Lease occupations and third party obligations
The decision in Nemcova v Fairfield Rents Limited serves as a timely reminder to owners of leasehold property to consider carefully all obligations in their lease and the intention of those obligations before allowing a third party into occupation.
Ms Nemcova had a long leasehold interest in a flat in a purpose built residential block. Like many property owners, she wished to earn an income from the flat. Rather than sub-let on an assured shorthold tenancy for, say, six months, Ms Nemcova preferred a more flexible arrangement and sub-let on a short term basis. Ms Nemcova advertised her flat as an alternative to hotel accommodation on websites such as Airbnb.
Ms Nemcova’s lease contained restrictions on sub-letting or parting with possession of the flat during the last seven years of the term. Therefore except during the last seven years Ms Nemcova was free to sub-let the flat without first obtaining her landlord’s consent.
The other flat owners in the block were unhappy that Ms Nemcova’s flat was being used for short term accommodation. They complained to their landlord, Fairfield Rents Limited, who in turn applied to the First-tier Tribunal (Property Chamber) for a determination that Ms Nemcova was in breach of her lease. Fairfield claimed that Ms Nemcova had breached the covenant in her lease not to use her flat or permit it to be used for any purpose other than as a private residence. Ms Nemcova argued that the flat remained her main residence and gave evidence that the flat was let for approximately 90 days a year and that almost all the occupants were business visitors working in London. However, the Tribunal rejected Ms Nemcova’s argument that as a long as the flat was being used as a private residence by someone, the circumstances of their occupation, e.g. a business visitor working in London, were immaterial.
The Tribunal followed judgments given in earlier cases which decided that occupation as a private residence means occupation as a home and requires a degree of permanence. For example, an assured shorthold tenant would consider the property to be their home, whereas a person occupying a property for only a few days would probably consider his or her home to be elsewhere. In reaching its decision, the Tribunal also considered the purpose of the covenant and decided that it was intended to benefit all of the flat owners and that the flats in the block should be occupied as a home.
The Tribunal gave Ms Nemcova permission to appeal. After considering the context of Ms Nemcova’s lease and circumstances of the case, the Upper Tribunal agreed with the First-tier Tribunal and dismissed the appeal.
The Upper Tribunal made it clear that Ms Nemcova’s case was decided on its own facts with reference to the construction of her particular lease. It is therefore possible the same decision may not be reached in the context of different lease terms and/or facts. However, Ms Nemcova’s case does emphasise that a lease should be considered in its entirety, as should the intention of a particular covenant and how it might benefit others, for example in this case the other leasehold owners in the block.
In addition to the lease it is also important to consider the terms and conditions of any mortgage and insurance policy which might impose restrictions on the use of a property.
If you would to further discuss any of the information included above, please contact Alison Sparks from our dispute resolution team.