Sub-letting - How to avoid the pitfalls

Usually such a restriction will say that the consent cannot be unreasonably withheld. If there is no mention of reasonableness in the covenant then statute implies a test of reasonableness. The landlord cannot unreasonably refuse consent. Statute also requires the landlord to deal with applications for consent within a reasonable time of the making of the application. If the landlord does not do this then the lessee can claim against the landlord for any losses that are the consequence of the delay.

Should the lessee’s right to sub-let be restricted in any way if a long leasehold interest has been purchased? Should a lessee be treated any differently from an absolute owner such as the purchaser of a freehold house? From the lessee’s point of view any restriction may appear quite unfair. A lot of money may have been paid for the Lease, why should there be any limitations? Well, one reason is that other Leaseholders in the block may be prejudiced if there is no restriction on sub-letting. The wrong type of occupiers could be brought into the building. If most of the flats are occupied by people who do not live there they will not care as much about the standard of the building and as a result the value of the flats in the building could diminish.

On the other hand if there are delays in giving consent in a competitive market place that might just tip the scales in favour of the tenant going elsewhere. Anger and frustration all round. Putting a restriction on unfettered sub-letting is certainly considered a way of maintaining the standard of a block and references may be required both professional and social. One way of solving the problem, a sort of compromise, can be a requirement in the Lease which says that although there is no restriction on sub-letting the sub-tenant has to enter into a direct covenant with the landlord to observe all the terms and conditions of the Lease. The only problem with that sort of arrangement is that to comply strictly with its terms the sub-tenant can be presented with a very lengthy document containing all these covenants and that can be off-putting.

Occasionally, even if there is no restriction on sub-letting, there can be a restriction somewhere else in the Lease which amounts to the same thing. In some Leases you find restrictions limiting the type of occupiers that can live in the flat. For example, the flat may only be occupied for family use or for one family. That means that it is rather difficult to get sharers together who are unrelated and do not live as one household.

Another bone of contention is that, where Leases provide for consent, landlords, or their agents to whom these matters are often delegated, impose a payment of costs for the work done in approving a sub-tenant. Sometimes these costs can be quite high. Other costs can be incurred because there will almost inevitably be a provision in the Lease requiring the landlord to be given notice of any sub-letting, which means providing a copy of the sub-letting agreement and paying a fee for registration with the landlord’s solicitor. The registration fee is normally quite nominal.

Some Leaseholders, fed up with these restrictions, ignore the provisions of the Lease and sub-let without any notification at all. They rely on the fact that the landlord or their agents will not be bothered to check who is living in a particular flat. Often times this is the case. However, if the lessee’s judgment is wrong and the landlord finds out serious trouble could be round the corner. How will the landlord find out you may ask? Usually it is because the sub-tenants do something that irritates the neighbouring flats or other people in the building leading to complaints to the landlord or their agents. The landlord may then demand that the sub-letting ceases. If a fixed Contract has been entered into for a period of time that can be difficult to deal with. One way or another there will be a costly bill to pick up. The landlord may go as far as to instruct solicitors who will serve a notice threatening forfeiture of the Lease unless the matter is remedied within a given time. Even if the Leaseholder manages to put things right a hefty bill is normally presented for the legal costs involved.

With all these things in mind what should be the main concern of Leaseholders? Obviously before you buy a Lease read the Lease carefully and make sure that you know what the restrictions are. Find out what the letting policy is in the block. How onerous are the conditions that are imposed? Find out how co-operative the agents are in approving tenants. Find out what fees may be involved. Check how many flats in the block are let already and what type of block it is. Only when you are satisfied that sub-letting will not be a problem should you purchase a Lease which has any restrictions in this regard.

If you do get things wrong and are taken to Court because you are unlucky with your choice of tenants then, although at the end of the day your Lease may be preserved, substantial costs may be paid as a condition of getting out of the mess. Remember, also, that even if you do get consent should your sub-tenants misbehave or cause a problem then you could be responsible for the damages that they cause, so merely getting consent is not an end to the issue. Whatever the Lease says it pays to be careful about your choice of sub-tenant.