Is Serviced Accommodation Illegal?

Nikka Sulton

Is Serviced Accommodation Illegal?

Is operating serviced accommodation (SA) illegal? Many potential SA entrepreneurs have concerns about starting such a business. Fortunately, most of these concerns are based on myths and misinformation that can be readily debunked. If you’re interested in owning an SA unit but have reservations about certain aspects of the industry, it’s wise to verify whether they are indeed myths.

Is Serviced Accommodation Illegal?

Serviced Accommodation (SA) is entirely legal. With a proper understanding of the business and the use of appropriate contractual agreements, it becomes evident that SA is a legitimate enterprise. It’s crucial to differentiate SA from subletting, as they are distinct concepts, and engaging in SA does not involve any unlawful activities.

Other misconceptions about serviced accommodation:

1. The property won’t suffer continuous damage.

Upon careful consideration, it becomes apparent why – long-term family stays tend to foster a sense of ownership, potentially leading to a lack of care for the property. In contrast, short-term guests are acutely aware that the house belongs to someone else. Furthermore, with well-structured terms and conditions documents, guests are informed of the consequences of any damage.

2. The market isn’t oversaturated.

As previously mentioned, there is substantial demand for Serviced Accommodation (SA), particularly in niche markets and underserved areas. The misconception of market saturation often arises from a lack of industry insights and connections.

3. Serviced Accommodation operates with minimal regulation.

If concerns about compliance have deterred you, rest assured that the SA sector is relatively lightly regulated. In most cases, you can let a standard property with minimal modifications. While certain essentials like EICR and gas safety are required, providing additional security measures to guests is not a legal obligation (though it’s advisable).

4. Holiday lets encompass self-catering accommodations and enjoy universal appeal.

Even during holidays, these lets remain in demand, as numerous businesses prefer self-catering options over traditional hotel stays.

What are the benefits to landlords of serviced accommodation?

Increasingly, landlords and property owners are turning to serviced accommodation as a way to maximize rental property yields.

Unlike traditional buy-to-let properties leased on a six-month assured shorthold tenancy (AST) agreement, serviced accommodation offers greater flexibility with the option to rent for short or extended periods.

This arrangement presents an opportunity to significantly boost rental income compared to monthly AST payments. For instance, renting out a property for short stays at £80 a night or £560 a week may surpass the £600 monthly income from an AST.

Although there might be occasional void periods, location and marketing efforts can lead to surpassing the monthly AST rental income.

Furthermore, property owners find that selling a short-term rental is often easier and quicker since there are no tenant considerations involved.

What are the drawbacks to landlords of serviced accommodation?

While the potential income from serviced accommodation can be appealing, several considerations should be kept in mind:

The responsibility of arranging and covering the costs of essential services like housekeeping, WiFi, gas, and electricity lies with the landlord.
Marketing expenses may be higher compared to regular buy-to-let rentals, as attracting guests regularly is necessary.
Income may decrease during void periods, particularly in winter months.
The property must be furnished to a high standard that aligns with the rental charges for guests.
If self-managing the property, the landlord must be readily available to address guest inquiries and any arising issues. Alternatively, using a specialist letting agency incurs fees to be factored into yield calculations.
Arranging a meet and greet for new guests or setting up a coded security box for key retrieval is essential.

What should serviced accommodation include?

Serviced accommodation offers a homely alternative to hotel rooms, providing a complete living space with all essentials included in the rental cost. Landlords are expected to provide:

A fully equipped kitchen with all necessary cooking facilities, a dishwasher, and a washing machine.
A bathroom.
A furnished living area.
WiFi and a TV.
At least one separate bedroom or a dedicated sleeping area for studio apartments.
All utilities, including water, electricity, and gas if applicable.
Housekeeping service, either weekly or at more frequent intervals.

Are serviced apartments a good investment?

The UK’s rental sector is witnessing significant growth in the serviced apartment segment.

Just like any rental property, be it buy-to-let, holiday rental, or serviced accommodation, location plays a crucial role in maximizing income and preserving or increasing the value of your investment.

Every property investment carries some level of risk, so it’s essential to thoroughly research the area, gauge the demand for serviced accommodation in that region, and assess the property’s potential before making any financial commitments.