How Are Leaseholder Landlords Created?
Leaseholder landlords are created when a long leaseholder decides to sublet. They still have to adhere to all the covenants contained within their lease but they also have to abide by landlord and tenant legislation. They have to ensure their flats are fit to rent before and during each and every tenancy, just as if they were living in the property themselves.
The majority of flats are actually purchased with the view to sublet but most private landlords will have one or two properties which they either manage themselves or employ the services of a letting agent. This is often not their main line of work, rather it is a sideline. On the other hand some landlords do have more properties and operate as full time landlords, looking to expand their portfolios in an ever changing market. Other landlords may be ‘accidental’, perhaps by inheriting property, or by being forced into the market due to the economic climate.
Is Subletting Allowed?
However, whichever route they take into becoming landlords they need to check the terms of their lease as to whether they are actually allowed to sublet. 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.
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 be upward of £500 + VAT.
A Licence to Sublet 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 to Sublet 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.
- A deed of covenant that requires the tenant to abide by the conditions contained with the lease.
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.
Some leases are however vague on the subject of subletting or actually say nothing at all. A freeholder can make conditions ahead of granting permission to sublet but those conditions have to be a) enforceable, b) reasonable and c) do not affect the legitimate interests of the landlord. Therefore it is the nature of any conditions imposed and the right to impose them that are important.
A freeholder could impose some or all of the conditions listed above but what would be considerably harder to justify (if at all) for example would be requiring a large security deposit from the sub-tenant in case they don’t keep to those conditions contained within a deed of covenant. If a letting is lost or prevented because agreement cannot be reached, landlords could make a claim for damages because they are entitled to protect their legitimate interests.
Additionally the imposition of any conditions will turn on what the ‘alienation’ provisions are within the lease. For example rrequiring contact details do 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.
LEASEHOLD LIFE’S EXPERIENCE
After we took over management of our block, we inherited a number of landlords who ignored the subletting covenants because there was no freeholder/managing agent at the time they purchased.
Even now we have the freehold we haven’t had a single approach from anyone requesting retrospective permission to sublet so we haven’t been able to lay down some conditions.
Another major problem is the fact that our leases don’t contain 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.
So we have landlords who don’t have permission to sublet and continue to flout the legal requirements to keep their properties gas and carbon monoxide safe, electrically safe and fire safe. Should anything happen as a result, not only will it impact on the safety of their own tenants and their properties but also their immediate neighbours and potentially the rest of the block!
These same landlords also hand over their properties to the council who also don’t check they have permission to sublet and who then house problematic tenants with so-called ‘rogue’ landlords who quite frankly you wouldn’t trust to run a bath without supervision!
We have overcome a lot of the problems all this caused in our early years of management/freehold ownership, with our first landlord and tenant nightmare posted here but as recently as last week I had to report a landlord to GasSafe with a suspicious gas boiler installation and I’ve also found out another rented flat has neither a smoke or a carbon monoxide alarm.
Which of course I will deal with!