Residential leasehold: your house, their rules

An Englishman’s home is his castle. Though perhaps not if one is a leaseholder. All leaseholders ought to know they are subject to various obligations and restrictions under the terms of the lease with their landlord or perhaps neighbouring leaseholders, but many might not realise or give too much thought to the extent of these. While there have often been instances of residential leaseholders assuming that the significant purchase price paid for their flat allows them entirely free rein in its use – and learning lessons as a result – certain covenants are coming under increasing focus as people change how they use their homes. For instance, are leaseholders allowed to work from home? Host on Airbnb? Keep pets? Change the flooring? It depends. The first document to look at is the lease, which will contain a comprehensive list of what leaseholders can, or more to the point, cannot do in or with their properties. Here are some of the more common scenarios. Penalties for a breach The consequences of a breach of covenant can range in severity, from non-action to the receipt of a letter requesting that the breaches are remedied to injunctive proceedings, all the way to court proceedings that could result in the lease being forfeited and the leaseholder losing their home. While this draconian outcome is rare in practice (as the courts are reluctant to make an order that results in a leaseholder losing their home – for which they paid a significant premium – without providing opportunities for the leaseholder to make good on their obligations), leaseholders who ignore their covenants do so at their peril. Leaseholders should also consider that they might be liable for the landlord’s costs of any enforcement action. Working at home Working at home is a relatively new phenomenon, accelerated by the Covid-19 pandemic. While the lockdown restrictions have been lifted, the option to work at home has remained for many – particularly those with office jobs. Given that many leases contain provisions which prohibit leasehold properties being used for any purpose other than as a private dwelling, this raises question as to whether homeworking leaseholders would be in breach. The short answer, which will come as a relief to many, is that it would be challenging for landlords to succeed with such legal action, although each case will turn on its own facts. The typical covenants of relevance contained within the lease are likely to be along the lines of: “Not to use the property or any part thereof for any trade or business but keep the same as a private dwelling-house only.” “Not to use the property or permit it to be used for any purpose whatsoever other than as a private residence.” On the face of these covenants, the prohibition is quite onerous and it would seem that working at home could be regarded as a breach. However, case law has evolved in such a way where the commercial and factual context behind these clauses would be taken into account. It is unlikely that in anything other than the most modern leases these clauses would have envisaged working at home as being a breach. Instead, these clauses are designed to prevent business activities that are likely to cause a nuisance to neighbours (for instance, businesses which would involve heavy traffic or activities which are loud, for example, music teaching) or which might put the landlord on the hook for business rates, at risk with their insurance policies or in breach of planning obligations. When the court faces these types of questions, it considers whether the non-residential use is more than ancillary or subordinate to the residential use.  This is a question of fact and degree. The answer might be different between someone who is working for a company on a laptop, as opposed to someone who is running their own dog grooming business. While there is minimal case law on the specific point of working at home, it would be reasonable to assume that working at home to the extent that does not cause prejudice to neighbours or the landlord would give rise to a weak claim, if the landlord chose to pursue it. Holiday lets Another recent trend is the rise in holiday lettings, often through platforms such as Airbnb. Some leaseholders might think listing their property on Airbnb could be a good way to supplement their income or to make use of a property that would otherwise be unoccupied. However, recent case law indicates this would be a risky approach to take. There is a distinction to be drawn, as against the working at home scenarios above, given the issue of holiday lettings has been tested on several occasions in the courts. The cases have broadly held that lettings are likely to be in breach of the usual subletting covenants or use covenants (similar to those above). It is not uncommon to see lease clauses which prohibit i) a property being used as anything other than a private residence (like above), ii) a property being used for business purposes, iii) underletting without the landlord’s prior consent (not to be unreasonably withheld), or iv) the sharing of occupation. All of these covenants could be engaged through holiday lettings. An example of a user covenant might look like: Not to use or permit the use of the property or any part thereof otherwise than as a residential flat with the occupation of one family only.” An example of a covenant against the underletting of the property might look like: Not to part with or share possession of the whole of the property save by way of an assignment or underlease of the whole of the property.” Both of these covenants, collectively or separately, are problematic as far as holiday lettings are concerned. The courts have held that the first clause is breached in instances where the property is not being used for residential purposes, occupied by a single family, but instead by transient travellers who pay for the privilege. In the case of the second, it is probable that parting with possession of the whole of the property, even for a few days, could engage the requirement to seek the landlord’s consent. In practice, many landlords are beginning to take a more robust approach to short-term lettings (perhaps encouraged by the recent decisions), which can often result in expensive injunctive proceedings – the costs of which are likely to fall to the defaulting leaseholder – or steps taken towards forfeiture. Given that several covenants could be engaged by short-term sublettings, particularly where money changes hands, it would be important for lease terms to be reviewed carefully and consents sought where required. There is also the issue of planning requirements, with some local authorities (particularly in London) imposing a maximum of 90 days for short lets which would not trigger the requirement to seek planning permission. Leaseholders should also consider the requirements of their mortgage. Pets Pet ownership in leasehold properties – and particularly the outright banning of it – continues to be controversial to the point where the government is beginning to intervene. As the law currently stands, leaseholders are beholden to the covenants in their lease, which can vary from allowing pets without the need for consent all the way up to absolute prohibition. An example of a covenant restricting pet ownership might look like: “Not to keep a pet in the property without the previous consent in writing of the landlord.” In this case, the leaseholder’s right to keep a pet at the property is subject to the landlord’s consent (acting reasonably or otherwise). Until such time as the law changes, leaseholders will need to check the terms of their lease carefully and seek any necessary consents. The Dogs and Domestic Animals (Accommodation Protection) Bill is currently making its way through parliament and is one to look out for, particularly as it seems to widen rights to keep dogs and other animals in domestic accommodation. Works Many leaseholders are likely to give serious thought as to what improvements they make to their home. While many minor works would be unlikely to engage the terms of the lease, substantial works (such as the removal of non-structural walls) may require landlord consent or even planning permission or building regulations approvals. In addition, many leaseholders can be caught out by more unusual, specific provisions. For example, there might be covenants about certain types of flooring.  An example of such a covenant could be: “Cover and keep covered all the floors of the property (except any kitchen or bathroom) with close fitting tufted carpet and underfelt or other form of underlay to prevent undue penetration of sound to adjoining properties.” It is not uncommon to see leaseholders fall foul of this provision on the basis that they had assumed that a change to wooden flooring in living room areas would not require the landlord’s approval. However, such covenants are often intended to limit noise or vibrations emanating from other flats in a building and are capable of enforcement. Communication is key As ever, the key to maintaining good landlord and leaseholder harmony is communication. Issues are likely to be fewer in cases where leaseholders are more aware of their obligations, particularly where such obligations are onerous. The onus is on leaseholders to ensure that they remain on the right side of the line to avoid enforcement action being taken against them, which can end up being costly. Samuel Lear is an associate at Charles Russell Speechlys Image © Oleksandr Latkun/imageBROKER/Shutterstock