When you let property in the private rented sector there is a considerable amount to think about. You will need to ensure that you are compliant with all laws and regulations, that you get yourself and your property ready and that you find the right tenant. However, there are some specific requirements that should be taken into account if you are planning on renting out a leasehold property.
The following is a list of some of the key considerations that you will need to consider, however the list is not exhaustive and anyone considering letting a leasehold property must ensure they fully understand their lease and the relevant legislation and should seek advice, including legal advice where appropriate.
1. Does the lease allow subletting?
Before you let your leasehold property, you should ensure that the lease provides for subletting and if it does, understand whether it imposes any limitations. Some leases prohibit subletting entirely, some will allow it subject to freeholder consent, and some leases remain silent on the matter (allowing you to sublet without the need for freeholder consent). If you sublet a property without the appropriate consent (where such consent is required) then you will be in breach of lease. It is important that you read the lease carefully.
2. In “part”
Some leases only allow for the letting of a property as a “whole”. This means that you cannot rent out only a “part” of the property (when keeping part for your own, or someone else’s use). As an example, on occasion, leaseholders decide to let out their property separately from a garage that belongs to the property. Where the lease contains a requirement to sublet the property as a “whole”, then any such action would represent a breach of lease.
3. Single family
Many leases allow for subletting, but stipulate that a property can only be used as a single-family residence. This means that if the property is sublet to a number of individuals who do not live as a “family”, such as friends or work colleagues, then there will once again be a breach of lease.
4. Holiday lets
The concept of holiday lettings and “Air BnB” is relatively new and as such, is not covered in many older leases. However, leaseholders should be aware that the courts are determining that using leasehold property for holiday lets will represent a breach of lease in many circumstances. For example, using a property as short-term temporary accommodation for paying transient visitors would be a breach of a user covenant restricting the use to a residential property for the occupation of one family. If a leaseholder intends to use a property for holiday letting, they should read the lease very carefully and possibly seek a legal opinion before proceeding.
5. Business purposes
Many leases restrict the property from being used to run a business. If your lease contains such restriction and your sub-tenant intends to use the property for business purpose, then this will likely place you in breach of lease.
6. S11 landlord repairing obligations
Leaseholders should be aware that when they place a property into the private rented sector they become “landlords” of that property. Section 11 of the Landlord and Tenant Act 1985 places an obligation on the landlord to maintain the structure and exterior of the property, including installations for the supply of water, gas and electricity, heating systems, drainage and sanitary appliances. These responsibilities include the common areas of blocks of flats and therefore extend the landlords repairing responsibilities beyond just the demised area of the flat that they own.
Under the terms of the long lease, the freeholder of a block of flats will typically have a responsibility for repair and maintenance of the common areas. This creates the confusing situation of “who is responsible for what” - due to the fact that the leaseholder has statutory responsibilities for repairing under S11 and the freeholder has contractual responsibilities under the lease. Ultimately, the S11 responsibilities placed on a leaseholder/landlord should not negate the freeholder contractual obligation, but it can certainly cause confusion over responsibility and accountability and can put the leaseholder in a difficult position if the freeholder refuses to undertake repairs to common areas.
7. Long lease obligations in the AST
An area that is frequently overlooked by leaseholders who sublet is the incorporation of conditions of their long lease into the assured shorthold tenancy agreement. The long lease will frequently obligate leaseholders to comply with requirements such as not storing anything in common areas, cleaning windows frequently, not displaying signage or advertising from windows and the like. If these requirements are omitted from the shorthold tenancy agreement, then the leaseholder may find themselves in the delicate position of being placed in breach of their lease by the actions of the subtenant, but without having any contractual recourse against the subtenant to address the matter.
8. Responsible person
Where a leaseholder sublets a property, they will become a “responsible person” for the purposes of fire safety regulations, and will be required to maintain sufficient fire precautions for both the property that they let out and any common areas of a block of flats. For common areas of blocks, there may be multiple “responsible persons” (the freeholder together with what could be numerous landlords within a block) and under such scenario, the law places a duty on the responsible persons to “coordinate” their action to ensure that the overall fire responsibilities are met. Therefore, any leaseholder/landlord will need to ensure that there is such coordinated action to discharge their duties as a responsible person.
Letting leasehold property adds a level of “complexity” over and above that involved in letting freehold. Anyone planning on letting a leasehold should ensure that they fully understand their lease and the relevant legislation.