There are two main types of sub-letting. First, there’s a ‘rent to rent’ strategy, where a landlord leases a property to a tenant for a fixed period of time (often 3 or 5 years) and then they let the property out to tenants of their own. The idea is that the rental income they receive covers their own rent to the landlord and also gives them a profit on top. The supposed benefit to you, as their landlord is that you have guaranteed rent each month, no voids and no management hassles.
The second type of sub-letting is where your tenant lives in the property themselves but has the right to sub-let one or more rooms, usually so that they can live in a property they might not be able to afford on their own all the time.
At the moment, the rules on sub-letting are clear and straightforward: you, as the landlord, can simply refuse your tenant permission to sub-let. And that’s what the vast majority of residential landlords currently do, by inserting a clause in the rental agreement. The key reason for this is because if you allow your tenant to sub-let your property to a third party, you lose control over who is living in your premises.
The Government thinks it’s necessary to suggest changes to this regulation, but the last Budget proposes making it illegal for a Private Rented Sector (PRS) tenancy agreement to contain clauses that prevent sub-letting. You would still have the right to refuse permission, but the plans suggest that you’d have to give reasons why and respond to any requests from your tenants to sub-let within a reasonable time period.
The Department of Communities and Local Government (DCLG) has said that they intend to carry out a wide consultation before making any changes to the current laws, to make sure the concerns of agents, landlords and others within the PRS are understood and addressed.
The key point is that we don’t think it’s right that a landlord should be put in a position of having to allow sub-letting, and that’s what this proposal seems to suggest could happen.
Our landlords know we vet tenants thoroughly but if a tenant is granted permission to sub-let, then they’re the ones who choose the sub-tenant. In that case, who’s responsible for making sure the necessary immigration status checks are carried out, not to mention reference and credit checks, and what happens if your tenant decides to leave the property but the tenant they’ve sub-let to decides to stay? Alan Ward, Chairman of the Residential Landlords Association, has the same concerns and believes the policy could be ‘a nightmare in the making’. (Source: news.rla.org.uk/budget-a-nightmare-in-the-making-says-landlords)
Then who would decide what is a ‘reasonable’ length of time for you to respond to a tenant’s request to sub-let and whether your reasons for refusing a request were valid? If a tenant made a request and you didn’t want to let them sub-let, for whatever reason, it could cause bad feelings, and your tenant may either leave or be tempted to go ahead with the sub-let anyway. If they did, you might well end up having to pay a lot of money to legally regain control of your property.
The other danger of this proposed policy change is that it would be likely to fuel the ‘rent to rent’ multiple occupancy strategy that’s already caused huge problems for many landlords and tenants over the past few years. Our worry is that tenants could be targeted by ‘professional’ promoters, who sell the dream of making a profit for no financial investment of their own. The strategy usually involves renting a house from a landlord and filling it with as many tenants as possible, on an Homes in Multiple Occupation (HMO) basis, which can generate a healthy profit. But the potential problems for landlords are huge:
- the house is usually adapted, with stud walls, fire doors, alarms, etc., and you might not get it back in anything like the same condition you leased it at the start
- it may be being let illegally without a licence, for which you may be liable
- maintenance may not be being carried out as it should, causing disrepair and possibly damage
- if your tenant isn’t managing the sub-let correctly, you could discover the tenants living there are being a nuisance to the neighbours and even carrying out illegal activities.
But one of the most important things to be aware of is that by leasing your property to a ‘rent to renter’, you’re likely to be creating a commercial tenancy, which has different legal regulations. Under a commercial agreement, tenants have the right to demand a new tenancy, meaning you could easily lose control of your property and, again, incur enormous legal costs to regain possession.
All in all, while there might be lots of cases where sub-letting takes place without any problems, it’s not something we’d recommend you enter into lightly. The PRS is already a legal minefield and successfully managing a tenancy is not easy, so why expose yourself to the risks? We believe they far outweigh any rewards.
If you have any concerns or questions about the planned changes, pop in to your local Your Move branch or call and speak to us. Of course, we’ll continue to keep you updated as the proposal progresses.