Licensing: The challenges of short terms lets

In June, new firework rules were brought into force in Scotland by virtue of the Pyrotechnics Articles (Scotland) Act 2022. These new provisions afford local authorities powers to prohibit the use of fireworks in designated control zones, and further restrictions including a licensing system are expected next year.

The real fireworks with the law and policy around licensing have however been elsewhere, retail and hospitality becoming more political than they have ever been before. Following the appointment of our new First Minister in March, the alcohol advertising consultation was immediately sent “back to the drawing board”; and the ill-fated Deposit Return Scheme has been postponed until October 2025, if not indefinitely.

The future of another Government scheme was in question last month, following the decision of the Court of Session to partially uphold a challenge to the City of Edinburgh Council’s Short Term Lets (“STL”) Licensing Policy by a group of accommodation providers in what was the biggest crowdfunded legal case in Scotland’s history: [2023] CSOH 35.

The Edinburgh scheme

Adopted in September 2022, Edinburgh’s policy contained a rebuttable presumption against the grant of an STL licence for secondary lettings in a tenement or premises with a shared main door. Secondary letting is defined as accommodation which is not, or is not part of, the licenceholder’s only or principal home. The majority of STL properties in the capital were expected to fall into this category. Further, any STL licence approved for such a dwelling would be restricted to one year; a standard condition for all secondary lets would require carpets or other suitable floor coverings; and temporary licences for secondary lettings would face a similar rebuttable presumption. 

The petitioners sought reduction of the policy, averring that it was irrational and oppressive at common law; breached regs 15, 16 and 18 of the Provision of Services Regulations 2009; and amounted to an unlawful and disproportionate interference with their interests under article 1 of the First Protocol to the ECHR.

Unclear and irrational

Lord Braid held that the policy was unlawful at common law, in respect of the rebuttable presumption, the lack of provision for temporary licences, and the requirement to supply floor coverings. It also breached the 2009 Regulations. He rejected the petitioners’ challenge regarding the restriction to one year, holding that this part of the policy was rational, proportionate and justified; and similarly dismissed the ECHR argument.

Considering the question around the rebuttable presumption, in response to the respondents’ assertion that refusal of an STL licence for a secondary letting in a tenanted building would not be the normal outcome as there was an expectation that well run businesses would be granted a licence, Lord Braid stated at para 46: “There must come a point when there are so many exceptions to a policy that it ceases to be a policy at all”. In those circumstances the grant of a licence cannot be regarded as exceptional, and the “rebuttable presumption itself will not in fact create consistency, nor will it assist applicants in knowing whether or not an application is likely to be granted”.

He went further and found that the adoption of a normal practice of not granting an STL licence for a property which has received planning permission is irrational and contrary to the purpose of the overall statutory scheme. The legislation envisages that a local authority will have separate, but complementary, planning and licensing regimes, and decisions on a blanket policy basis regarding the suitability of a particular type of property in a particular area are matters for planning. It would be “perverse and oppressive”’ for an application for an STL licence to be refused by virtue of the type of property.

What next?

What does this mean generally for the future of short term let licensing? While some within the sector hope that this decision will have wider implications across Scotland, it appears that the Scottish Government is standing resolute behind the scheme, at least until it has completed the interim review and report to Parliament in early 2024. Lord Braid made numerous references to the policy purpose behind the legislation and the outcomes of the dual business regulatory impact assessment, stressing that the primary motivation for the scheme was to enhance guest and neighbourhood safety.

It is unlikely that the ability to achieve this purpose is shaken substantially by the decision in this case. It may however give some local authorities cause to revisit their own policies, in particular those who have taken a similar approach in restricting the use of temporary licences. Where efforts to exclude certain types of properties are no longer appropriate we may see more comprehensive conditions used to achieve the policy objective – conditions which can of course be legally deployed and enforced in the context of a licensing scheme.

The case highlights the close line local authorities walk between planning and licensing policy and the unique interplay between the two regimes, not just in STL but across the spectrum of licensing. STL has been a polarising policy since day one, so no doubt we can expect more individual challenges as we move through this implementation stage.