A licence to short-term let

Mention “short-term let” or “Airbnb” to someone and see if you receive an indifferent response.

In most global tourist destinations, persistent dialogue, both good and bad, surrounds the accommodation.

Cities like New York and Paris have become known for taking steps to manage the market, and Scotland has been exploring the best way to manage short-term lets for some years now, too.

The accommodation does provide benefits. For tourists, short-term lets bring more options to the market, and for property owners, there is often greater flexibility in how, when and at what price a property is let.  

But as short-term letting has developed into an industry, not only does the appeal to certain landlords mean fewer properties are available to long-term renters, but investors have snapped up property that may have previously been supplied as housing to run short-term letting businesses.

While it benefits the supply of tourist accommodation, locals are having increasing difficulty finding places to live, and communities are reporting issues with tourists literally on their doorsteps.

Short-term letting as a commercial industry has become hard to ignore, especially when considering the context.

The UK’s residential property market has continued to grow at pace, and Scotland’s residential properties are no exception. Properties are selling for more, leaving fewer residents capable of buying homes.

In Scotland, the rental market has also taken a steep increase. According to letting platform SpareRoom, Glasgow rental prices have risen by 14 per cent since March 2020, and Edinburgh rentals, which are already the most expensive in Scotland, have climbed by six per cent during the same period.

As these issues come to light – even despite the current cost of living crisis – it has become clear to local authorities and the Scottish Government that intervention is needed.

In April 2021, the Town and Country Planning (Short-term Let Control Areas) (Scotland) Regulations 2021 came into force, providing local authorities with the ability to establish short-term let “control areas”. The regulations were developed in a move to facilitate greater planning control over the volumes of short-term lets in specific areas, requiring a formal change of use for any property operating in this way.

However, since local communities have continued to raise concerns with the negative impacts of short-term lets – such as antisocial behaviour and over-tourism – the Scottish Government has implemented another control through a licensing scheme.

In March 2022, the Civic Government (Scotland) Act 1982 (Licensing of Short-term Lets) Order 2022, or “Licensing Order”, came into force.

Through the Licensing Order, Scottish local authorities must establish licensing schemes for short-term let operators by 1 October this year, with existing operators required to apply for a licence from the local council before April 2023. While there will be a further review of the scheme to ensure that the range of concerns expressed by tourism groups and communities are accounted for, it is expected that by July 2024, all short-term let operators in Scotland will require a licence. 

But how much impact will the scheme have?

A bit like an HMO licence for certain long-term landlords, the process for securing these licences is likely to be intensive, and operating without a licence will be a criminal offence.

Having a licence will mean that hosts need to adhere to specified conditions, including meeting safety standards to better protect those using the accommodation, and handling any issues experienced by neighbours because of the short-term let accommodation. 

As a result, we may start to see the more commercial short-term let operators shift their business models to focus on providing aparthotel accommodation, while landlords with fewer properties might start to release them back to the housing market. 

For both solutions, much rests with the local authorities to establish short term let control areas, develop an efficient licensing scheme, implement and manage the licences, and handle any issues with compliance.

While this supports flexibility for local authorities to tailor decisions to local needs, it will also need Scottish councils to find the necessary resource to manage the various measures in place.

If implemented effectively, we can expect to reach an equilibrium that works for the range of stakeholders, so that in time the phrase “short-term let” becomes less polarising.

Rory Alexander is Director of Planning Law at independent Scottish law firm Morton Fraser.