The implementation of the Short Term Lets licence scheme in Scotland aims, amongst other things, to address concerns regarding anti-social behaviour and housing availability in popular tourist areas. However, as the scheme unfolds, some unintended consequences have emerged. This article explores the scope of the legislation, its impact on property owners and businesses and potential solutions to navigate the challenges posed by the licensing requirements.
The Broad Scope of the Short-Term Lets Licensing
Many property owners and potential buyers may not be aware of the wide range of holiday accommodation that requires to be licensed by the Local Authority to operate legally. Contrary to popular assumptions, the legislation applies to almost all types of short-term accommodation, including unconventional options like glamping pods, geodomes, yurts, tents and tipis. This list is not exhaustive!
This has come as a surprise to rural business owners. For instance, farmers may have invested in these types of accommodation without realising the need for licensing. It is notable that these rural businesses fall under the same stringent licensing regime as properties located in urban areas.
Impact on the Sale and Purchase of Short-Term Letting Businesses
The short-term lets legislation has significant implications for the sale and purchase of businesses involved in short-term letting. One issue is the distinct rules that apply to existing and new hosts. For existing businesses operating a short-term letting business, the Scottish Government announced a six-month extension to apply for a licence. This allows those existing businesses to continue running their businesses until October 1, 2023. However, new hosts are prohibited from operating without a licence, even if they have applied.
The differing rules for existing and new hosts, rather than existing and new businesses, create challenges for prospective purchasers of existing short term let businesses. Incoming owners must obtain a new licence to continue operations. There is no grace period. The lengthy decision-making process by Local Authorities further complicates matters, with new hosts facing up to a nine-month wait and existing hosts up to a twelve-month wait for a licence. In addition, licences are not transferable from one owner to another.
What can buyers and sellers do?
Properly addressing these unintended consequences will require further legislative intervention. Dealing with the practicalities of the here and now, one potential solution could be to make the purchase conditional upon the grant of a licence to the buyer as the new host. This approach protects the purchaser but will almost certainly result in delays between the conclusion of the contract of sale and purchase (the missives) and final settlement. But even if this approach were to be adopted the Scottish Government guidance suggests that only property owners can apply for a Short-Term Lets licence. That means this type of solution would require careful consideration on a case-by-case basis.
Alternatively, a partial payment of the agreed price could be made upon completion of the purchase, granting full control of the property and application process to the purchaser. The remaining sum would then be paid to the seller upon the successful granting of the licence. However, this is likely to make the seller very nervous in the period between handing over control of the property and final settlement – anything could go wrong in the intervening period!
A third option might be to incorporate the short-term letting business in a private limited company. Rather than sell the assets, if the seller were to sell the equity in the company, the company would continue to own the assets which includes the license. From a buyer’s perspective, this might be challenging because buying the equity also means taking on all the liabilities of the business, including staff!
Advice for Short-Term Letting Businesses
All parties involved in short-term letting businesses, particularly those engaged in sale and purchase transactions, must proactively consider the implications of the licensing requirements. Early engagement and planning are crucial to find the best way forward for everyone involved. Seeking legal advice from experienced professionals will help you navigate the complexities of the licensing requirements and ensure compliance.
Conclusion
The introduction of the Short Term Lets licence scheme in Scotland aimed, amongst other things, to address concerns surrounding anti-social behaviour and housing availability. However, unintended consequences have emerged, affecting various types of holiday accommodation and creating challenges for property owners and businesses looking to sell or buy a business that includes short-term lets. As the legislation continues to develop, it is essential for stakeholders to stay informed and seek appropriate guidance to navigate the licensing requirements successfully.
Please note that this article provides a general overview and should not be considered legal advice. For specific guidance and advice on short term lets, please contact us.
