Breach of Lease

Additional remedies for landlords where properties are used illegally for short term lettings

The background

Nice Place Property Management Limited v Jeff Walter Paterson [2018] is a case from the New Zealand Tenancy Tribunal. Although not directly binding, the principles of the decision are a useful guideline. The freeholder brought a claim for $13,750, amounting to the leaseholder’s profits accrued through advertisement of the property through Airbnb.

The lease clearly prohibited subletting without landlord’s consent, and the freeholder was able to prove that the property had been sublet at least 55 times, at an average nightly rate of $250. With the claim for profits made by the freeholder, the leaseholder would be required to account to the freeholder for profits gained.

The decision

The Tribunal found in favour of the freeholder, ordering the leaseholder to pay profits over. Deductions were made to allow for expenses, including the leaseholder’s rent and other estimates relating to servicing and administration, resulting in a net profit figure of $2,150 payable to the freeholder.

This decision is a useful reference point, albeit not binding in this jurisdiction. It goes further than the current leading authority relating to account of profits, being Experience Hendrix Llc v PPX Enterprises Inc and another [2003], which allowed for account of profits only in exceptional circumstances.

Advice and action for landlords

In circumstances where short-term lettings are clearly prohibited under the terms of a lease, it seems just that a leaseholder should account to a landlord for profits gained through a breach of covenant.

We continue to monitor decisions relating to ‘Airbnb’ style lettings closely and with interest, in particular to assess whether account of profits is a remedy applied in the English Courts.