Putting sharing economy property rentals on the straight and narrow

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The romanticized view of the sharing economy runs something like this. We all have assets that we can share with other people in return for small amounts of cash or payments in kind. Sharing economy platforms connect supply and demand allowing us to monetize anything from residential property, cars and parking spaces through to in-demand skills. And in enabling this kind of trade, the platforms help us all to access cost-effective services or make the most of what we’ve got to offer. At its most basic, it’s a community thing.

The reality may be a bit different. Not only are the leading sharing or collaborative economy platforms multi-billion dollar businesses in their own right, they are also making it possible for other ventures—many of them significant—to carve out market share. For instance, Airbnb doesn’t only help John and Julie rent out their flat when they’re going on holiday, it can also help fully-fledged and professional companies find customers for across a portfolio of holiday rentals.

This is where the romanticized view of the sharing economy, kicks up against commercial and policy interests. When implemented on a large scale, sharing economy ventures have implications for governments, regulators and the industries that are being disrupted. For instance, from a government perspective, there are questions about how and when you tax individuals who are making money from monetizing their assets. There are also questions about how sharing economy services, such as car share and holiday rentals affect communities and how they should be regulated. And what about the competitive interests—for example, the hoteliers or professional taxi drivers who say the Airbnbs and Ubers of the world are adversely affecting their ability to make a living.

Here is one potential problem. Under-neath the big platforms lies a huge and amorphous ecosystem of private individuals and small businesses. Some may be playing by the book, others bending the rules.

Bending the rules

At least that’s the view of Guy Westlake, founder of rental management platform Lavanda. He cites the short and medium rentals sector as a case in point. This was a market revolutionized by Airbnb, but as Westlake sees it, the success of the U.S. pioneer—and similar services—has become a source of frustration for landlords who see (or suspect) that tenants are breaking the terms of their leases by subletting apartments for short periods using rental platforms. What’s more, rather than renting out their apartments, maybe once or twice a year, they may be doing it regularly and breaking local planning restrictions on holiday lets in the process.

Now it has to be said that Airbnb itself tells those renting out properties to comply with the terms of their leases and with local laws, but that doesn’t mean that rules aren’t being bent.

But Westlake believes the frustration of landlords who see (or more likely suspect) that rogue tenants are cashing in without permission, could easily morph into an eagerness to make some money themselves. His company, Lavanda aims to enable them to do just that by providing the tools to put tenants on the straight and narrow.

“What we offer landlords is a way to monetize their properties, while also allowing their tenants to make money legitimately,” he says.

A toolkit for landlords

Essentially, Lavanda is an online platform that gives landlords a toolkit. Using it, they can draw up new contracts to make subletting legal under the terms of the lease. Equally important they can sort out any insurance issues and manage the short and medium-term rental process while also ensuring that their rental strategies comply with local regulations. A similar toolkit is available to property managers.

Now, by landlords, Westlake doesn’t mean the individual who perhaps owns one or two houses occupied by tenants. Lavanda’s sweet spot is the big landlord (possibly an investment institution) that owns hundreds or thousands of rental properties. And by adding short-and medium turn rentals to their income stream, these companies can, significantly  boost their bottom lines. This, Westlake claims, will boost investment in property.

Boosting property investment

“In the future more and more people are going to have to rent because properties are too expensive to buy,” he says. “But the flow of money into rental property investment isn’t what it used to be. One way to solve that is to improve the economics for investors.”

Lavanda, he says, can do that by providing new rental revenue streams—facilitated by the likes of Airbnb—that can be shared between landlord and tenant. And in the case of brand-new build-to-rent properties that are coming on stream, Lavanda can be used to bring in holiday rental income, even before apartments are let to long-term tenants. “It can take one and half to two years to fill a block of apartments,” he says. “But you can make money during that period through short and medium-term rentals.

The question is: does a platform like this fly in the face of the original sharing economy ethos? Rather than enabling individuals to make a little bit of money from their assets, platforms provide a means to funnel cash to big corporate businesses and institutions.

But as Westlake sees it, addressing the problem of illegal subletting will create a better experience for everyone. Tenants will be able to rent out their apartments without fear of being found out and perhaps evicted by the owners. Guests will have a better experience because everything is above board.

And the rules incorporated into the system will also ensure that rental strategies of landlords and tenants are in line with local and national regulations—for instance, by preventing apartments from being given over to short-term lets for more than the number days allowed by local authorities.

Looking at global markets

The company has 10,000 units on its books and Westlake sees 100,000 as perfectly possible. He also sees even larger opportunities in countries such as Germany and the U.S. where there are more large landlords than in the U.K. The platform is free to join, but Lavanda takes a percentage of revenues earned.

So will this—as Lavanda claims—serve to legitimize some of the activity that is going in the sharing economy rental market? Maybe. As things stand, there are rules in place but not everyone abides by them. Some tenants may continue to prefer to break their lease terms rather than share revenue with landlords. At the very least, however, the Lavanda platform should make it more attractive for tenants to work with their landlords, rather than risking eviction, Meanwhile, Landlords have a new revenue opportunity.


Author Trevor Clawson