Planning matters

Laos was swapped for London, Panama for Plymouth and Malaga for Manchester. An unprecedented number of holiday goers around the UK sprung into the domestic holiday market during the COVID-19 pandemic. Short term lets listed on sites such as Airbnb and Booking.com provided holiday makers with the perfect staycation opportunity. However, as the Government looks to understand the Short Term Lets market in England, how should the balance be struck between the entrepreneurial hosts and the cities and places who host them?

The Government has recently published a call for evidence regarding the creation of a tourist accommodation registration scheme in England. The purpose of the consultation, which continues until 21 September 2022, is to compile a library of evidence concerning short term holiday lets in England. Representations have been requested across a number of fields that offer an insight into topics such as:

1. The current market size and shape to the perceived opportunities; and,
    
2. The perceived opportunities and challenges that prolific short term let operator-agents such as Airbnb and Booking.com create for the general housing market.
    

The consultation also seeks comment on the effect of potential policy interventions on the supply of short-term accommodation. In Scotland, planning policy was introduced in 2021 to help continue to forge effective relationships between short term let properties and the places that host them. Edinburgh is first Scottish council to consider introducing the short term let controls offered by Scottish Government and this was documented last year in our blog Scotland’s First Short-Term Let Control Area: Consultation on New Rules for STL’s in Edinburgh. A similar mechanism has also been introduced within ‘Rent Pressure Zones’ (RPZs) in Northern Ireland where short term lets are required to have planning permission.

 

Short Term Lets are not a new phenomenon. Traditional holiday cottage websites and booking portals have been a mainstay for holiday goers for years but new technologies now mean that anyone can book, and more importantly, anyone can turn their extra space into a hosting business in minutes.

In January 2022, A research briefing to the House of Commons provided an insight into the rapid growth of short term lets as a popular solution for visitor accommodation. The graph below demonstrating the meteoric rise in listings posted on Airbnb prior to the COVID-19 outbreak, with a 240% increase in the number of listings in the UK between 2016 and 2020. The report highlighted that outside of London, there is no limit to the number of days a property can be let out on a short-term basis. The report also noted that 58% of listings on Airbnb in the UK are for an entire home rather than a room or shared room within a home. Other short term let organisations such as Sykes Holiday Cottages experienced a 91% increase in enquires from individuals looking to list their home with the operator during the first quarter of 2021.

 

 

The strengthening of the market for domestic holidays, and the demand for short term holiday lets has had a direct impact on the wider housing market. Prospective investors have found themselves competing against – and often out-competing – local people to purchase property, the price of which has been forced up as a consequence of an increase in demand for popular holiday destinations. Ultimately, as more homes are bought up for the purpose of short-term lets, the net supply of housing for local people in an area has fallen. In areas where the demand for short term lets has been particularly acute, this has deepened the housing crisis.

Given the demand for holiday accommodation and the ability of investors and outside buyers to commonly outperform local people in a constrained, high price housing market, many areas have become flooded with short term holiday lets. This has shifted the character and socio-economic make up of towns and some city areas. In planning terms, a change in the way that a building is used or its operation can often equate to a material change in the character and use of the property. Whilst a ‘material changes of use’ would, in most cases, require planning permission, short term lets in England currently do not.

Regulation currently exists in England only in London. In the capital, the 2015 Deregulation Act states that hosts are not permitted to rent their property for more than 90 days without obtaining a licence through the local council (via submission of a planning application). Many think that it is time that policy stretches across the country, especially as some popular holiday destinations have an even larger proportion of Short Term Lets to standard tenure properties than London. For example, Woolacombe and Croyde each have the highest concentration of Airbnb properties per 100 in the country (23), higher than some of the most popular London boroughs (15/100).

The key with regulation is balance; tourism accommodation is essential for a developing and growing economy both in urban and rural areas. However, as soon as unregulated tourist accommodation begins to impact the ability for local people to meet their housing needs then intervention may be needed to help accommodate the interests of all parties.

Airbnb and other short term let platforms have made it easier than ever for the general population to both rent out their property and find a place to stay beyond the walls of a hotel room or traditional holiday rental agencies. They offer important benefits to holiday makers and the economy of their destinations and it is important that the benefits of the short term let market are not lost in the undercurrent of the price and supply issues mentioned above. However, a balance must be struck between the needs of local people and visitors, recognising that the displacement of local communities – as a result of house price inflation caused by increased competition for accommodation as more people seek to purchase properties for holiday rentals – can have a heavy social and economic cost.

The key benefit in the rise of short term lets is the wider economic impact. In the UK, hosts listing property on Airbnb earnt more than £1.5 billion in 2021 with the wider short term let sector contributing even further to the economy. In addition, Airbnb predicts that worldwide it supports over 300,000 jobs, all of which are likely to be a part of the rebounding tourism industry within which short term lets play a vital role as one of the many contributors in propping up the sector.

Finally, the positive impact of short term lets on rural areas must not be overlooked. City breaks in the bright lights may be popular, but short term lets have offered a new lease of life to rural areas that lack high quality hotels and facilities. Now that there is an easy, convenient way to book accommodation ‘in the sticks’, many rural and coastal areas can reap the benefits of increased tourist trade. Drawing down economic investment from holiday makers remains a large part of economic and planning policy for the future as has been the intent of the Government’s Levelling Up and Regeneration Bill.

The task of striking the right balance between market freedom and strict regulation and enforcement in relation to the sensitive topic of short term lets is not easy. However, it is clear that some form of regulation is necessary to make short term lets safer and the communities that they are part of better able to cope with this growing sector.

Recently introduced regulations in Scotland and Northern Ireland have introduced areas where planning permission is required to run a short term let, with Northern Ireland further requesting that every short term let must obtain a licence from the tourism board. These interventions are helping to ensure that the provision of accommodation meets a high quality standard whilst addressing the need for planning decisions to be made to protect both the character and property market of an area.

But are these changes too little too late? In a market that has become increasingly saturated after the COVID staycation boom, will we continue to see an increase in short-term letting accommodation? If not, any regulation could only influence a fraction of the emerging market.

Planning has always been about regulation and with human habits and processes everchanging, planning as a regulatory tool must be adaptive and dynamic. The relaxation of some planning requirements during COVID represent a prime example of this. However, the introduction of new policy on short term lets – which is not something to be afraid of – has possibly slipped through the cracks. It is now a case of planning playing catch up.

11 May 2022 saw the publishing of the Government’s draft Levelling Up and Regeneration Bill (“the Bill”). The draft legislation contains details of the government’s proposed rental auction scheme for vacant high street premises.

As explained in my colleague Alison Bembenek’s blog (‘Levelling Up and Regeneration Bill – implications for high streets / town centres’) the Bill includes tools designed to help UK high streets. Part 8 of The Bill proposes new powers for local authorities to bring vacant premises in town centres back into use through rental auctions.

So what will these rental auctions comprise in practice and will the impact ultimately be positive for the health of our town centres?

 

The Bill allows local authorities to designate a street as a ‘high street’ if it considers that “the street is important to the local economy because of a concentration of high-street uses of premises on the street.”

The Bill defines what could be considered as a ‘high-street use’ and it is a long list! The uses include shops and offices, services to visiting members of the public, restaurants, bars, pubs and cafes, use for public entertainment or recreation, community halls and meeting places, and some manufacturing and industrial processes (albeit only if they can reasonably be carried out “in proximity to, and compatibly with” the other uses).

Whilst its helpful the Bill identifies a wide range of uses as being key components of the high street, it remains to be seen what other tools will help plan the high street in a more proactive manner.

Once designated, vacant units can be subject to local authority intervention if the local authority considers occupation would be beneficial to the local economy, society, or environment.  

A unit is classed as vacant if it has been continuously unoccupied for a year or, broadly, if it has been unoccupied for at least 366 days in the last two years.

A ‘local benefit condition’ must also be satisfied before the local authority can begin the process of compulsory re-letting of vacant premises. For example, if they consider that the occupation of the premises for a suitable high-street use is deemed beneficial to the local economy, society or environment. On the surface, this condition should be easy to satisfy, although the exact criteria of assessment has not been published yet.  

After satisfying the vacancy and local benefit conditions, an ‘initial letting notice’ should be served on the landlord of the premises.

This notice prevents the landlord from granting any tenancy or license for those premises (or entering into any agreement to do so) without the local authority’s written consent while it is in force (this can be up to 10 weeks) – though it does not apply to the grant of a tenancy agreed before the initial letting notice took effect.

If the landlord requests the written consent of the local authority to let the property during the initial letting notice period, the local authority must give consent for letting if:

1. The term of the proposed tenancy, would begin within the period of eight weeks of the service of the initial letting;
    
2. The term of the letting would be at least one year; and
    
3. The tenancy would be likely to lead to the occupation of the premises for activity that involves the regular presence of people at the premises.
    

The local authority can serve a final letting notice if the premises have not been let within eight weeks (but before the initial notice expires). Once the final letting notice is served, the local authority may start the rental auction procedure.

A final letting notice will last for 14 weeks, during which the landlord cannot grant any tenancy or license of the premises or carry out works on them, without the local authority’s written consent.

In short, yes. The landlord has 14 days from the service of a final letting notice to serve a counter notice on the local authority. This must state that, if the final letting notice is not withdrawn, the landlord intends to appeal, and set out on what grounds the appeal would be brought.

Any appeal must be made to the County Court within 28 days of the counter notice. If no tenancy has been granted and no appeal made after a final letting notice has been served, the local authority can start the rental auction.

The Bill describes the rental auction as “a process for finding persons who would be willing to take tenancy of the premises… and ascertaining the consideration that they would be willing to give in order to do so.”

Separate regulations will set out the process, including how the “successful bidder” is identified. The devil will be in the detail as to how the process will ensure that the successful party is beneficial to the future health of the high street.

When there is a successful bidder, the local authority can enter into a tenancy contract with them for the tenancy of the premises. The contract will be the same as if it were entered into by the landlord of the premises. The Bill also explains that the contract may allow the tenant or landlord to carry out pre-tenancy works.

Lichfields will be closely monitoring the progress of the Levelling Up and Regeneration Bill, including any amendments proposed. Will high street rental auctions help to re-invigorate our high streets and create better co-operation between local authorities and landlords, or will they force premises to auction without finding a suitable long-term occupier?

As it currently stands, this measure would transform the powers of local authorities on the high street by binding landlords without their consent. Perhaps this threat of intervention will force landlords to act first. That said, there are questions around whether this tool will be effective at reoccupying premises that have been vacant for a number of years without attracting any interest. Those with high street properties will hope for a rebalancing of the scales so that they are given greater negotiating powers with local authorities as to whether their premises are up for auction. In theory the landlord could be forced to carry out works it does not want to, to facilitate a tenant that they have not chosen to occupy the premises – all under a contract that has been imposed upon them and at a rent that they otherwise may not have accepted. However, the Bill does state that “the local authority must have regard to any representations made by the landlord.”

At the moment, the high street rental auction seems like a relatively blunt tool. Indeed, some may take the view that, if it were that easy, landlords would be able to find suitable tenants for vacant premises for themselves. The tool has the potential to create tension between the shared goal of reviving town centres and the normal rights of property owners.

Please get in touch if you have any queries on this and we will be happy to help. Alternatively, you can visit the Lichfields website which includes a dedicated Levelling Up and Regeneration Bill Resource which is regularly updated and includes our analysis, insights and thought leadership on the Bill.