To Let, or Not to Let

As ever, the starting point is the lease.

Some leases are silent on the question of subletting; others ban subletting altogether. In between, you will find leases which permit subletting to a limited extent, subject to a myriad of different rules, conditions and restrictions (e.g. restricting the tenancy term to six months or more; or ensuring that sub-tenants enter into a deed of covenant with the landlord or management company to observe and perform the terms of the lease).

Note that taking in paying guests, subletting for very short terms (e.g. 1 – 2 weeks) and holiday letting is likely to amount to a breach of any covenant to use the property only as a “private residence” or “private dwelling” (Caradon DC v Paton); or prohibiting the carrying on of a trade or business (Thorn v Madden; Tendler v Sproule). Longer term subletting is less likely to result in a breach of this type of covenant (see, for example, Roberts v Howlett, which related to student letting), because there is a greater degree of permanence.

Where a lease does prohibit assignment or subletting without consent, it will be an implied term that such consent cannot be unreasonably withheld (s.19(1), Landlord and Tenant Act 1927). It is likely to be reasonable to withhold consent if the proposed sub-tenant has a history of anti-social behaviour; or if the sub-tenant is intending to use the flat for another purpose which is damaging to the freeholder in some way. It may also be reasonable to withhold consent if the granting of such consent would result in the freeholder waiving his right to forfeit for some pre-existing breach by the lessee (e.g. outstanding service charge arrears) (Yorkshire Metropolitan Properties v Co-operative Retail Services).

Interestingly, even where a lease does not expressly require the leaseholder to pay an administration fee for dealing with applications for consent to sublet, it is considered reasonable for the landlord to withhold consent until the leaseholder pays the landlord’s reasonable administration fee (Holding & Management (Solitaire) Ltd. v Norton), however, a fee for providing consent in this context is a variable “administration charge”, which must be reasonable (p.2, Sch.11, Commonhold and Leasehold Reform Act 2002). In Norton, a reasonable fee was held to be £40 plus VAT. A higher fee may be justifiable and every case must be assessed on its own merits.

Finally, remember that the Unfair Terms in Consumer Contracts Regulations 1999 can apply to leases (R (Khatum) v LB Newham; Rochdale BC v Dixon; Peabody Trust v Reeve. Terms which are deemed unfair are not binding on the consumer. The Office of Fair Trading has issued guidance on how the Regulations apply to leases and tenancy agreements, suggesting that an absolute prohibition on subletting would be an unreasonable term (Group 18(d), Annex B).

That does not appear to have affected the Upper Tribunal in Lee’s Application, where an application was made to the Upper Tribunal (UT) to remove a restrictive covenant which prohibited subletting, under s.84 of the Law of Property Act 1925. Evidence was provided by the RMC justifying the prohibition (and their concerns about the deleterious implications of subletting). The UT rejected the application.

 Roger Hardwick is Head of Leasehold Enfranchisement at Brethertons Solicitors.