, property operators will likely need to think carefully about health and safety issues, increased hygiene requirements, the cleaning time between check-out and check-in, and what the response will be if a guest is subsequently diagnosed with coronavirus.

Shepherd and Wedderburn has a team of planning, licensing, and health and safety experts that can assist property owners in navigating the regulatory challenges that will need to be overcome. If you would like further advice on this or another related matter, please contact a member of the team.