Sub-letting in breach of lease?

[DiamondEcho]

Share of freehold building, with individual flats owned on identical very long leaseholds:

In general terms, is the following permitted, or permitted unless the lease specifically precludes it?

Share of freeholder A owns flat 1, and lets it on an AST to tenant X
Share of freeholder A also owns flat 2, and later also lets it tenant X, who then sub-lets it to 'sub-tenant' Z

Of course I haven't seen the Tenancy Agreement re: flat 2^ (though the owner confirms both are now let to tenant X), nor any agreement re the sublet. Is there anything that stands out as potentially 'not allowed'? I ask as it seems a bit contrary that a tenant can rent and then sub-let the whole flat at will.

I'm concerned the above sub-letting could prejudice the building insurance; it also brings an unusual sense of random people/anonymity to the quite small building.

[I'll x-post this with a link to the Property Investors board]

Thx!

[richlist]

How do you know flat 2 is sublet ? Tenants are usually permitted visitors, even long term visitors and landlords normally have no control over number of visitors or length of their stay.

Moderator Message:
Merged. - Chris

[Lootman]

How do you know flat 2 is sublet ? Tenants are usually permitted visitors, even long term visitors and landlords normally have no control over number of visitors or length of their stay.

Not necessarily true. When I was a BTL LL, my leases restricted overnight visitors to 18 nights a year. And there was an absolute prohibition against subletting without prior written consent from me.

In practice I wasn't too picky about the visitor rules if there was a girlfriend or boyfriend, and no attempt to conceal. But an unapproved sublet or assignment would have invoked an eviction.

Moderator Message:
Merged. - Chris

[dspp]

It is pretty normal in New York, and in every other rent-controlled city I know ......

[DiamondEcho]

How do you know flat 2 is sublet ? Tenants are usually permitted visitors, even long term visitors and landlords normally have no control over number of visitors or length of their stay.

Moderator Message:
Merged. - Chris

- The owner of flat 1, and now [later] flat 2, confirmed both now let to the same person*, [that confirmation came when I asked the owner who was living in his flats - 'just so I have an idea the people I routinely pass in the common parts are legitimate residents']
- That person renting both units 'rationally' can't occupy both flats themselves, it would make no sense, they're quite large a very-$ flats.
- The second property is occupied by another person, a 'sub-tenant', who just arrived in the house, and told me they are staying for '3 months, and maybe more'. Ie they're set to become a 'short-let' in under 2 months time, which means the flat can't be similarly 'short-let' again this year. [x-ref: max 90-days short-let p.a. in this borough].

So it's not simply 'visitors'; that I wholly understand. It's who has more tenure here, and the ramifications of that questionable tenure on the building (insurance? etc).

* Who I now learn via Google happens to be a relocation/lettings agent.

[DiamondEcho]

It is pretty normal in New York, and in every other rent-controlled city I know ......

Doesn't apply to London, or certainly not this property, and either way it doesn't make it legal; the focus of my question.

[dspp]

DE,

I appreciate that, and it isn't legal in NY et al either. But sometimes we have to face the reality that it is almost impossible to police/control, hence my comment.

regards,
dspp

[pochisoldi]

We haven't seen any of the terms of the (long) lease.

Does it have:
An absolute prohibition on subletting?
A prohibition on subletting without permission (with or with out a minimum period)?

If freeholder's permission is required, what are the normal restrictions given in that permission?
e.g.
"Permission given subject to leaseholder providing a copy of the subtenancy agreement for approval"
"Draft sublease to be submitted to the freeholder for their approval prior to any let" (to give the freeholder visibility of the sublease terms)
"Property to be sublet under a Shorthold tenancy for not more than 6 months, which may be renewed for further 6 month periods or allowed to go monthly periodic" (To ensure that the property is let as a residence, and restrict opportunities for a never ending trail of sub-landlords)
"Sublease to prohibit sublettting without the landlord and superior landlord's permission" (to give freeholder the ability to reject subtenants)
"Property not to be sublet as a furnished holiday let" (To restrict Air-bnb operations)
"Property not to be sublet for periods of less than 7 calendar days" (to stop Air bnb "party flat" activities)
"Leaseholder to ensure that the conditions contained in the (long lease dated <blah>|block landlord guide) are incorporated as a schedule to the subtenancy agreement" (to ensure that subtenants know their responsibilities)

Without this information any answer to the OP is mere speculation.

PochiSoldi

[Mike4]

In general terms, is the following permitted, or permitted unless the lease specifically precludes it?

Share of freeholder A owns flat 1, and lets it on an AST to tenant X
Share of freeholder A also owns flat 2, and later also lets it tenant X, who then sub-lets it to 'sub-tenant' Z

Not that I have any particular expertise in this subject in general terms, but one thing strikes me I think I read way back in TMF days in case it helps. I have in mind an AST can only be granted/be valid if the lessee is actually using the premises as their residence.

If they are not living there, whatever the bits of paper might say, it isn't an AST so none of the usual protections for a tenant exist.

Maybe others here could confirm or deny this is correct. If correct this chap/chapesse cannot possibly enforce rights under both ASTs at once.

Edit to add:

I guess what I'm driving at is if you want to stop Owner A subletting both flats to the same person, and if the lease terms include the common term that subletting must be on an AST, then this could perhaps enable you to demonstrate he is in breach of one or the other of his long leases and must stop.

[modellingman]

In general terms, is the following permitted, or permitted unless the lease specifically precludes it?

Share of freeholder A owns flat 1, and lets it on an AST to tenant X
Share of freeholder A also owns flat 2, and later also lets it tenant X, who then sub-lets it to 'sub-tenant' Z

Not that I have any particular expertise in this subject in general terms, but one thing strikes me I think I read way back in TMF days in case it helps. I have in mind an AST can only be granted/be valid if the lessee is actually using the premises as their residence.

If they are not living there, whatever the bits of paper might say, it isn't an AST so none of the usual protections for a tenant exist.

Maybe others here could confirm or deny this is correct. If correct this chap/chapesse cannot possibly enforce rights under both ASTs at once.

Edit to add:

I guess what I'm driving at is if you want to stop Owner A subletting both flats to the same person, and if the lease terms include the common term that subletting must be on an AST, then this could perhaps enable you to demonstrate he is in breach of one or the other of his long leases and must stop.

IANAL but I agree. Tenant X cannot have an AST for both flats 1 and 2 unless he is a joint tenant in at least one of them. The basic requirements of an assured tenancy (of which an AST is a specific type) are set out in Section 1(1) of the Housing Act 1988. The requirements are the tenant (or each joint tenant) must be an individual and the tenant (or at least one joint tenant) must occupy the rented property as his/her only or principal home.

If the contracts between A and X on the two flats have been constructed as ASTs then presumably at least one of them is invalid. So in addition to X not having the usual protections as a tenant, X also has no obligations to pay rent to A.

[GoSeigen]

So in addition to X not having the usual protections as a tenant, X also has no obligations to pay rent to A.

I can understand the first part: de fact othe tenancy is not an AST so AST-specific law does not apply.

However, could you explain why they second part is true? Why does rent not need to be paid? Surely there is still a tenancy, just not an AST...


GS

[pochisoldi]

Whether Tenant X has AST for flat 1 and/or flat 2 is irrelevant when it comes to a breach of the headlease/long lease from freeholder to A.

It would only come into play if the freeholder has restricted A to subletting on an AST.

As far as X is concerned, as stated elsewhere, he can only have a single AST, as he can only rent one main residence.

So lets say "one AST" (the one where they live) is actually an AST. It comes with all the security of tenure protections that an AST delivers.

The second "wannabe AST", if determined not to be an AST, is still a valid tenancy (a tenancy being a special type of contract). The security of tenure granted by AST status is lost. The other contractual obligations and rights still continue - any notice periods specified in the agreement still stand, the restriction of passing on repairing obligations probably still stands, and any statutory protection (L&T Act 1954?) still stands.

The only exception (IMHO) would be if X's household needs a large property, and that need is satisfied by renting two properties. (In that case it could be argued that both tenancies together are X's family's main residence.
However if X is subletting property #2 in its entirety (rather than taking in lodger), then that possibility flies out of the window.

So back to the original question
Is "subletting in breach of the {long) lease"?

My answer - it depends on the long/headlease and any permission to sublet issued under that lease, and until we get more info on that, and also a bit more clarity on why the question is being asked (e.g. is this a "party flat"/AirBnb nuisance issue), the question probably will never be properly answered.

Pochisoldi

[Clitheroekid]

Just to stick in my two penn’orth (from sunny Cape Verde, it certainly beats Lancashire at this time of year!) what Pochisoldi has said is quite correct, and everything else is a red herring.

The status of any tenancy or sub-tenancy is determined by the owner of the interest out of which it’s created. So if a freeholder grants a lease he would almost always want to have some degree of control over sub-letting.

The actual extent of that control may vary - generally if it’s a relatively short lease at market rent there will be a very high degree of control. If it’s a long lease, as in a residential flat, the control will usually be more relaxed and aimed at protecting the other tenants more than the landlord, who probably has little personal interest in it.

So without knowing what the restrictions are in the lease / tenancy agreements it’s impossible to give a meaningful answer.

[modellingman]

So in addition to X not having the usual protections as a tenant, X also has no obligations to pay rent to A.

I can understand the first part: de fact othe tenancy is not an AST so AST-specific law does not apply.

However, could you explain why they second part is true? Why does rent not need to be paid? Surely there is still a tenancy, just not an AST...


GS

Generally, and there is a good legal reason for it, AST tenancy agreements specifically mention somewhere that the document creates an Assured Shorthold Tenancy within the meaning of the Housing Act 1988. So, because the conditions for an AST are not met, the agreement, including the obligation to pay rent, is unenforceable.

[GoSeigen]

So in addition to X not having the usual protections as a tenant, X also has no obligations to pay rent to A.

I can understand the first part: de fact othe tenancy is not an AST so AST-specific law does not apply.

However, could you explain why they second part is true? Why does rent not need to be paid? Surely there is still a tenancy, just not an AST...


GS

Generally, and there is a good legal reason for it, AST tenancy agreements specifically mention somewhere that the document creates an Assured Shorthold Tenancy within the meaning of the Housing Act 1988. So, because the conditions for an AST are not met, the agreement, including the obligation to pay rent, is unenforceable.

If this is your reasoning I don't think it's is correct. It is not the document which creates the AST, it is the facts of the case under the law. The law states that there is still a tenancy albeit not an AST. The tenant may not have the same level of statutory protection, but must still pay rent while the tenancy exists. With respect to other aspects of the contract, perhaps they would be unenforceable, I don't know.

There must be plenty of case law, but I haven't looked...

GS

[pochisoldi]

Generally, and there is a good legal reason for it, AST tenancy agreements specifically mention somewhere that the document creates an Assured Shorthold Tenancy within the meaning of the Housing Act 1988. So, because the conditions for an AST are not met, the agreement, including the obligation to pay rent, is unenforceable.

My understanding is that most residential tenancies are AST by default, and any mention of AST in a tenancy agreement is either due to historical reasons ("the term was never removed"), or more likely, for the reason why we have written contracts - for clarity or "for the avoidance of doubt". Including such a term in a contract makes it clear from the outset what kind of agreement the parties were entering into.

As far as enforceability is concerned, it would be a good idea to look up the term "blue pencil doctrine".

Put simply the offending term in the contract is crossed out with a blue line, and the rest of the contract sans blue lined text remains in place (provided there is enough text left to make sense!).

In any case many tenancy contracts come with a lot of "unwritten text" which is defined by statute law, so even in the unlikely event that the whole of the tenancy agreement disappeared in puff of blue ink, the rights/responsibilities conveyed by statute remain.

However, the fact that a tenancy agreement contains a "this is an AST" makes the intent of both parties to the tenancy explicit.
If a tenant signs the agreement as an AST, and then deals with a property in a manner which is inconsistent with an AST (e.g. subletting the whole of the building), then it could be argued either that the Landlord has been defrauded - lured into parting with possession of the property for a purpose that he/she did not intend, and/or that the tenant has repudiated such a key part of the contract, that the contract has come to an end.

It is one (or both) of these two act (deception or repudiation) which could throw the whole contract out of the window, with explicit provisions in the contract like a "2 month landlord to tenant notice period" being thrown out. If a landlord can prove that the tenancy was never intended to be an AST, then Ground 17 can be added to the S8 eviction notice. (and then it starts to get messy if there is a subtenant resident in the property...)

Don't ask me where the subtenant stands with all this - the sublandlord has probably given the subtenant security of tenure that is not theirs to give. So if the longlease holder gets possession of the flat from the sublandlord either (1) the subtenant either finds themselves on the street, or (2) the long leaseholder finds themselves with a suspended possession order, waiting for the subtenant to vacate, or (3) finds themselves with a tenant they didn't choose.

PochiSoldi

[modellingman]

I can understand the first part: de fact othe tenancy is not an AST so AST-specific law does not apply.

However, could you explain why they second part is true? Why does rent not need to be paid? Surely there is still a tenancy, just not an AST...


GS

Generally, and there is a good legal reason for it, AST tenancy agreements specifically mention somewhere that the document creates an Assured Shorthold Tenancy within the meaning of the Housing Act 1988. So, because the conditions for an AST are not met, the agreement, including the obligation to pay rent, is unenforceable.

If this is your reasoning I don't think it's is correct. It is not the document which creates the AST, it is the facts of the case under the law. The law states that there is still a tenancy albeit not an AST. The tenant may not have the same level of statutory protection, but must still pay rent while the tenancy exists. With respect to other aspects of the contract, perhaps they would be unenforceable, I don't know.

There must be plenty of case law, but I haven't looked...

GS

You could well be right.

I did caveat my original comments with IANAL. I also assumed in my original comment that the contractual document governing A's lettings to X would be those that make reference to it being an AST. If the terms of A's lease (again an assumption on my part) require any (sub) letting to X to be undertaken as an AST then A, perhaps ignorant of the sole/principal home requirement, might assume that an AST agreement is fine because it both fulfills A's obligations under his lease and governs the tenancy granted to X.

A would certainly be wrong on the first of these and would be reliant on a clearly faulty contract for enforcing the tenant's obligations set out within it, such as paying rent.

Now I really do not know enough about contract law and the aspects of landlord/tenant law to back up my assertions that collection of rent would be unenforceable in this situation, so you are right to call me out on this.

However, given that the OP was cross-linked from the Property Investment board and this is a Practical board, it is perhaps worth noting that A will not have created the watertight position for himself with his tenant that a landlord usually aims to achieve through the tenancy agreement.

Some time ago I briefly let out a flat to a corporate entity. Prior to doing this, the very clear advice I received both on TMF and from the NLA was to use a company let agreement and not an agreement designed for an AST. So, people who know think it is important that there is alignment between the tenancy agreement and the type of tenancy it is intended to govern.

Going back to the original bit you quoted here

So in addition to X not having the usual protections as a tenant, A is also reliant on an inappropriate rental agreement for enforcing X's obligations to pay rent. Not a sensible position for A to engineer for himself.

[pochisoldi]

Going back to the original bit you quoted here

So in addition to X not having the usual protections as a tenant, A is also reliant on an inappropriate rental agreement for enforcing X's obligations to pay rent. Not a sensible position for A to engineer for himself.

Such subletting landlords generally have no respect for their tenant, and reap what they sow. They would be stupid to issue a moneyclaim for rent against their subtenant, as they'd lose their own case, and the counteraction from the tenant would probably land them with a CCJ for 3x the rent deposit and the rest.

[GoSeigen]

However, the fact that a tenancy agreement contains a "this is an AST" makes the intent of both parties to the tenancy explicit.
If a tenant signs the agreement as an AST, and then deals with a property in a manner which is inconsistent with an AST (e.g. subletting the whole of the building), then it could be argued either that the Landlord has been defrauded - lured into parting with possession of the property for a purpose that he/she did not intend, and/or that the tenant has repudiated such a key part of the contract, that the contract has come to an end.

It is one (or both) of these two act (deception or repudiation) which could throw the whole contract out of the window, with explicit provisions in the contract like a "2 month landlord to tenant notice period" being thrown out. If a landlord can prove that the tenancy was never intended to be an AST, then Ground 17 can be added to the S8 eviction notice. (and then it starts to get messy if there is a subtenant resident in the property...)

Thank you, very interesting comments. What are the remedies to the landlord for such fraud? Is it damages? Realistically, if the LL has received his rent has much loss been suffered?

I note that you say that even though the entire contract may be invalidated by the fraud the law still applies, for example the landlord cannot kick the tenant out but still requires a S8 application.

Don't really need an answer to the above, just musing to myself. And I guess it would vary case by case...


GS

[Lootman]

What are the remedies to the landlord for such fraud? Is it damages? Realistically, if the LL has received his rent has much loss been suffered?

As I mentioned earlier, all my leases contained an absolute prohibition against subletting or assignment. Part of the thinking there is that I would suffer a loss if my tenant sublets even if I continued to receive the full rent.

For a start there might be more people living there as a result, meaning more risk, wear and tear. In fact even a tenant taking in a flatmate is a form of subletting which I would not allow. (If they marry then their spouse could live there and, a fortiori, any children they have).

Again, what if the tenant is collecting more in rent than the rent he is paying me? I would take the view that that is fraud, as would also be the case if the tenant started running an Airbnb business using the housing unit.

Then there is the fact that I have people living in the housing unit whom I have not approved, have not run a background check or credit check on, and who might be people I would never dream of renting to. Add to that any problems with noise, disturbance, liability etc. to other neighbours, some of whom may also be my tenants.

Finally regaining vacant possession might be trickier if there are people living there who have not signed a contract with me.

It's a lack of control, and a lack of respect for me, that would be the over-riding factors. So I'd assert there is a lot of loss or potential loss for me, Quantifying it might be trickier. But if I didn't act promptly and decisively upon learning about the sublet, I might be deemed to be approving of it by default, so I would act.