Subletting Conditions of Long Leases
Most leases will allow subletting with the consent of the freeholder and under s.19(1)(a) of the Landlord and Tenant Act 1927 the freeholder cannot unreasonably withhold it. This is reinforced by the fact that even if there is no mention of reasonableness in the covenant it is nevertheless implied by statute. Again, the landlord cannot unreasonably refuse consent making this a qualified covenant.
The freeholder is also under a duty under the Landlord and Tenant Act 1988 to reply to a request to sublet within a reasonable time and if consent is withheld, they should specify the relevant circumstance/reasons within the lease.
The tenant should be advised of this as soon as possible and given the opportunity to negotiate. Any refusal on specified grounds will not be considered unreasonable unless there is any subjective element (based on or influenced by personal feelings, taste or opinion).
If the freeholder does not respond within a reasonable time then the leaseholder can claim for any losses that result from the delay.
Like many leases, ours has a clause that allows subletting with the consent of the freeholder. What it doesn’t contain is a key clause which newer leases may contain, that of not to sub-let the whole of the Flat to a Housing Association, Local Authority, or any other body whose objects include the provision of housing accommodation.
Some leases are however vague on the subject of subletting or actually say nothing at all. In such situations freeholders who wish to impose conditions before granting consent, must consider the rights of landlords to protect their legitimate interests. Therefore it is the nature of any conditions imposed that are important (and the right to impose them). Conditions that the freeholder could impose before granting consent could be:
- Copies of tenant references;
- A copy of each Tenancy Agreement (or a copy of any Memorandum of Extension) on completion;
- Details of a forwarding address or the name and address of the Letting Agents if the property is managed by such an agent;
- A contact telephone number for the tenants (for emergency use only);
- A fee for each new letting.
- Responsibilities of the landlord under the terms of the lease to be incorporated into the Tenancy Agreement with an additional clause stating that the tenants will abide by them.
All of these can be considered ‘reasonable’ but taking the last condition as an example, going beyond that by requiring a substantial security deposit from sub-tenants in respect of them adhering to those obligations would be considerably harder to justify. It could also lead to a claim for damages a) the BTL landlord loses the letting because of any unreasonable conditions imposed by the freeholder or b) the landlord goes ahead with subletting and then seeks a court determination that consent should have been given in the first place.
Additionally the imposition of any conditions will turn on what the ‘alienation’ provisions are within the lease. For example, the requirement for contact details does not necessarily relate to the content of the lease so withholding consent on that basis could be an issue in that the impact on the management of the block is not necessarily a reason to withhold it. On the other hand the enforcement of the leasehold covenants is. A very fine line!
Note: It is however very important to note that if a lease requires notification to be sent to the freeholder of a letting within a certain number of days, (usually 28), then conditions cannot be imposed. Having said that it may be important from the buildings insurance perspective to know what flats are rented.
LICENSE TO SUBLET
If a licence to sublet is stipulated in the lease then the leaseholder landlord has no choice but to comply. Under s.19(1)(a) of the Landlord and Tenant Act 1927, freeholders are allowed to “require payment of a reasonable sum in respect of any legal or other expenses incurred in connection with (an underletting) licence or consent”. Again the key word is ‘reasonable’ because providing a copy of the Licence and paying the fee for the registration with the freeholders’ solicitor can, according to Katie Cohen of Child & Child, be upward of £500 + VAT.
A Licence provides an address for ‘deemed services’, making it a useful tool because a common response of landlords when it comes to paying their service charges is “I didn’t know about the service charge demands as the subtenant hadn’t forwarded my mail”.
Landlords requiring a license need to comply with the following steps:
- All tenancies must be on an Assured Shorthold Tenancy, the ‘contract between the landlord and his tenant, most of which are usually 12 months;
- A written request to sub-let must be sent to the Managing Agents when the lease has a clause that requires permission to do so;
- Copies of the references in respect of the proposed tenants are sent to the Managing Agents, prior to the tenancies being granted;
- A contact telephone number for the tenants is given to the Managing Agents (for emergencies);
- A copy of each Tenancy Agreement (or a copy of any Memorandum of Extension) should be sent the Managing Agents on completion (responsibility of the landlord);
- The owners’ responsibilities under the terms of the lease must be incorporated into the Tenancy Agreement (landlords responsibility). Ideally a copy of the relevant clauses should be attached and there should be a clause that the tenants will abide by them – landlords responsibility;
- A fee payable to the Managing Agents for each new letting although this can vary from agent to agent;
- The Managing Agents should have details of a forwarding address or the name and address of the Letting/Managing Agents in case of emergencies.
Whenever the tenant changes, a new Licence needs to be issued.
Consent Via Side Letter
If the lease doesn’t specify that a Licence to Sublet is required then another way of freeholders keeping control of subletting is via a Consent to Underletting, which takes the form of a side letter(s). This is supplemental to the lease, refers to the subletting clause contained within the lease, and is signed by the landlord and the freeholder without the need for a formal licence.
LEASEHOLD LIFE’S EXPERIENCE
Another problem caused by having no freeholder was that the tenancy agreement is the contract between the landlord and the sub-tenant but there is no such contract between the subtenant and the freeholder. Even now we have the freehold we still cannot enforce any of the subletting covenants as we are left out of the loop and for the same reason we cannot get sub-tenants to enter into a Deed of Covenant whereby they promise to abide by the key covenants and regulations of the lease. Nor can we ensure that their performance of these covenants and regulations are written into any Tenancy Agreement despite the fact it could be detrimental to the freehold company directors and leave them liable if there is any issue regarding a lease breach by the sub-tenants.