News & views

Thursday, October 13, 2016

Online property rental services such as Airbnb have helped millions find alternatives to hotels when they go on holiday. But with the platforms increasingly being used for longer-term lets, traditional landlords are facing more and more competition from people looking to make a fast buck in the rental sector…

It used to be the case that fluctuations in property prices and rents and changes to supply and demand were just about the only variables that could dramatically influence the profitability of investing in the residential property sector.

But, as with so many other areas, the digital revolution has prompted a surge in the number of factors that can have an impact on landlords, increasing competition from people looking to cash in on the high level of demand in the private rental sector.

Nothing has disrupted the traditional property sector quite as rapidly and significantly as online rental services like Airbnb, which have come to be used by people looking for long-term lets, despite originally being set up to help people looking for somewhere to stay while on holiday.

The company, which was launched by two designers in San Francisco in 2008, has grown at a staggering pace[SC1] , with some 300,000 rooms, apartments and houses now available for people to rent all over the world.

Problems for traditional landlords
As the popularity of Airbnb has soared in recent years, however, it has caused problems for traditional landlords, whose properties can be sub-let on the site by people looking to make a fast buck from the property that they're renting from a private landlord.

With additional tenants unknown to the landlord, and more and more people coming and going through the property as a result, the risk of serious damage befalling the accommodation rises significantly.

It’s already thought that property damage costs landlords in the region of £4.5 billion [SC2] a year, with those who fail to check the terms of their insurance at the most risk of having to pay out themselves.

There are other insurance concerns too, however. This is because the terms of the agreements made on sites like Airbnb can end up breaching the conditions set out in insurance policies and mortgage contracts.

It’s thought that instances of tenants subletting rooms in their rented accommodation have increased threefold in the last year, with research[SC3]  from the National Landlords Association (NLA) revealing that almost half of these do so without their landlord’s consent.

One of the main concerns of this is that it can lead to landlords’ insurance becoming invalid, although, of course, the precise terms of individual policies will vary.


Efforts to curb subletting trend
The effect of Airbnb and similar services on the property market has become so problematic in some places that legislation has been passed to try to curb the popularity of the sites.

In Berlin[SC4] , for instance, authorities have been forced to pass a law restricting people from renting out their apartments through the likes of Airbnb for fear that it is worsening an already severe property shortage and increasing rents.

Paris[SC5] , said to be Airbnb’s most popular city, has also had its fair share of trouble. There, people who rent out their property for more than four months receive a letter warning them that they risk breaching the city’s housing regulations and could be in line for a fine of up to €25,000. 

In the UK, meanwhile, calls have been made by organisations such as the NLA for landlords to make sure they include clauses in their tenancy agreements that stress subletting is only allowed with the property owner’s permission.

And Airbnb hosts in London have to watch out too, as there are rules in place forbidding them from providing temporary sleeping accommodation to paying guests for more than three months each year.


Rise in uncertainty
In 2015, the Government announced its intention to legislate against the inclusion of clauses[SC6]  in private fixed-term tenancy agreements that prohibit tenants from subletting their rented accommodation.

But with the change in leadership that saw Theresa May replace David Cameron as Prime Minister, these plans have lost their original focus, and no date has yet been set for a consultation on the proposals.

As the rules and regulations surrounding the use of sites such as Airbnb become more and more uncertain, it’s increasingly important for landlords to check the conditions of their contracts, and for brokers to advise their clients on the terms of their insurance.

NIG partner with insurance brokers to provide cover for a wide range of commercial insurance risks in the UK, from motor fleets to a wide variety of enterprises large and small.