The Legal and Insurance Framework for Short Lets in the UK (sponsored by Edwin Coe LLP)

The UK Short Term Accommodation Association (STAA), in partnership with Edwin Coe LLP, hosted a panel discussion and question and answer session entitled ‘The legal and insurance framework for short lets in the UK’ at Edwin Coe’s London offices on Thursday 19 October. The panel was moderated by STAA chair and UndertheDoormat CEO Merilee Karr, and featured Edwin Coe’s James Davies, as well as Edouard Peers, onefinestay’s General Counsel, and Andrew Boldt, co-founder of sharing economy insurance provider Guardhog.
Below we have picked out some of the key themes from the discussion, regarding both the legal and insurance challenges facing the short-term accommodation sector in the UK.

The problem: The main issue is that insurance companies have been inconsistent in their approach to how short-term rental activity interacts with existing policies. Some insurers have decided that short-term rental activity without prior notification is grounds for voiding a policy altogether (which according to the ABI may not be a tenable position when a claim would be unrelated), some have removed some insurance cover when they have learned of their customers renting on a short-term basis, and others have required homeowners to change policies.
The solution: The insurance industry has been very slow to adapt to the growing short-stay sector and inconsistency in approach remains a big challenge. However, gradually there are an increasing number of “good products” out there, according to Andrew Boldt, who highlighted four sector-specific insurance approaches:
Company based approaches:  

1.    Umbrella insurance from providers: Policies provided by platforms and providers as part of their homeowner service offer.  Providers such as onefinestay and UnderTheDoormat  provide this type of insurance to homeowners who work with them. It is a direct insurance policy which means homeowners won’t need to claim on their own policies for any guest-related claims.   
2.    Guarantees: A pledge to cover damage up to a certain threshold, offered for instance by Airbnb. Since this policy is not underwritten, though in practice this can cover a guest-related claim, it is not technically insurance.
Consumer products:  

3.    Consumer or host-bought insurance: Anyone wishing to let out their home, or a room in their home, can purchase this kind of insurance through policies offered by companies such as Guardhog and In-Let.  These are typically contingent policies – this means they would only provide cover when the homeowners’ primary policy does not provide the required coverage or the original insurer rejects a claim. 
4.    The ostrich model: Letting your home with no insurance policy in place and the homeowner takes the risk of any damages themselves. 
The problem: Most leases are many years old, as James Davies and Ed Peers explained, and do not directly address this activity.  A number of freeholders have sought control short lettings using clauses that prohibit things such as business use of premises but arguably these provisions do not directly prohibit short lettings. The actual legal position is often unclear and untested in the courts, so the main impact is a lack of clarity for homeowners on their legal rights to let out their home within the legal limits (in London up to 90 days per year and elsewhere without restriction). 
The solution: Creating leases and policies which clarify how the activity can be conducted responsibly in a building. For example, there has been a successful pilot of creating a ‘building best practice’ document in Fulham. The document agrees that hosts or their appointed management company must:
•    Register their intent to offer their leasehold property for short-term rental purposes with the building management
•    Comply with all existing laws including health and safety and the London 90 day rule, where applicable.
•    Have in place insurance to cover the risk of guests staying in the building, including 3rdparty liability coverage.
•    Provide a named contact who can be reached 24x7.  
•    Confirm that they have inspected in person the IDs of the guests before keys are handed to the guests.
•    Ensure that guests are aware and signed up to follow the building policies including noise restrictions and rubbish removal.
Conclusions from the discussion: Outdated lease agreements, lack of unified action from insurance companies, and a general reluctance to engage from some building management companies and insurers has created a perceived challenge for homeowners wanting to let their property out on short-term basis. However, steps on insurance and best-practice documents will gradually demonstrate that “building managers can have the control they are looking for to reduce risk” according to STAA Chairperson Merilee Karr.
Looking to the future: STAA will seek to develop a best practice insurance policy paper, and produce and publish on our website a best practice leasehold agreement, tenancy agreement and building policy document. We hope that the collaboration in these areas by the major players in the industry will demonstrate that it is possible to ensure short-stays are managed responsibly, enabling homeowners and local communities to make the most of the positives from short-stay accommodation.