Subletting Consent

When a leasehold flat is being purchased with the intention to sublet, the mortgage offer should be a buy to let offer. If the offer is not clear on this then it should be reported to the lender and further instructions awaited. Once a buy to let mortgage offer has been offered, it will usually set out the requirements of the lender in terms of a tenancy agreement.Whilst each lender is different, most of them require that any tenancy is an Assured Shorthold Tenancy. This is the contract between the landlord and tenant and is usually for a term of no more than 6/12 months. This provides the landlord and lender quick and easy repossession.

It will also require that there is no provision allowing the tenant to stay beyond the expiry of the term or to perpetually renew it. The tenant must also not be a relative of the buyer. Some lenders will require a counter-part or a certified copy of the tenancy agreement on completion so this will need to be checked.

All leases have one of three subletting conditions that must be adhered to when flats are purchased as rentals:

1) Obtain Consent

Many leases include a covenant or promise whereby the lessee cannot sub-let without the prior consent of the lessor or landlord. Consent cannot be unreasonably witheld under s.19(1)(a) of the Landlord and Tenant Act 1927 and even if there is no mention of reasonableness in the covenant then it is nevertheless implied by statute and again, the landlord cannot unreasonably refuse consent.

The freeholder is also under a duty under the Landlord and Tenant Act 1988 to reply within a reasonable time and, should he withhold consent, to specify the relevant circumstance/reasons within the lease.
The leaseholder 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.

Some leases may say that whilst there is no restriction on subletting, the subtenant has to enter into a direct covenant with the landlord to observe all the terms and conditions of the lease.

Landlord Consent Conditions

The freeholder can make certain conditions before granting consent such as asking for:

• Copies of tenant references;
• A copy of each Tenancy Agreement (or a copy of any Memorandum of Extension) on completion;
• Details of a forwarding address or the name and address of the Letting Agents if the property is managed by such an agent;
• A contact telephone number for the tenants (for emergency use only);
• A fee for each new letting.
• Responsibilities of the landlord under the terms of the lease to be incorporated into the Tenancy Agreement with an additional clause stating that the tenants will abide by them.

Licence 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, landlords 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 here, as ever, is 'reasonable'

Providing a copy of the Licence and paying the fee for the registration with the freeholders' solicitor can, according to Katie Cohen of JPC Law, be upward of £500 + VAT.

Having said that, the Licence provides an address for 'deemed services', making it a useful tool because a common response of landlords when it comes to paying their service charges is "I didn’t know about the service charge demands as the subtenant hadn’t forwarded my mail".

Consent to Underletting

If the lease doesn't specify that a Licence to Sublet is required then another way of 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.

2) Deed of Covenant

The key responsibilities of the leaseholder under the terms of the lease can be incorporated into the Tenancy Agreement with an additional clause stating that the sub-tenant agrees to abide by them.

3) Serve Notice to Freeholder

Leases will often require that the landlord must notify the freeholder of a letting within a certain number of days, usually 28.