A landlord’s guide to subletting
If you are a landlord it’s important to be aware of the rules regarding subletting. Whether you want to allow your tenants to sublet your property, or you discover they have been doing so without your knowledge, this can have implications for both your mortgage and your insurance – not to mention the safety and maintenance of your property. In this article we take a look at what subletting is, the pros and cons of allowing it, plus what to do if your tenants sublet without telling you. We also talk you through the types of insurance you’ll need to cover both residential and commercial subletting.
- What is subletting?
- Is subletting illegal?
- Is subletting the same as having a lodger?
- Should a landlord allow tenants to sublet?
- What do I do if a tenant is subletting and I haven’t agreed to it?
- What insurance do I need to cover subletting?
- What insurance do I need for commercial subletting?
What is subletting?
Subletting is when one of your tenants lets out all or part of your property to a third party. For example, they may let out a room to someone while remaining in the property themselves. Alternatively, they may let out the whole property while living somewhere else. In both cases, the subtenant would pay rent to your tenant, not to you.
Anyone living permanently in the property who is not named on the tenancy agreement is usually considered a subtenant. Someone who is staying for a short period, such as a guest, is not a subtenant. Neither is a lodger (see below).
Is subletting the same as Airbnb?
If you use Airbnb to let out your own property to temporary guests, that isn’t subletting. However, if you begin to hire out a traditional buy-to-let property as an Airbnb, you will need to inform your mortgage provider and insurer as they may require you to switch your landlord insurance to dedicated Airbnb insurance.
By contrast, if your tenant starts to let out your property as an Airbnb, that would be considered subletting.
Is rent to rent the same as subletting?
Rent to rent is when a landlord lets a property to a ‘renter’ for a fixed period, with the understanding that the renter will then let the property to tenants. In these instances, the renter pays the landlord a guaranteed rent (generally below the market rate). It’s a good way for landlords to get an income while spending minimal time managing their property. It also allows renters to enter the lettings market without owning a property of their own.
While rent to rent is a form of subletting, it is always done with the consent of the property owner.
Is subletting illegal?
If you let a property to a tenant and their tenancy agreement explicitly says they are not allowed to sublet, then it is illegal for them to sublet.
If you want to allow your tenant to sublet then you can include this provision in the tenancy agreement, with the caveat that they must have your permission first. In this case subletting would be legal.
If one of your tenants breaks the terms of their tenancy agreement by subletting without your permission, you have legal grounds to start possession proceedings and evict them.
Why are you not allowed to sublet?
While a landlord may agree to allow their tenants to sublet, there are practical considerations that may make it difficult or impossible. For example, allowing subletting may breach the terms and conditions of your buy-to-let mortgage. If this happens, your lender may call in the loan (insist you pay it off in full). In addition, subletting may breach the terms of your insurance. We cover this in more detail later in this article.
If subletting results in three or more tenants, the property may become classed as a house in multiple occupation (HMO). In such cases, you need to meet more stringent legal requirements and need specialist HMO insurance. Depending on the number of tenants, you may also need an HMO licence.
Can landlords be fined for subletting?
Normally, no. However, if a landlord ends up operating an HMO without the relevant licence or fails to meet licence conditions or other obligations, then they can be prosecuted and fined.
In addition, if a tenant sublets your property without your permission, they effectively become landlords themselves. If they fail to comply with laws regarding right to rent, they will be liable for any non-compliance penalties.
Is subletting the same as having a lodger?
No. A lodger doesn’t have exclusive use of a property or a specific room. If your tenant has a lodger, there is nothing to stop them going into the lodger’s room (such as to clean it).
On the other hand, a subtenant has exclusive use of the whole property or a single room. For example, if a person has a room with an external lock and they have to give permission for anyone to enter it, they are a subtenant.
You can specify in your tenancy agreement whether your tenants are allowed to have lodgers and, if so, under what conditions.
Should a landlord allow tenants to sublet?
Subletting can initially seem like a good idea for landlords. However, you should not discount the many possible disadvantages that landlords face when allowing their property to be let by others.
One major disadvantage is that the initial tenant will be the one to choose the subletter. Landlords have very little choice or ability to choose. This means that your tenant may just end up subletting to a troublesome tenant who may end up damaging your property.
Landlords also run the risk of having multiple subletters come in and out at various times, with the possibility of potential damage increasing each time. If it comes to the stage where eviction is necessary, you will have to evict both tenants.
The initial lease contract will only cover one tenant and not the sub-letter. The latter will not be held accountable for the damages incurred.
While it’s easy to build a good relationship with the initial tenant, letting the tenant sublet your property will not give you the same advantage with sub-letters. Landlords should always be clear about whether they are going to allow subletting or not in the lease, so there is no room for misunderstandings on the issue. If you do allow subletting in the agreement, make sure that the terms regarding letting to other tenants is explicit in the contract too.
It is also worth bearing in mind that if you do allow subletting, it is your tenant’s responsibility to complete right to rent checks on the tenants they are subletting to.
What do I do if a tenant is subletting and I haven’t agreed to it?
If a tenant has been subletting without your knowledge or agreement, you need to be careful about the steps you take to solve the situation.
If the tenant has breached the terms of their contract by subletting, you can take steps to evict the tenant. Normally you would do this under a Section 8 notice, citing discretionary ground 12 of the Housing Act 1988 (‘Breach of tenancy obligation). However, we recommend you take legal advice to make sure the process is done correctly.
When a tenant has sublet an entire property and moved somewhere else, they lose their tenancy status and you can issue a notice to quit. You need to give a minimum of four weeks’ notice, but don’t need to provide legal grounds or prove to a court that the eviction is reasonable.
Things can get complex if a tenant has sublet a property to multiple people. In such cases, you could get the tenancy annulled and then draw up new tenancy agreements directly with each subtenant. However, this could have implications for both your mortgage and your insurance, so be sure to take professional advice.
What insurance do I need to cover subletting?
If you want to allow subletting at a residential property, you must inform your insurer as most won’t allow subletting on a standard landlord policy. If you want to allow subletting then it’s best to speak to your insurer to discuss your options to ensure you get a policy that suits your situation and covers your risks.
On the other hand, if you discover that your property is being sublet without your permission and need to make a claim, then your insurer is likely to cover this via your landlord insurance as long as it’s clear that you didn’t know your property was being sublet. If you discover your property is being sublet and don’t need to make a claim, you should still inform your insurer. This is important because if you did have to make a claim further down the line and you knew the property was being sublet, your claim is likely to be declined. If you or your letting agent are conducting periodic inspections then illegal subletting should be picked up on.
Landlords should also consider taking out legal expenses insurance, which provides a 24/7 legal advice helpline which you can consult for all manner of issues relating to being a landlord (including things like tax investigations, health and safety prosecutions, evictions, and rent recovery). Legal expenses insurance can also provide cover where you tenant has breached the tenancy agreement, such as illegally subletting your property, and help you to regain possession of your property.
What insurance do I need for commercial subletting?
Commercial property is frequently sublet, so it’s worth taking a quick look at the insurance implications of doing this.
If you intentionally allow subletting, you would be covered under a commercial property policy as long as you inform your insurer that it is being sublet. This is important as subletting could change the risk to the insurer if the property is sublet to a business in a different industry to your original tenant. For example, you let to a florist who then sublets to a mechanic, that’s a very different risk. You will need to tell you insurer details of the sublet tenant to ensure you are properly covered.
If a commercial tenant sublets your property without your knowledge, this could potentially invalidate your policy. Again, this is because the risk to the insurer could be very different. You should be doing periodic inspections of the property so, if it is being sublet, you should know about it relatively quickly.
Whether you’re subletting or not, it makes sense to talk to an insurance expert to make sure your let property is properly insured. We’re specialists in the field and have access to a wide variety of products. Give us a call on 01603 216399 to see how we can help you today.
