Short term lets: a new dawn

From a fairly basic start in 2007 in San Francisco, when two roommates who needed to raise money quickly decided to add three air mattresses to their loft floor for conference delegates, Airbnb has grown to become a phenomenal global success and is now a multi-billion-pound industry. The short term let (“STL”) platform could claim (as at September 2021) to have served more than 1 billion guests globally, and as at December 2020 was valued at $75 billion.

Walking down the High Street in Edinburgh, it is near impossible not to be aware of the key safe boxes affixed to decades-old stone masonry. This time last year, Edinburgh had about 5,288 properties to let on a short term basis, with the highest concentration located in the city centre and Leith Walk. Reports of negative outcomes from STLs including safety of guests, congestion effects (traffic, people, litter, waste and noise), plus fragmentation of communities, inflation of the longer-term rental market, reduced housing availability and affordability, together with much associated disruption through the churn of short term use, led to calls for regulation of this type of accommodation.

In 2017, the Scottish Government set up an expert panel to address the growing concerns. In 2019, the Government undertook a consultation on the regulatory framework of STLs in Scotland and drafted further reports on their impacts on communities. In 2020, proposals were announced (1) to establish a new licensing regime for STLs using powers under the Civic Government (Scotland) Act 1982; (2) to give local authorities the ability to introduce STL planning control areas under the Planning (Scotland) Act 2019; and (3) to undertake a review of the tax treatment of STLs.

The Civic Government (Scotland) Act 1982 (Licensing of Short Term Lets) Order 2022 came into force on 1 March 2022, underpinning a new and controversial licensing regime of STLs commencing on 1 October – a new regulatory framework bringing STLs into the scope of the 1982 Act. Each local authority in Scotland is required to introduce a new licensing scheme (including the creation of new licensing policies), and to consider their STL control areas in terms of planning.

Definition and exemptions

What is an STL in terms of the 2022 Order? The definition is set out in full in the panel, but if you let out residential accommodation in the course of a business to a guest, and the guest (1) does not use the accommodation as their only or principal home and is not an immediate family member of the host, or sharing the accommodation as part of their education, or an owner or part owner of the accommodation; and (2) is not providing work or services to the host (or household), this is likely to be an STL and requires a short term let licence. Interestingly, there is not a defined time which constitutes a “short term”. The legal definition lies in whether the accommodation is the guest’s only or principal home.

STL licences are split into “types”, including:

• secondary letting (accommodation which is not, nor part of the licence holder’s principal home – a second home);
• home letting (using part or all of the host’s only or principal home while they are absent);
• home sharing (using part or all of the host’s only or principal home while they are there); and
• home letting and home sharing (a mix of the previous two types).

Any accommodation let on this basis and in accordance with the criteria above will require a new licence. There are two specific exemptions:

• in terms of the 2022 Order, sched 1, accommodation which includes premises where a premises licence has effect and accommodation is provided in accordance with activity on the licence; hotels/hostels/aparthotels; student accommodation; a residential school/college or training centre; a traditional bothy; and hospitals/nursing homes;
• tenancies such as protected or short assured tenancies, a croft tenancy or a Scottish secure tenancy, as well as others.

While 1 October marks the commencement of the regime and the first date for applications for an STL licence, there are other key dates to note. Existing STL owners who can evidence “use” can rely on transitional provisions and continue trading, but must make their application by 1 April 2023. Any person seeking to enter the STL market must make their licence application from 1 October and cannot take bookings/deposits until it has been granted, which could take months. If an application is refused, the operation of the STL must cease within 28 days. By 1 July 2024, all hosts must hold a licence.

More paperwork

Each local authority will have an STL policy, will administer the application process and decide whether licences are to be granted for one or three years. Each can set its own reasonable fee levels in terms of applications, changes to licences, inspections of premises and other administrative tasks. Estimated fees to be charged by local authorities range from low hundreds to thousands, with the onus being to ensure that the total amount of fees received is sufficient to meet expenses. Many are setting up new teams to process this new stream of work. They will outline the application forms, layout plans, and supporting papers/certifications that will need to be submitted to meet the conditions set out in sched 3 to the 2022 Order.

Annual gas safety certificates, current electrical installation condition reports, portable appliance test certificates, as well as risk assessments for fire safety, legionella and proof of insurance for buildings and public liability, will also be needed. It is important to note that additional local conditions and restrictions can be applied to the licence which are more specific to the property or led by local knowledge. Only the holder of the STL licence can carry out day-to-day management of the premises.

Where the accommodation is situated within an STL planning control area (“PCA”), and the application is for a secondary letting, additional evidence is required. That is, planning permission for use of the premises as an STL, proof of an application having been made for a certificate of lawfulness. Currently, there is only one PCA: one for the City of Edinburgh (the whole city, which came into force on 5 September 2022), but another is being considered in Highland for the Badenoch & Strathspey area. The Edinburgh PCA invokes use of the Edinburgh Local Development Plan Policy Hou 7 – Inappropriate Uses in Residential Areas, which prohibits changes of use where this would have a materially detrimental impact on nearby residents.

The application itself follows the usual licensing process detailed by the 1982 Act, in that the application is publicised and circulated to relevant authorities and a site notice must be displayed for 21 days. This will detail the type of licence applied for, who has made the application, the person responsible for the day-to-day management of the accommodation, and the number of bedrooms and occupancy, as well as the name and address of the owner (if not the applicant). Objections (which must be made in writing and lodged within 28 days of the application being advertised) and representations can be received, and the named parties are subject to the “fit and proper” test which runs through the Act. This means that any relevant offences, concerns about the suitability of the accommodation for an STL, and any previous issues with noise, antisocial behaviour or other complaints become directly relevant and grounds for refusal.

Local policies

Careful review of each local authority’s STL policy will be key for all in making an application for an STL licence. One specific point to note, which comes from the draft Edinburgh STL policy, is the position on tenement/shared main door accommodation. The council has long pushed for regulation of STLs and a new licensing regime, which has been achieved. It remains concerned about the suitability of tenement accommodation, saying it believes this is “unsuitable for secondary STL due to its character, location and risk of creating undue nuisance”. Within the Edinburgh policy, there is a rebuttable presumption against the grant of a secondary STL licence for accommodation within tenements. It remains to be seen if that rebuttable presumption can be eased by an applicant providing evidence of consent from all other owners/occupiers of the tenement in question (something which is used already in relation to applications for late hours catering licences).

The potential impact of this new regime on some parts of Scotland should not be underestimated. Much of the STL accommodation in Edinburgh is likely to fall foul of the local development plan. If successful in terms of planning permission, many will face the policy hurdle of being within a tenement. It is likely that we will see a large decrease in the numbers of STLs. This will no doubt impact the local property market in terms of sale values and also rental costs. Some will argue that this will be a positive impact for those who seek permanent homes. Others will see personal income from investment properties bought as retirement funds cut overnight. It remains to be seen whether these commercial impacts and market changes will create the benefits for community and neighbourhood that were so keenly sought.

"‘short-term let’ means the use of residential accommodation provided by a host in the course of business to a guest, where all of the following criteria are met –

(a)        the guest does not use the accommodation as their only or principal home,

(b)       the short-term let is entered into for commercial consideration,

(c)        the guest is not – (i) an immediate family member of the host, (ii) sharing the accommodation with the host for the principal purpose of advancing the guest’s education as part of an arrangement made or approved by a school, college, or further or higher educational institution, or (iii) an owner or part-owner of the accommodation,

(d)       the accommodation is not provided for the principal purpose of facilitating the provision of work or services by the guest to the host or to another member of the host’s household,

(e)       the accommodation is not excluded accommodation (see schedule 1), and

(f)        the short-term let does not constitute an excluded tenancy (see schedule 1), ‘short-term let licence’ means a licence granted for the activity designated in article 4” (a short term let on or after 1 October 2022)".