2015 Pre-Election Budget Creates Landlords Sub Letting Nightmare

Tuesday, March 24, 2015
Sub-Letting Announcement Made In 2015 Pre-Election Budget

Landlord Nightmare – Sub-Letting Announcement Made In 2015 Pre-Election Budget

Controversial Sub-Letting Announcement
Made In 2015 Pre-Election Budget

The 2015 pre-election budget delivered last week by Chancellor of the Exchequer, George Osborne MP, outlined controversial plans that intend to make it illegal for private rental sector tenancy agreements (AST’s) to include clauses that prevent tenants sub-letting the rented property to others.

This announcement has caused outrage among landlords and has thrown up some very interesting points that have yet to be addressed, such as:

  • Who will be responsible for a property if the tenant sub-letting leaves the house but the tenant they are sub-letting to stays?
  • Who would be responsible for checking the immigration status of tenants where sub-letting occurs?

Currently a residential homeowner can let out a room under a Lodging Agreement  If this agreement is used and the lodger pays six month’s rent up front to the tenant and then the tenant subsequently leaves, it may lead to the landlord having to give the lodger written notice and applying to the court if they refuse to leave.
Because they paid six month’s rent up front the notice required would be six months, meaning the landlord would be unable to let the rental property to a family for six months.The sub-letting measure announced in the 2015 pre-election budget, contained on page 51 of the Budget Red Book – (released after the Chancellor made his budget speech), reads as follows:

“The government wants to ensure that Britain is the global centre for the sharing economy, enabling individuals and businesses to make the most of their assets, resources, time and skills through a range of online platforms. This Budget therefore announces a comprehensive package of measures that will break down barriers, create opportunities for sharing, and unlock the potential of this dynamic and growing area.

Building on the recommendations of the independent review of the sharing economy, the government will: make it easier for individuals to sub-let a room through its intention to legislate to prevent the use of clauses in private fixed-term residential tenancy agreements that expressly rule out sub-letting or otherwise sharing space on a short-term basis, and consider extending this prohibition to statutory periodic tenancies.”

Although these measures are intended to drive the use of a sharing economy, property owners should have the right to determine who can occupy their rental properties and at what cost; this right should not be handed to tenants as it can easily be abused.

  • Buy To Let Mortgage terms & conditions prevent some landlords accepting tenants who are on benefits – this means if a tenant sublets to another person on benefits this will mean the landlord is in breach of their mortgage terms and conditions. This could lead to the mortgage company claiming a breach and recalling the mortgage.
  • Landlords carry out Tenant Referencing to ensure the tenant is suitable for the rental property and has no history of rent arrears, CCJ’s, no history of damaging property or anti social behaviour, most landlords monitor their tenants and inform them they will be asked to leave the property if there is , anti social behaviour, rent arrears or any damage caused – the proposals will mean that the landlord will have no control over the sub-letting tenants.
  • Under the terms and conditions of a tenancy agreement, the tenant is responsible for any person who is allowed into the property that consequently causes damage or anti social behaviour – If a person who is subletting causes damage or anti social behaviour who is responsible then?
  • A landlord may keep their rental prices low in order to help them retain tenants long term. The proposals means the tenant can then sublet the property and reduce their rent further with no financial gain to the landlord.
  • Landlords may have properties that have two or more reception rooms, and three or more bedrooms. If all these rooms were sublet the tenant could turn the property into an unlicensed HMO. The landlord could then be in breach of Local Authority rules by not having a licence and could be liable for a large fine.
  • The Tenant may become unemployed or claim benefits once they take up the tenancy. If the landlord were in direct receipt of these benefits and the tenants sublet and do not disclose this to the DWP they will breach benefit rules.
    Once the Department for Work and Pensions (DWP) find out they will ask the landlord for the overpayment to be returned. Often tenants who are asked to repay the clawed back benefit overpayments to the landlord will leave the rented property, meaning that the landlord has no direct redress to recover the lost rental income, unless they employ debt recovery specialists.

If a tenant sublets to another person will they need to have a formal written tenancy agreement?

If so what will be the landlord’s position if the original tenant vacates the property leaving the subletting tenant in place.

  • The law has recently been changed to allow the police to remove any person who takes over a property as a squatter.
    A squatter is a person who has entered and taken over a property without the permission of the Landlord. https://www.gov.uk/squatting-law/overview

If the Tenant allows a person into the property, then the original tenant then vacates and leaves the sub-letting tenant behind. Currently the landlord has the legal right to have the sub-letting tenant removed because they would be classed as a squatter.

  • If the tenant has issued the sub-letting tenant with a written agreement what rights would they have to stay in the property?

If the law were to allow them to stay in the property under this written agreement the Landlord would effectively lose control of their property and would not be able to let it to another tenant, all but removing an important income stream.

  • If the person refuses to leave or is allowed to stay by the courts until their notice expired who would be responsible for the utility bills such as; gas, electric & water?

Some analysts have interpreted the controversial sub-letting announcement to mean that the short-let tenancy relaxation introduced by DCLG in London, to allow individual home owners as well as amateur and professional landlords to emulate the likes of “AirBNB” – will be extended across the UK.

However, landlord organisations and other industry professional bodies have taken this announcement to mean that private rented sector tenants will themselves be able to sublet their rented property to other tenants allowing tenants to make a profit for themselves while increasing the risk of wear and tear to rental properties.

It is the lack of detail surrounding the proposals that have landlords worried. If this controversial policy change does go ahead it will thrown up massive problems for landlords in the private rental sector (PRS).

UK courts have already reported an increase in the number of tenant sub-letting cases going to court because of unscrupulous tenants trying to profit from a property they have rented.

There have been instances where tenants have passed comprehensive tenant referencing checks and accepted a tenancy in a rental property and signed tenancy agreements but never move in to the rental property themselves, instead they build false partitions in the property and draw up separate agreements to sub-let the property to as many people as possible, in effect, creating Houses of Multiple Occupation (HMO’s). By the time landlords find out, they could face prosecution for having an unlicensed HMO and damage to the rental property caused by over-crowding can run into thousands of pounds (GBP).

The Department of Communities and Local Government (DCLG) stated that it was not yet in a position to give details on the proposal.

This was written by Mike Clarke. Posted on at 11:30 am. Filed under Landlord News. Tagged , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , . Bookmark the permalink. Follow comments here with the RSS feed. Both comments and trackbacks are currently closed.