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Bermondsey Exchange Freeholders Limited v Ninos Koumetta (As Trustee In Bankruptcy Of Kevin Geoghegan Conway) (Unreported)

More and more people are looking to make extra cash from unoccupied spare rooms in their flats and apartments through Airbnb, or similar websites. However, an appeal judge recently held that an injunction preventing a leaseholder from letting his flat on Airbnb accommodation should continue, approving the finding at a previous hearing that leaseholders renting out their spare rooms through Airbnb use amounts to a breach of the tenant’s leasehold covenants. 

The facts

Bermondsey Exchange Freeholders Limited is the freehold owner of the Bermondsey Exchange building in South London (“Freeholder”). The building was previously a warehouse but was redeveloped in the late 1990s into flats. Mr Conway (“Mr Conway”) has a 999-year lease of one of the flats (“Property”), which he formerly occupied as his main residence. Mr Conway then moved out of the Property and initially sub-let it on a private rental basis. 

The position changed in 2015 when Mr Conway started letting out the Property through Airbnb and other short-term letting services.

County Court decision

The Freeholder argued that the letting on Airbnb was a direct breach of the various tenant covenants within the lease as set out below:

  1. Not at any time to assign sub-let or part with possession of part only of the Property
  2. Not to part with or share possession of the whole of the Property or permit any company or person to occupy the same save by way of an assignment or underlease of the whole of the Property
  3. Without prejudice to the absolute prohibitions above, not to assign or underlet the whole of the Property without the prior written consent of the landlord (such consent not be unreasonably withheld) 
  4. Not to use or permit the use of the Property or any part thereof otherwise than as a residential flat with occupation of one family only. 

Mr Conway denied committing any of the breaches above. Despite this, the County Court ruled in favour of the Freeholder and found that there was “substantial and compelling” evidence that the Property was widely advertised on Airbnb and similar websites. It is probable that the Court came to this conclusion given that the Freeholder submitted copies of the website listing which advertised the flat for short-term letting, combined with booking calendars, email reviews and photographs – all of which evidenced that the Property was being let on a short-term basis. 

As a result, the Judge was satisfied that an injunction should be granted to restrict the use of the flat in ways that would breach the tenant’s covenants, even though by the rime of the ruling the use had ended and would not recur. 

Was it right for an injunction to have been granted given the circumstances?

The use of the Property through Airbnb had taken place in 2015 and by the time the matters came to trial in September 2016, the short-term letting had ceased. It was common ground between the parties that there had been no recurrence since spring 2016. 

Restraining injunctions are an old fashioned remedy, which should only be granted if there is some proven likelihood of future interference with the claimant’s rights. Notwithstanding this, the Judge granted the injunction here based on the following reasons:

  1. Breaches of the lease had been established (and had been denied by the leaseholder throughout)
  2. Relations between the parties had broken down
  3. It had proved impossible to resolve the matter by way of an undertaking
  4. Short-term arrangements – through Airbnb style platforms – were a modern phenomenon offering new “opportunities” in changing times, which might tempt other residents on the development.

It should be noted that, prior to the delivery of the judgment, Mr Conway was made bankrupt and Ninos Koumetto acting as Trustee (“Defendant”) was substituted as the Defendant in the claim. 

The appeal decision

The Defendant was granted permission to appeal in order for the court to consider the following points:

  • Whether the Judge was right to hold that the Defendant breaches the Lease
  • Whether the Judge exercised her discretion wrongly when deciding to grant an injunction, and should she either refuse the order entirely or grated the injunction on different terms 
  • Costs. 

The Court, on appeal and after considering the points again, was satisfied that the leaseholder had not, “come anywhere near establishing a justification for… interfering with the judge’s assessment”.

The Injunction continued. 

Comment

This decision provides further confirmation that short-term lets through Airbnb, and other similar services, is likely to amount to a breach of common lease covenants. 

Landlords and managing agents will welcome this decision as it will allow them to take more of a hard line approach with leaseholders who are in breach of the provisions within their leases, especially when other residents complain of nuisances and security issues, which often arise when lots of people are coming and going through a development/complex/estate.

Tenants should double-check their lease provisions regarding subletting and use and make sure they are understand the consequences of short-term lettings. 


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Summer 2018

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