Airbnb – understanding the legal implications

Do Airbnb hosts really know the pitfalls they could face?

With the rising demand for Airbnb properties and continuous listings growth across Edinburgh and further afield, Gillian Black, Partner at Urquharts, is concerned that property owners riding the wave of Airbnb have not delved deeper to ensure they are fully aware of their legal obligations.

Airbnb has been fueling a private letting frenzy in Scotland’s capital over recent years. The figures are astonishing: a recent report by Colliers International showed that last year Airbnb bookings in Edinburgh leapt 70% to 1.1 million. Scottish landlords earned £113.4 million in Airbnb bookings in 2017 alone.

It may seem like there is easy money to be made for landlords, and many flat owners are also venturing into the world of Airbnb, looking only at the potential profits. However, with local councils, including Edinburgh City Council, considering how to regulate Airbnb going forward, now is the time to take stock of the situation and make sure you are not only aware of the legal requirements, but also consider whether being an Airbnb host will continue to be financially viable.

In many other top European city destinations there has recently been a local backlash against the scale of the rise in Airbnb properties. In April, Venice capped the amount of time hosts can rent out their homes to 120-nights a year. The following month Madrid also introduced a cap – of 90 rental nights per year.

Edinburgh City Council is currently considering both a rental nights’ cap and a ‘licensing regime’ that could limit the number of Airbnb properties in the city. We have perhaps reached ‘peak Airbnb’ in the capital. The service will continue to operate in the future, but the imminent arrival of legislation means that landlords can expect their income to be squeezed and a clampdown on requirements to be able to carry out short term lets.

However, before these changes even come into place there are already a number of legal requirements landlords need to be aware of to ensure they don’t fall foul of potential ramifications:

1. Standard buy-to-let mortgages do not permit short term lets. Make sure you have the right mortgage product in place, this is likely to be a special holiday lets mortgage. If your lender discovers you have the wrong mortgage in place, you could potentially be in breach of your mortgage and the bank is entitled to ask you to repay in full immediately.
2. Title deeds may not be designed to all allow short term lets. Most homeowners would not consider such a possibility or would not know how to find out if this limitation applied to their own property. Check your deeds through Registers of Scotland or ask your solicitor to check your deeds. Otherwise you could face potential legal action at the hands of your neighbours, who may try and enforce any condition in the title prohibiting short term lets.
3. Taxation – homeowners can receive up to £7,500 annually by renting out a furnished room in their own home, however, if the rental income exceeds this amount then it will be subject to normal income tax rates. If you don’t live in the property and simply own it as a rental investment, then it is your responsibility to know how much you should be setting aside for tax and when you should be paying it.

Airbnb offers a diverse and varied accommodation mix to the growing number of tourists visiting our city and while this can be a useful income stream for property owners, we would always recommend you weigh up the pros and cons rather than simply following the crowd.

Update

A number of planning authorities are taking a closer interest in short term letting and in some cases taking enforcement action where it is considered there has been a material change of use from a private dwelling. So, without planning permission there may be a breach of planning control. Each case will be considered on its merits, and therefore it is important that guidance is sought. We are almost certainly going to see more regulation following the Government’s recent consultation and hopefully clearer guidance on this matter.

The original article appeared in the Scotsman, Property Supplement on 30 August 2018