If you want to let out your residential property in England to tenants, the first thing to consider is whether you own the property freehold or leasehold. A quick check of the register of title will tell you this. If you own the property freehold, subject to the terms of any mortgage over the property, you are free to let it out as you wish. Most residential mortgages, however, do not permit subletting. If there is a mortgage over the property, the lender's permission should be sought prior to any subletting, as failure to do so could be a breach of the mortgage terms.
If you own the property on a leasehold basis however, you are not free to do as you wish. You are subject to the terms of the lease, which may restrict a tenant's ability to sublet, alter and use the property, amongst other things. This is the case even if you have a long residential lease that was purchased at a premium, although the terms may be less restrictive. You must read the lease.
Most leasehold residential properties contain covenants on the part of the tenant that restrict a tenant's right to sublet. This can range from an absolute prohibition on subletting, to landlord's permission being required to the tenant having completely free rein in some circumstances. It is common for a tenant to be permitted to transfer the whole of the property (for example, to sell it it) without permission, but to require permission to sublet the whole or part of it. It is also common to limit any subletting to one person or family, to require it to be used solely for residential purposes and to prohibit certain alterations.
It is important to know the terms of your lease as the consequences for breach can be severe and could result in the landlord taking back the property. It is not easy for a landlord to do this and the law does seek to protect tenants of long residential leases that have been bought at a premium. However, it is possible. The lease is your contract. You must not ignore it.
What can a landlord do?
If you are in breach of the terms of your lease (for example, by subletting it without permission or to more than one person), a landlord can make an application to the First Tier Tribunal for the Tribunal to make a ruling that you are in breach of the terms of your lease. There will be a hearing in the Tribunal, where it will hear evidence and determine whether there has been a breach. Once a landlord has obtained an order from the First Tier Tribunal that you are in breach of your lease, it can issue proceedings to forfeit your lease, which could eventually result in losing the property.
Both of these applications would be on notice, so it is very important that your landlord has a contact address for you. Most leases allow a landlord to serve notices at the property address, which is not helpful if you are not resident at the property. You would then need to apply for relief from forfeiture to get the lease back and in order to obtain that, you would have to pay all of your landlord's costs and remedy any breaches. This can be time consuming and expensive to simply put you back into the position you were in before.
Steps to protect your asset
There are steps that can be taken to ensure that you do not fall foul of these pitfalls. The first is before any form of subletting, check the terms of your lease to ensure that you are permitted to sublet. If you require permission in order to do so, obtain your landlord's permission. Check whether you can only let the property to one person or family or whether multiple lettings are permitted and ensure you comply with this.
If you are not going to be local to the property and unable to carry out inspections, you should ensure that you instruct a reputable property agent to manage it for you. They should ensure that any subleases comply with the terms of your headlease. They should also carry out regular inspections to ensure the terms are being complied with to protect your interest.
You should ensure that the landlord and any agent for the landlord has an address for service for you, where you will actually be reached. You cannot rely on the tenant forwarding any notice served at the property.
If you receive any notice from the landlord in relation to any alleged breaches of the terms of your lease, you must act quickly and take steps to prevent the landlord obtaining an order against you.
This article first appeared in Property Investor News in December 2017