I met my friend Claire for a coffee in a local café. We had not been able to meet since the beginning of the pandemic so we had lots to catch up on. Claire lives in London and owns a second home in the picturesque village of Bibury in the Cotswolds which was once described by the artist William Morris as “the most beautiful village in England.” Claire explained to me that she was thinking of renting out her cottage as a holiday let over the summer to maximise the current popularity of “staycations” – staying in the UK rather than travelling overseas for a holiday.
Our conversation went something like this.
Claire: Holidays in the UK have become really popular as no one seems to want to go abroad anymore, so I’m thinking about renting out my cottage. I have read in the news that there is a real shortage of decent holiday accommodation at the moment due to the surge in demand. What do you think?
Me: Have you considered the potential risks associated with renting out your property?
Claire: Not really. What are the risks?
Me: Well, there are a few things that you need to think about. Do you have a mortgage on your property?
Claire: I took out a mortgage with Nat West Bank when I bought the cottage five years ago.
Me: Most lenders will not allow you to rent out your property without their permission so you need to check the terms of your mortgage and see whether short lettings are allowed.
Claire: I didn’t think about that. Is there anything else I need to consider?
Me: Yes, there are a few things. Some household insurance policies will not cover you for any damage caused by a tenant so you’ll need to check with your insurer if you’re covered for holiday lettings.
You should also check your title deeds to see if there are any restrictive covenants which prevent your property being used as holiday accommodation or anything else other than a single private family dwellinghouse.
Claire: But my cottage is a freehold property so why would there be a problem? I understand that with a leasehold property the lease might not allow me to use the property for lettings or I might need to get consent from the landlord.
Me: Freehold properties can also have restrictive covenants imposed on them which might not allow you to use the cottage for lettings.
You also need to think about health and safety regulations. If you rent out the cottage you have a duty to carry out safety checks and ensure that electrical appliances are safe and in good working order. Smoke alarms and carbon monoxide detectors are a must.
Claire: I didn’t realise that there was such a minefield of risks. I just wanted to take advantage of the staycation boom!
Me: There is a lot to think about and don’t forget the tax implications as any income earned through holiday lettings is likely to be taxable.
If you own a second home but plan to rent it out you could be changing its status as a holiday home without realising this so you must be aware that you may suddenly have a landlord and tenant relationship which carries with it a number of additional obligations and liabilities highlighted above. If you plan to convert any buildings on your property to be used as holiday accommodation you must also check with your local planning and building regulations authorities to see if any planning permissions or building regulations approvals might be needed.