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Big Changes This Month for Holiday Lets

The short-term holiday letting industry has significantly expanded in recent years, but this could all change with the introduction of a licensing regime in the Levelling Up and Regeneration Act.

The Holiday Letting Industry

Last year the BBC reported that holiday lets in England had risen by 40% in three years. Many investors see holiday lets as a viable option for additional income without the burden of long-term tenants, resulting in a booming visitor economy. However, at the same time it has been identified by industry experts that it is becoming increasingly difficult to regulate the quality and safety of short-term lets which is different to hotels and Bed and Breakfast which are already regulated.

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The Levelling Up and Regeneration Act

The Levelling Up and Regeneration Act (“the Act”) received Royal Assent on 26th October 2023. Section 228 of the Act requires the Secretary of State to make regulations which will create a licensing scheme for short-term lets such as holiday cottages and self-catering apartments. 

The Government’s aim is to introduce acceptable standards and provide a platform to address negative community and housing market effect. In short this would mean that providers of short-term lettings will need to provide good quality, safe accommodation which complies with minimum standards. 

The section will come into force on 26th December 2023.

The Proposed Licensing Scheme

The Department of Culture, Media and Sport conducted a consultation which came to an end last month and which sets out three options as follows:

1) the Local Authority can choose to opt in or opt out in administering the licensing scheme, a little like applying for Home in Multiple Occupation license scheme; or

2) the Local Authority will run the licensing process in its entirety- there may be a review for example in 3 years’ time which will mean it becomes mandatory for all short-term holiday lets to have a licence in place; or

3) a mandatory national scheme will be administered by the English Tourist Board.  

The issue with option one and two is that short term let hosts will need to review each Local Authority requirements and review their respective licensing processes, which will vary from one Local Authority to another. This may come to be a heavy administrative burden and time-consuming for hosts with large portfolios.

Until the primary legislation is passed it will be unclear as to who and what will need to be registered with the scheme- will it be the owner of the short term lets; will the owner need to register the entire building or the individual units that are being let out and how long will the licence be valid for; what would be renewal process look like. 

These questions will need to be addressed fully.

The Act only applies to properties in England and Wales. However, note a licensing scheme for short-term lets hosts came into effect in Scotland in October 2022 this was following multiple rounds of public consultation which discussed how best to regulate the sector.

Potential Consequences for Non-Compliance

The regulations will undoubtedly include details of the sanctions for non-compliance. 

This may include fines, orders to remedy unsafe or defective properties and may extend to a ban from letting properties entirely.

Compliance with licensing requirements may also be enforced indirectly, for example if portals used by hosts to advertise their properties require licensing details and other compliance documentation before listing.

Planning Permission

Alongside the consultation for a licensing regime, the Department of Levelling Up, Housing and Communities also issued a consultation on the introduction of a new use class for short term lets. 

The consultation proposes that the change of use is included as a permitted development and would, therefore, not require any separate planning application. 

However, some areas covered by an Article 4 order would require such as application. 

This means that hosts may need to investigate the status of the planning orders affecting the property before continuing to let the property or risk facing planning enforcement. The consultation ended in June 2023 so we will need to wait to see whether this proposal is pursued any further.

Reactions in the Market

At present it is difficult to see how the holiday let industry will react to these proposals. 

Theo Lomas, head of public policy and government relations for northern Europe at Airbnb has said “Airbnb has long called for a national register for short term lets and we welcome the government taking this forward. We know that registers are clear and simple for everyday hosts to follow while giving authorities the information they need to regulate”.

Although regulation of the industry will be welcomed and embraced, without the detail of the regulations, it is difficult to analyse how this will work in practice and what support will be offered to hosts as they navigate through these interesting changes.

* Angela Paul, Senior Associate Solicitor and Hayley Bruce Practice Development Lawyer in the Residential Team at Irwin Mitchell *

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    Yet more legal uncertainty. It has always been so simple to give a tenant wanting a short term stay a fixed term shorthold assured contract for the requisite number of months - and if they have wanted to stay for say four and a half months, the last two weeks rent can come out of the deposit.

    Now there will be issues over whether the tenant has/owns a home elsewhere, the length of the required stay, whether they are on holiday or whether they are working, whether they work for a company, whether the flat is serviced etc.

    There may also be the exercise of arbitrary power by officials in local authorities who could be prejudiced against the whole concept of short term letting.

    Everything is also being made worse in the student market where it appears students will be given security of tenure unless they are in a group. Not all students want to be in a group; some like to rent a two bedroom flat with one friend.

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    Interesting that a judge has just ruled that parts of the City of Edinburgh Council’s short-term let licensing policy are “unfair” and “illogical”.

    It is the second time a court has ruled against Edinburgh’s short-term let (STL) licensing scheme this year, with an earlier ruling from Lord Braid saying parts of the policy were “unlawful”.

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