The majority of flats are purchased with the view to sublet and most leases will allow it with freeholder consent. 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.
Prospective landlords will already be leaseholders so not only do they have to abide by the requirements of their lease but they also have to abide by landlord and tenant legislation and maintain rental standards which are governed by the overarching legislation of Part 1 of the Housing Act 2004, specifically under the Housing Health and Safety Rating System (HHSRS). They must also obtain a landlord licence from their local authority if one is required.
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.
CAN THE FREEHOLDER IMPOSE SUBLETTING CONDITIONS?
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) 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.
Whilst a freeholder could impose some (or all) of the conditions listed above 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 covenant. 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!
Our over-riding problem has been that our leases don’t contain a key clause which newer leases may contain, which is that of not sub-letting the whole of the flat to a Housing Association, Local Authority, or any other body whose objects include the provision of housing accommodation. We have 17 out of our 22 flats sublet and a number of of landlords have taken advantage of the incentives offered to them under s25 of the Local Government Act 1988 handing over their properties to the local authorities for them to house their homeless tenants (or those about to become homeless). Such incentives include:
- The authority paying the costs of leases;
- Making small one-off grants (“finders’ fees”) to landlords to encourage them to let dwellings to households owed a homelessness duty;
- Paying rent deposits or indemnities to make sure accommodation is secured for such households;
- Making one-off grant payments which would prevent an eviction;
- Discretionary Housing Payments (DHP) to give financial help to meet a shortage in a person’s eligible rent and the housing authority consider that the claimant is in need of further financial help. Such payments are governed by the Discretionary Housing Payment (Grant) Order 2001
Note: Whilst there is no limit set on the amount of financial help that can be provided, authorities are obliged to act reasonably and in accordance with their fiduciary duty to local tax and rent payers.
By signing an extended lease with the council (often 3 or 5 year) landlords will often be exempt from landlord licensing because they hand over management to the LA and are not named as landlords in later tenancy agreements. This position of landlord is assumed by the LA’s managing department or agent, with the LA being responsible for finding, vetting and placing tenants and dealing with any later issues.
I also discovered first hand that councils place enormous reliance on agents checking out the standards of the property before they place tenants in the PRS which often translates to properties simply getting a quick coat of paint to deem them acceptable.
As resident manager and RMC Director respectively, we are continually left out of this loop and it has led to serious and in some cases dangerous situations.