Risky new letting rules for tenants and landlords

In last month’s budget speech the chancellor George Osborne outlined plans to make it illegal for private sector tenancy agreements to include clauses preventing the sub-letting of the property.

Steve Coyle of Cullen Property

While this was clearly an attempt to alleviate pressures on the private rental sector it is not without serious drawbacks.

In fact, from a professional point of view, the change appears to be ill-thought out. The speech outlined measures to “make it easier for individuals to sublet a room” through the Government’s intention “to legislate to prevent the use of clauses in private fixed-term residential tenancy agreements that expressly rule out subletting or otherwise sharing space on a short-term basis”, and said that they were considering extending this prohibition to statutory periodic tenancies. It might be a popular move with those in rented accommodation - the move should free up spare rooms in under-occupied homes across the country, and gives existing tenants the opportunity to take a lodger to help with bills. But the wider issues which will arise from such a change in legislation will affect both tenants and landlords and are unlikely to help either party.

One of of the most serious consequences of the proposed regulations is that the landlord will lose control over who is living in their property. As a direct result, there are more likely to be issues relating to anti-social behaviour and a lack of security. Not having the opportunity to vet a subletting tenant could open the door for those that the landlord would otherwise have weeded out, due to bad references or perhaps a criminal record. This may lead to problems not just for the owner of the property, but for the neighbours.

A landlord could also find themselves without the correct contact information for current tenants in a case of emergency or or urgent access requirements, or to give the required 24 hours notice for a regular inspection. Trying to get into the property, without knowing who lives there, could become a minefield.

Then there is the question of which obligations will be passed to the original tenant in the case of a sublet. Will they ensure the subletting tenant receives all the correct information when they move in, as a landlord has to do? And if a subletter pays six months’ rent upfront to their new flatmate who protects the payment and ensures it is passed on to the landlord?

But this lack of a proper lease opens up further problems, beyond the financially vulnerable new tenant. There is the risk of the sublet being illegal - a flat with a HMO for four could be sub-let to five, making the landlord a criminal - unbeknown to him or her.

As it is now mandatory to place a tenant’s payment into a Tenancy Deposit Scheme, would the original tenant be responsible for this, and be liable for the fines if it wasn’t carried out as a landlord would be? There could also be issues with council tax, utility accounts and debt collection if no-one is sure who lives there.

Landlords are also currently being pushed to be responsible for checking the immigration status of all tenants - a responsibility which the tenant wishing to sublet will have to take on if he or she is to keep on the right side of the law.

So it isn’t just a case of renting a room to a friend for a few weeks, on a casual basis. Owners of buy to let properties have to declare their revenues and costs, usually in the form of a self assessment tax return. They also have to register as a landlord and prove that they are a fit and proper person to let property. Allowing sub-letting surely means that an original tenant should be prepared to do the same, both in terms of registering and producing a tax return.

There are many unanswered questions about the Chancellor’s announcement and any move North of the border would require separate Scottish legislation of course.

It may be that clauses in the letting contract requiring the landlord’s consent for subletting could still be allowed, meaning that it is possible for a property owner to protect themselves against the problems that subletting will inevitably throw up.

The Scottish and UK Governments have both spent years trying to regulate and professionalise the private rented sector, and to us this move to encourage subletting, without thinking through the consequences seems like a huge step backwards – as well as a ‘smoke and mirrors’ policy to cloud the real issue - the lack of sufficient housebuilding across the UK.

n Steve Coyle is the Operations Director for Cullen Property