Buy-to-let has become so popular that many people imagine it’s easy enough to buy a flat and rent it out.In fact, the vast majority of residential leases impose restrictions on renting out, or subletting as it is known, and you would be wise to consult the lease before ever making an offer on a buy-to-let apartment.
The Lease
Whenever considering buying a flat to rent out to others, make sure you look carefully at the lease first, as there may well be restrictions.
Some leases insist of rentals on no less than a year, very many leases forbid short lets and whatever the lease may say, it is against the law in the UK to rent out a flat as a home for less than 90 days at a stretch. Holiday lets are another matter, as they are considered leisure activities and not homes.
Even where you have bought a flat with a share of the freehold, these same restrictions will apply. And with newbuilds, where most buy-to-let investments are made, the property is rarely sold with a share of the freehold.
Even if the flat is commonhold, similar strictures will apply on subletting. It is important to bear in mind that you the landlord,
or leaseholder, are ultimately responsible for what goes on inside your property not your tenant.
When it comes to renting out an apartment abroad, the situation can get even more complicated, as some apartment buildings do not allow any form of subletting, whereas in other apartment buildings you are not allowed to rent out to holidaymakers, in case it takes away from local trade.
Restrictive Subletting
What does it all mean in practice, especially as around 30 per cent of all new flats in the UK are now being bought specifically by investors with renting out in mind?
And why do so many leases impose subletting restrictions?
A major issue here is that of security, which is always of the utmost importance in any apartment building. The more unknown people there are going in and out, the greater the security risk.
Another factor is that of keeping a check on the behaviour of occupants, as when there are many subtenants in a place, it becomes difficult to track perpetrators of the kind of bad behaviour which is so intolerable in a block of flats, such as loud music, rubbish left in corridors, washing hanging out of windows and front doors being left wide open.
There is also the question of value, as some freeholders believe that an apartment building loses value when it contains more subtenants than owner-occupiers and becomes in effect a rooming-house. The greatest fear is that transient tenants will not look after the place, as they have no great interest in the common parts or the fabric of the building.
Relevant Clauses
So, first check the relevant clauses to establish the following:
- Is any kind of subletting actually allowed on the lease? Some leases do not allow subletting at all.
- If subletting is permitted, are there any restrictions on length of tenure and type of tenant?
- Do you have to give details of the tenant to the freeholder or managing agent?
- Are holiday lets allowed?
- Are you expected to be responsible for your tenants’ behaviour?
Also bear in mind that in residential accommodation, tenants are not allowed to carry on a business from their home. Obviously this is in many ways a grey area but the usual interpretation is that you are allowed to be a writer or illustrator, say, from home, but you are not allowed to run a business where people may be coming to your home. Therefore tenants would not be allowed to offer a holistic massage service or run a reflexology or acupuncture clinic from their home.
In general, ‘running a business’ means you are not allowed to carry on any commercial activity which involves either clients coming to your home, or where business equipment would have to be installed.