Subletting a Leasehold Flat
The lease is the overriding document when a leasehold property is purchased and most flats are going to be sublet. Most leases will allow this with the permission of the freeholder. Under s.19(1)(a) of the Landlord and Tenant Act 1927 the freeholder cannot unreasonably withhold it, 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.
Some leases are vague on the subject of subletting or make no reference to it at all. Whilst a freeholder can make conditions ahead of granting permission to sublet, those conditions have to be a) enforceable, b) reasonable and c) 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.
Whilst a freeholder could impose some (or all) of the conditions listed in a License to Sublet (see below) they would find it virtually impossible to justify certain things such as requiring a large security deposit from the sub-tenant in case they don’t keep to those conditions contained within a Deed of Direct covenant. This is a contract that compels the buyer of the property to provide details as the new leaseholder to the freeholder/managing agent. It is found in many long leases written before 1996 (which applies ot ours) and also means the purchaser agreeing to abide by all the original lease terms before completion and through the duration of ownership. Additionally if a letting is lost or prevented because agreement between the freeholder and the landlord cannot be reached, a claim for damages could be made against the freeholder landlords are entitled to protect their legitimate interests.
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.
Additionally the imposition of any conditions will turn on what the ‘alienation’ provisions are within the lease such as requiring contact details .These are not necessarily related to the content of the lease so withholding consent on the basis that not having them would impact on the management of the block would perhaps not necessarily be a reason to withhold it. On the other hand the enforcement of the leasehold covenants would be very difficult to carry out without such details. Very tricky!
LICENSE TO SUBLET
If a licence to sublet is stipulated in the lease then the leaseholder 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’. 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 for service charge collecting because a common response of landlords to paying is “I didn’t know about the service charge demands as the subtenant hasn’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.
All leaseholders who sublet property and become landlords are not only bound by the covenants (promises) contained within the lease and which they made to the freeholder but they are also bound by requirements of landlord and tenant legislation and those of the tenancy agreement. Rental standards are governed by the overarching legislation of Part 1 of the Housing Act 2004, specifically under the Housing Health and Safety Rating System (HHSRS) and where the term of the tenancy does not exceed 7 years, landlords are under an obligations to make sure that:
- The structure and exterior of the property are kept in repair (for houses only: when the flat is rented, then it is the responsibility of the freeholder and/or managing parties
- The installations in the property will need to be electrically safe, gas safe, and smoke and carbon monoxide safe which also applies to the water.
These obligations are often contained within the tenancy agreement but even if they are not, they are implied by the statutory obligation under s11 of the Landlord and Tenant Act 1985 (repairing obligations in short leases).
Note: There is a difference between the obligations of just repair and repair/keep in working order with the latter being a higher obligation requiring those areas to be capable of functioning for the purpose of which they are intended.
Failure to Meet Obligations
If landlords fail to meet their obligations then the tenant can take civil action in the County Court, claiming compensation for damage and inconvenience resulting from the breach. If a payment of compensation is not a sufficient remedy, then s17 of the Landlord and Tenant Act 1985 (specific performance of landlord’s repair obligations) means that the County Court can make an injunction requiring the landlord to fulfill the express or implied repairing terms of the tenancy agreement. If the landlord again fails to carry out the works required by the court order, the landlord, (or his agent), can in very extreme situations be committed to prison for contempt. The County Court can alternatively direct that the repairs be undertaken by, or on behalf of, the tenant at the landlord’s expense.
Damages (compensation) can still be claimed even if the works have been carried out by the time the case reaches court.
Note: It has been held that breach of the repairing covenants can also be considered to be breach of the covenant of quiet enjoyment
Landlords will also need to be aware of how to legally evict their tenants, whether it is a case of wanting their properties back (with no breach of the tenancy having been commited by the tenant) or by the tenant having committed one or more tenancy breaches, with the main one usually being rent arrears.
They are also required to protect tenancy deposits and must also obtain a landlord licence from their local authority if one is required.
If all that weren’t enough they must carry out immigration checks on their tenants under the Right to Rent Scheme and ensure that their Energy Performance Certificates do not have a rating of less than F or G as it became illegal to rent or market such properties in April 2018.
Landlords have three options as to how their rental properties are managed:
1: Lettings Only/Landlord Management
In this option the letting agent will carry out the following:
- The marketing of the property;
- Providing advice about what rent the landlord should ask for;
- The finding of a tenant and subsequent reference checks if required;
- Providing the tenancy agreement.
The landlord then takes on all the management of the property when the tenancy starts. The agent will usually charge a one-off fee for their work in getting to this stage. The payment will usually be based on the rent (usually one month) and they are also likely to charge the tenant an administration fee (for the same reason).
Note: See above for landlord responsibilities.
2: Tenant Finder/Rent Collection
Self explanatory and again whilst the agent will usually charge a one-off fee they may also add a small monthly percentage for collecting the rent. The landlord will deal with repairs, and regaining possession at the end of the tenancy if the tenancy is not renewed.
3: Full Agent Management
This covers all aspects of management including repairs that can either be carried out without requiring the permission of the landlord or those which the landlord prefers to deal with. Rent collection, commencement of the tenancy and the first steps of bringing a tenancy to an end such as serving notice (but not proceeding to court action) are also provided. This level of service will naturally be the more expensive option.
Landlords should also make sure they take out the correct insurances of which a considerable number are available.
Abiding by all these requirements may seem daunting but they are legal necessities to make sure that not only do landlords let their properties successfully but tenants also feel safe and secure in the homes that these PRS landlords offer.