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  • Property-a-holics

    Sub-letting and two AST's

    These questions relate to investors letting a property from a landlord and subsequently sub-letting it onto another tenant.
    First: What’s the deal with sub-letting? Depending on what posts I read, sometimes it’s referred to as a major stumbling block while at other times it’s not even mentioned, even though it’s obvious that sub-letting is involved. Is obtaining lender permission to sub-let straightforward, or necessary, for a landlord? Is it the only issue?
    Second: What’s the deal with tenancy agreements in this situation? Do investors enter into an AST agreement with the landlord before getting their tenant to sign a separate AST agreement with them?
    I’ve never rented a property before so I’m wondering if it really is this simple.
    Many thanks.
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    I am not sure there is any room for a lender to have a view.
    If a person takes out a loan with the intent to let a property the lender will have approved the rental intent. If they the borrower then lets it to someone who sublets the property the lender's position is materially changed.
    The landlord holds the tenant responsible. If there is a right to sublet the original tenant is still in the chain and still responsible.
    Knowing who is living in a unit, being able to contact them and other logistics are important. A slightly different issue than who is legally responsible for the rent, etc.
    As to what legal document to use.
    What the law allows under the AST regulations and having a document that correctly sets out the agreement with the tenant are not the same thing. There is no 'standard' AST for all purposes. There might be some common examples (NLA approved version, etc) but that is not the same as having a contract that follows the AST regulations and is fit for purpose.
    Lets see what Tessa has to say on this as she mentioned something related. Contracts that she has reviewed commonly have flawed clauses or other gaps where the contract was not fully enforceable.
    John Corey
    https://www.ChelseaPrivateEquity.com/blog
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    John Corey 


    I host the London Real Estate Meet on the 2nd Tuesday of every month since 2005. If you have never been before, email me for the 'new visitor' link.

    PropertyFortress.com/Events

    Also happy to chat on the phone. Pay It Forward; my way of giving back through sharing. Click on the link: PropertyFortress.com/Ask-John to book a time. I will call you at the time you selected. Nothing to buy. Just be prepared with your questions so we can use the 20 minutes wisely.

    John, Nick et all,
    Unfortunately I'm still having trouble understanding the details so I'll try and rephrase your answers:
    Would it be fair to say that the 'original reasons' have been superseded by the AST and 2004 revision. Or put another way, although subletting was commonly not permitted, new precedents have since been set that override and void the original clauses? If correct then this would be relevant between landlord and tenants, seems plausible.
    What about issues of subletting between a landlord and their lender? (Probably more complex to answer so may be easier to discuss in person.)
    Thanks enormously to you both.
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    Marcus said:
    John, Nick et all,
    Unfortunately I'm still having trouble understanding the details so I'll try and rephrase your answers:
    Would it be fair to say that the 'original reasons' have been superseded by the AST and 2004 revision. Or put another way, although subletting was commonly not permitted, new precedents have since been set that override and void the original clauses? If correct then this would be relevant between landlord and tenants, seems plausible.
    What about issues of subletting between a landlord and their lender? (Probably more complex to answer so may be easier to discuss in person.)
    Thanks enormously to you both.
    Marcus,
    I am not sure that any of the AST changes impact the right to sublet or not sublet. I believe that right is a contractual item between the two parties rather than anything explicitly set out by statue. If you agree with someone that you have the right to sublet you do. If you do not have the right and you do not change the contract you do not have the right.
    I am sure a lawyer can comment about the finer details.
    In some ways it is not all that far from when I buy a lease from a freeholder. I then 'sub-let' the property n an AST to a tenant. In some fashion I am no better than a tenant who has a long term lease. While the long term lease and the AST are very different agreements the idea of one letting from another who is really no more than a renter on a long term lease from the freeholder. Does that make sense?
    Best to speak with a lawyer when you want to sub-let so they correct legal language is used. The length of the sub-let can also be a factor in how you structure the deal.
    John Corey
    https://www.ChelseaPrivateEquity.com/blog
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    John Corey 


    I host the London Real Estate Meet on the 2nd Tuesday of every month since 2005. If you have never been before, email me for the 'new visitor' link.

    PropertyFortress.com/Events

    Also happy to chat on the phone. Pay It Forward; my way of giving back through sharing. Click on the link: PropertyFortress.com/Ask-John to book a time. I will call you at the time you selected. Nothing to buy. Just be prepared with your questions so we can use the 20 minutes wisely.

    Thanks for that John.
    Depends on the wording of the individual contract, got it.
    Marcus
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    Spot on.
    Do seek legal advice though. Two parties can agree a contract and the contact can be unenforceable if there is a dispute. Many of the rights and obligations for a landlord or tenant are set out in the statutes. Statues supersedes contract law.
    An example: If the tenant and landlord sign a contract where the tenant is responsible for the maintenance the contract can be unenforceable. By statute the landlord must provide habitable housing if they are collecting rent for said housing. The lawyers in the room can split the hairs a bit more if anyone cares.
    I point this out as one of the misconceptions that is promoted with lease options is you can get the tenant to be responsible for maintaining a property. Certain folks claim this is a benefit to doing lease option deals. A way to cut down on your costs as a landlord. It is not exactly legal. It might work if both parties agree and no one chooses to challenge the other in court (both doing something together that would not stand up if challenged).
    John Corey
    https://www.ChelseaPrivateEquity.com/blog
    Marcus said:
    Thanks for that John. Depends on the wording of the individual contract, got it.
    Marcus
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    John Corey 


    I host the London Real Estate Meet on the 2nd Tuesday of every month since 2005. If you have never been before, email me for the 'new visitor' link.

    PropertyFortress.com/Events

    Also happy to chat on the phone. Pay It Forward; my way of giving back through sharing. Click on the link: PropertyFortress.com/Ask-John to book a time. I will call you at the time you selected. Nothing to buy. Just be prepared with your questions so we can use the 20 minutes wisely.

    Great post John, thanks.
    Double thanks for referencing lease options as that was one of the original spurs for this post.
    Marcus
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    Thought I'd resurrect this older thread re subletting as I have a related query for which I'd be grateful of some input.
    I'd really appreciate it if we could focus purely on the subletting aspect here as opposed to nit-picking other elements which will have been done to death elsewhere in any case..
    I'm giving somone a 5 year option to purchase at todays price, providing they rent in the meantime. They will pay me a one-off "option consideration" in return for me holding it over for them using a LR restriction in their favour. By end of 5 years they can either exercise option to buy or else hand keys back and walk away.  
     
    My grey area is with how best to structure the terms of their tenancy to allow them to sublet. I will be refurbing (basic) to work it as a HMO (no license required), for which they will pay separately. The objective is for me to charge a premium rent for 5 years and have ensuing sale in place, and tenant/buyer to profit from subletting and/or enjoy free or subsidised accomodation (call it a 'win/win')    
     
    I'm thinking maybe a standard AST and delete typical clause "not sublet the property or any part of it or give up the property or any part of it to someone else" but I'm guessing it's probably not that simple?
     
    I'm also thinking along the lines of a license corporate/premium type let, just not 100% sure which way to go with it. The deciding factor would be my ability to legally evict either after 5 years (i.e if the option lapses), or obviously if tenancy terms are breached during the term.
     
    All ideas appreciated.. Pat

     

     

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    There is no law against sub-letting and indeed it is very common amongst commercial properties.

     

    Remember that buy to let loans came about when Paragon and Arla came together in 1996 after the introduction of the Housing Act creation of Assured Shorthold Tenancies.

     

    The lenders require (it will be a condition of their mortgage terms) that the property is let on an Assured Shorthold Tenancy of 6 or 12 months, with no-sub letting.

     

    This provision is because, as John points out, the lender, in order to preserve the strength of their security, needs to make sure that they can recover possession.

     

    For example;

     

    Lender - Landlord have a mortgage contract which the lender has control and restricts to 6 month AST

     

    Landlord lets to Tenant

     

    If tenant sublets....

     

    Tenant to Sub-Tenant -

    the original lender has no control, or direct contractual remedy against Tenant/sub-tenant. What would happen for example if the tenant granted the sub-tenant a 999 year lease?

     

    So, in short, sub-letting is not against the law, but it is likely to be a breach of your mortgage conditions- and should not be done.

     

    Glenn Ackroyd

    National Property Group

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    By law there is a right to sub-let when more than 2 or 3 (?) months rent is paid in advance even if the contact says sub-letting is not allowed.

     

    There is a gov website that explains the specific reference in the law. I saw it a year ago. Rather than dig around for it I think Glenn and Nick have provided a slightly more useful reply given the circumstances.

    John CoreyFollow me on Twitter-> https://www.twitter.com/john_coreyhttps://www.ChelseaPrivateEquity.com/blogLondon RE meeting, 2nd Tuesday of the month -> meetup.com/real-estate-advice

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    John Corey 


    I host the London Real Estate Meet on the 2nd Tuesday of every month since 2005. If you have never been before, email me for the 'new visitor' link.

    PropertyFortress.com/Events

    Also happy to chat on the phone. Pay It Forward; my way of giving back through sharing. Click on the link: PropertyFortress.com/Ask-John to book a time. I will call you at the time you selected. Nothing to buy. Just be prepared with your questions so we can use the 20 minutes wisely.