Gillian Black: New planning act will see more regulation of ‘holiday homes’ in the capital

There is without a doubt growing client demand for advice on short term lets, and that’s in part down to the volume and sheer diversity of activity in the sector. With the arrival of online businesses such as Airbnb, short term letting ranges from householders renting out their spare room on an ad hoc basis, to investors purchasing properties as holiday lets, all the way to companies that have the financial clout to buy up multiple properties, often in the same building, to run as a larger scale enterprise.

Gillian Black is a Property Law Partner with Urquharts

Not surprisingly, there have been unintended consequences as a result of all this new activity and the Scottish Government and local authorities are taking steps to better protect residential neighbourhoods and guests.

Under current planning laws, landlords may need planning permission if they operate a property for short term lets, as it may be deemed to be a material change of use from a residential property to short stay commercial visitor accommodation. Each case is examined on its own merits, and so it is difficult to give clear advice. Do all properties being operated as full-time short term lets need permission or does it depend on the location and type of property? What if it’s let out for only part of the year? Does it make a difference if it has a common stair? Does a rural location matter? A local authority will consider various factors.

The new Planning (Scotland) Act 2019 includes a provision giving local authorities the power to designate all or part of an area as a short term let control area. Planning permission will be required where a property within a control area is to be let out on a short term basis.

Scottish Ministers are given the power to make further regulations, including defining what constitutes providing a short term let and any circumstances in which the designation will not apply. It is hoped that this will provide the clarity that is required. We’ll have to wait and see because while the Act has been passed, these provisions aren’t yet in force.

Excluded from the Act are tenancies where all or part of a property is the only or principal home of the landlord and it does seem likely that the regulations will distinguish between the occasional or shared use Airbnb type let for which that platform was originally designed and what some view as the commercial exploitation of online booking service providers.

A wider Scottish Government consultation seeking views on the regulation of short term lets closed on the 22nd July and the responses are likely to inform the approach taken.

Given the current and likely future planning restrictions, it pays to take advice before entering the market, particularly if banking on the potentially high financial rewards of using a property as a short term let.

There are other things a landlord needs to think about, whether operating on a full time commercial basis or otherwise. Budding short term landlords may find themselves in breach of their mortgage conditions, leaving them at risk of having their lender call up the loan.

Similarly, if they are in breach of title conditions, landlords might face legal action from neighbours keen to see the back of multiple short terms lets in popular city centre locations. It’s also worth checking whether insurance cover is sufficient if there is damage to the property, and that the property is fully health and safety compliant.

Don’t forget also that being a landlord of any sort has tax implications that should be planned for carefully.

The bottom line is that while there have been lots of recent reports about the uncontrolled growth of the short term letting sector, particularly in the Capital, there are a lot of factors to consider for the responsible landlord entering the market, particularly with further regulation on the horizon.

Gillian Black is a Property Law Partner with Urquharts