Q: We are resident directors of an owner-managed block of 16 flats and members of the FPRA. All flats are leasehold and own a voting share in the freehold. Historically, we allow leaseholders to sub-let but require them to register their tenancy for a small, non-returnable fee, as required under the terms of their lease. After some difficult tenants some years ago, we now also require leaseholders to lodge a refundable deposit with the management company if they let their flats.
Alongside this we have a number of private arrangements where leaseholders let family and friends stay in their flats while they are away. These are not registered tenancies.
Somewhere between these two arrangements there are other situations e.g a friend staying for 6 months (paying rent), flat swaps and flats to be rented as holiday lets over several weeks (through Air bNb or similar).
We were asked recently by a flat-owner to allow her to let out her flat for a few weeks while she went on holiday abroad. The arrangement was made through an agency and we were concerned that we would have no control over who was in the building and no means of addressing any potential problems while the owner was away. This flat owner, incidentally, subsequently withdraw her request for our permission.
Our leases contain this clause requiring leaseholders:
‘Not to carry on or permit to be carried on upon the Demised Premises or any part thereof any trade business or profession…nor do or suffer or permit to be done in or on the Demised Premises or any part thereof any act or thing which may be or become a nuisance or annoyance injury damage or disturbance to the Landlord and/or the Company or the tenants or occupiers of the other flats in the Building.’
In hard times, we don’t want to prevent people making money from their empty flats – however, we also want to make sure that Leaseholders take responsibility for their tenant’s behaviour so it remains a nice place for us all to live.
Can you advise us where to draw the line?
FPRA Hon Consultant Claire Allen replies:
I understand your concern regarding the subletting of the flats, and it can often be difficult to balance between the demands of carefully managing a building and allowing lessees to receive rent when their property is vacant.
Unfortunately, there are always risks for a landlords, freeholder and/or management company when subletting at a building occurs. I have recently been instructed by a number of landlords (lessees) who have been the victim to individuals who, as a career, secure a tenancy and then unlawfully sublet a flat as short-term and holiday lets at a maximum rent. They will continue to sublet until evicted by their landlord by a court order (which can often take several months). The risk of course is that it can open the building to unknown occupiers that can cause serious disruption to neighbours and damage to the building. It is not uncommon, especially in Central London, for several flats in a building at one time to suffer from such unlawful subletting if the freeholder or Management Company fails to effectively manage or prohibit subletting.
As a management company, you will have no right to possession unless the lessee is in breach, and you are prepared to follow forfeiture proceedings. You will need to rely on placing pressure on a lessee to take possession of a flat that has been unlawfully sublet; that will of course prove difficult in circumstances where you have consented to the subletting in the first place.
It is important therefore to take a firm approach at the outset on the question of subletting, either to restrict it as much as possible or only agree to allow it to occur when the freehold company is satisfied that the prospective tenant is suitable. I note your current policy of requiring lessees to register their tenancies, and also to pay a security deposit, and I think that is a good policy to maintain if it is properly implemented. I have of course not read the leases for the flats, but I presume there is a provision in the lease or in regulations for the building regarding the restrictions on subletting (i.e. only with consent) which must be followed by lessees at all times.
You will appreciate that the purpose of the covenant in the leases, “’Not to carry on or permit to be carried on upon the Demised Premises or any part thereof any trade business or profession” is intended to keep the properties as dwelling houses. Short term holiday lets will of course mean that the flats will remain in use as dwelling houses, but the utilisation of flats as a business (i.e. holiday letting) will change the nature of the building. The high turnover of temporary occupiers and the involvement of the commercial agent who will erode the management company’s ability to effectively control the responsible conduct of occupants. Furthermore, such use will of course be in breach of the covenant not to carry out a trade business or profession, but if it has consented to it, the management company will have limited recourse to take action against the lessee unless serious disruption or other breaches are occurring.
Another issue to consider is that, if a flat is turned over the short term holiday lets, can in some circumstances be a material change of use, which will require planning permission (Moore v Secretary of State for Communities and Local Government and another [2012).
In the circumstances, to limit risk, I would suggest a firm policy is adopted by the management company that it will only allow subletting to individual tenants under ASTs or licences (i.e. not turned over to an agent as a holiday let), and only then when the tenancies has been registered and all requirements (identity documents provided for the tenant, deposit, etc.) have been complied with.