22 July, 2020
Covenants restricting the use of properties to "single private dwelling houses" "private residence" and "private dwellings in the occupation of one family unit" have been a common feature affecting properties for some time. They also frequently feature in the transfers of properties sold on new build estates.
What is and is not permitted by this type of covenant is not straightforward and has been hotly disputed by property owners throughout the years.
The 2020 case of Triplerose Ltd v Beattie has explored this issue further.
This case concerned the lease of a property which restricted the use of a flat to "any purpose other than as a private dwelling for occupation by one family at any one time" and contained additional restrictions that the owner was not to "carry on any trade or business upon the property".
During the periods they did not reside at the flat, the owners began letting the property through services such as Airbnb and Booking.com for short term serviced accommodation which was run for them by a third party company.
The owners were pursued by their landlord for breach of the covenant contained in the lease.
The Court was asked to address two key questions:
Did the owners breach the private dwelling covenant?
The Court determined that whether a property was being occupied as a private dwelling was a question of fact which depended on the degree of permanence of the occupancy and the relationship between the occupants. It has long been established that the use of residential property for short term occupation by a succession of paying guests was the opposite of occupation as a private dwelling. It has therefore always been treated as a breach of any covenant which prohibited use other than as a private residence or dwelling and the court upheld that interpretation here.
Was a trade or business being carried out from the property?
Interestingly, for the reasons set out below, the Court was not convinced that using the property for short term lettings constituted a breach of the covenant prohibiting trade or business being conducted from the property.
There was a distinction between using premises as a business resource and carrying on a business "upon" the premises. The covenant in question prohibited the owners from conducting business "upon" the property. Although the owners were using the flat for the business of short-term letting, the business was being carried on from elsewhere. The flat itself was being used for short-term residential purposes and no activity was being carried on "upon" the property which in itself amounted to a business. The Court went further and indicated that the services provided to guests e.g. the provision of laundry services between lettings, leaving breakfast goods for visitors, and handling check-in and check-out did not change that conclusion. Accordingly, there was no breach of the covenant prohibiting trade or business .
This case presents a welcome insight into the Court's interpretation of these type of covenants. Providing further clarity on what is and is not a breach. Despite this, each covenant will very much turn on its own wording and the wider context of the Property in question.
Registered Providers use their property stock in a variety of ways, which is continuing to evolve given the current COVID-19 crisis. Urgent short-term accommodation to deal with homelessness is one example of this. In light of this case, it is crucial to carefully check the wording of these types of covenants to ensure the intended use does not breach such a covenant.
A Registered Provider will never themselves use a Property as a residence, and it is vital to ensure that using the Property for their business purposes does not leave them open to a risk of enforcement action.
To ensure absolute protection for Registered Providers it is always advisable when entering into and negotiating such covenants to include a proviso in the covenant wording permitting use undertaken during the course of their operation as a Registered Provider.
For more information contact Francesca James in our Housing & Regeneration department via email or phone on 0333 207 1130. Alternatively send any question through to Forbes Solicitors via our online Contact Form.
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