Subtenant Subletting

With the growing popularity of peer-to-peer rental websites like Airbnb, subletting is becoming a widely discussed topic amongst landlords. Thanks to this newfound awareness, tenants who may not have considered it before may now be considering whether it’s for them, and even perhaps whether they can get away with not telling you about it…

Subletting can be a tempting option for many tenants who have a spare room, often as a result of a child moving out. Or, if there has been a change in their financial situation and they are concerned that they will no longer be able to make their rent, their solution may be to convert their home office or guest room into a bedroom for a paying lodger. If this is the case and you’re not comfortable with the idea of a lodger or subtenant, you need to examine how quickly you’d be able to get a new tenant in to avoid the loss of rental income during the void period, as well as the marketing expenses in order to fill the tenancy.

You can’t outright ban subletting in your tenancy, however you can specify that your tenant can only do so with your prior written consent and that, if permitted, they can only rent out a part of your property and not the entire place. If they do so, then you would be within your rights to evict them.

Remember that the tenant of a tenant is not your tenant, and you therefore have no contractual agreement with this third party. This means that you may find yourself unable to evict if the sub-tenant becomes a problem. You also will not be able to use any tenancy deposit to cover any property damage. Covering these risks in your tenancy agreement, placing liability on your tenant, is the best way to safeguard against any potential disasters that may arise as a result of subletting.

If you carry out regular inspections, you’d notice if your tenant has taken in a lodger or subtenant without informing you. Even just the performance of a regular inspection can deter tenants from wanting to sublet their spare room (or the entire property, for that matter).

What’s the difference between a lodger and a subtenant?

We’ve previously explored the difference between lodgers and tenants, but let’s quickly clarify the difference between lodgers and subtenants.

A subtenant has a tenancy agreement between themselves and your tenant. Commonly in these situations, the subtenant will have exclusive possession of the entire property and your tenant does not live in the property themselves. Otherwise, the subtenant may have exclusive possession of a single self-contained room or bedsit, meaning that their resident landlord (your tenant) cannot enter their room without permission – due to tenant’s rights.

In contrast, a lodger does not have exclusive rights of their room, so their landlord is within their rights to enter the lodger’s room as they please or even move the lodger into a different room. A lodger shares the property with your tenant under a licence agreement which grants them permission to occupy a room. So, if the subtenant shares facilities with your tenant and doesn’t have their own lockable, private room, they would be classed as a lodger.

For the sake of simplicity, we’ll be using the term “lodger” and “subtenant” interchangeably to describe a third-party that your tenant is subletting to. Either scenario will share similar implications when it comes to legalities.

What happens if you discover that your tenant has been subletting?

First thing’s first: are they definitely a lodger/tenant? For this to be the case, there would have to be some sort of financial arrangement or monetary exchange. Make sure, before you take further action, that they aren’t just a friend or relative who are temporarily staying with your tenant and not actually living there – let alone paying to live there. You may be on friendly terms with a neighbour or two, who falsely report that they have noticed someone new living there, but it’s important not to immediately jump to conclusions.

If you’ve discovered that your tenant is definitely subletting your property, you may find yourself deliberating now whether you should continue to allow this or not, after the fact. But, consider this: your tenant has been dishonest with you. Do you really want to reward this? They may have just been unaware that their tenancy agreement forbids this, but they didn’t even have the courtesy to inform you of the situation?

Remember that some mortgage lenders do not allow subletting. If you are considering permitting your tenant to sublet (or continue to sublet), ensure that doing so is not in breach of your mortgage conditions, else your lender may withdraw the loan.

Secondly, you may also be in breach of your landlord insurance conditions, which commonly state in the policy that a tenancy agreement between tenant and landlord is required for any insurance claim, so any scenario involving a sub-let would not be covered. On an AST agreement (assured shorthold tenancy), all persons residing in the property who are over the age of 18 must be listed on the tenancy and your insurance company and mortgage lender alike will be paying attention to this.

Otherwise, if this was all just an honest mistake, then surely they’d be understanding of the situation they’ve put you in, in terms of your mortgage and insurance, and rectify the issue.

If you include a clause prohibiting the subletting of your property without prior written consent (as most tenancy agreements do), then you have grounds for eviction (Section 8 Notice To Quit) should the tenant disregard the terms of their tenancy.

What about if your tenant is subletting the entire property whilst not living there themselves?

This is regrettably an all too common scenario and is often a subletting scam. Your tenant may be charging the subtenant a higher rent amount to make a profit, meanwhile you have no idea who is living in your house, and this subtenant has no idea who you are.

This is in no way their fault, and a peaceful resolution may work out for both you and this subtenant. The solution in this case may be just to confront the subtenant (or tenants) and cut out the traitorous middleman; draw up a new tenancy agreement with them directly and get control of the situation.

There is also a risk of your tenant reletting the property to more tenants than lawfully allowed. This is referred to as deliberate overcrowding, and can sometimes involve converting each room into a small bedsit, or covering bedroom floors in mattresses to cram in as many vulnerable people as possible. These living conditions can be dangerous and unsanitary, and you will be legally responsible for this – even if you were unaware of the situation yourself.

What happens if the tenant moves out, leaving behind the lodger or subtenant?

Most tenancy agreements will state that upon termination of tenancy, they must leave a vacant property. So their tenancy cannot be terminated whilst there is still a lodger living there, and they will still have to pay their monthly rent on time as per usual. Make sure that your tenancy agreement definitely includes this clause to protect yourself.

What are the benefits of subletting?

So enough of the scaremongering; what are the benefits of subletting?

If the property is located in a tourist hotspot or a university area, permitting your tenant to sublet could open yourself up to a different pool of renters such as university students and homestay travelers. But ask yourself first: what is the benefit to you? Will you be getting a percentage of their profit?

Allowing tenants to sublet keeps you in the loop, so that your tenant never feels as if they have to hide something from you. This gives you more control over the situation, whilst your tenant effectively works as an in-house property manager responsible for the subtenants. You can ensure that you have discussed all the legalities, such as right to rent immigration checks, with your tenant beforehand. You could also request that your tenant reference-checks any prospective tenants to give you both peace of mind.

Another solution to consider is something called “Rent to Rent”; a scheme in which the landlord authorises their tenant to sublet the property in return for guaranteed rent for a period of time – for example, five years. This guarantees the landlord a steady stream of rental income without any of the worry of void periods and filling vacant rooms or properties – all this would be the responsibility of the tenant, to find sub-tenants.

When you choose to purchase your landlord insurance with Ashburnham Insurance, you can state on the policy form whether or not your lease allows your tenant to sub-let.

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