Sub-letting: Budget small print spells nightmare for landlords
The 2015 Budget contains a clause that will allow tenants to sub-let their property – and it’s a recipe for disaster.
Buried away in the 'Red Book', a document published after the Budget speech, is a policy that has sent a shiver down landlords’ spines.
Under a section entitled “support for the sharing economy”, the Government says it will: “make it easier for individuals to sub-let a room through its intention to legislate to prevent the use of clauses in private fixed-term residential tenancy agreements that expressly rule out sub-letting or otherwise sharing space on a short-term basis, and consider extending this prohibition to statutory periodic tenancies.”
In short, whereas now a standard assured shorthold tenancy (AST) agreement will ban sub-letting, landlords will not be able to include this clause in future.
What can possibly go wrong?
Different interpretations
So far the Government hasn’t provided any details on what exactly it means. The term “sub-let” could either mean letting individual rooms on a short-term basis through websites such as Airbnb, or re-renting the property or rooms to other renters.
It’s the second interpretation that’s likely to be worrying landlords the most. Illegal subletting is one of a landlord’s biggest headaches and the problems won’t go away by making it legal.
Experts say allowing tenants to have control over who does and doesn’t live in a property will cause chaos in the private rented sector.
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The rise of rent-to-rent
The past few years have seen an increased number of so-called “rent-to-rent” companies ripping off both landlords and tenants.
It works like this: a middleman rents a property posing as a normal tenant. Once in, he or she turns the living room and/or dining room into extra bedrooms, then lets each room individually to sub-tenants for a combined higher rent than the “tenant” is paying the landlord.
And that’s if the rent-to-rent agent is paying the landlord at all. According to eviction firm Landlord Action the number of rent-to-rent scams is on the rise. Scammers re-let a property, taking rent and deposits from sub-tenants, then disappear.
Admittedly some rent-to-rent or “guaranteed rent” companies are upfront with the landlord about their intentions. But even then, the whole arrangement is a legal minefield.
Clearly, common sense suggests the Government should be making sub-letting scams more difficult to carry out, not easier.
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The sharing economy
Sites such as Airbnb are big business. For the uninitiated, Airbnb is a website that enables homeowners with spare space to rent it out on a short-term basis.
Some homeowners let out their whole property when they go on holiday but most will play host to guests by renting out a spare room.
In many ways Airbnb is great – I’ve used it myself as a guest and I’d recommend it if you’re going on holiday and want to “live like a local”.
But would I want to live next door to a house with an ever-changing household of random tourists and short-term tenants? No, definitely not.
A big problem with relaxing the laws on sub-letting is that it would encourage 'tenants' to rent a property with the intention of advertising the property on Airbnb or a similar site to make money.
This throws up a host of issues for the landlord such as increased wear and tear on the property and anti-social guests annoying the neighbours. Who’s going to make repairs when the property’s wilfully damaged or evict guests who refuse to leave?
Another issue affects tenants. If property is taken out of the private rented sector to be used for short-term lets, limited supply will lead to higher rents. And rents are high enough already.
Landlords’ rights
Landlords need to know who exactly is living in their property for all kinds of reasons. Firstly those with buy-to-let mortgages will have to stick to the mortgage’s terms and conditions.
Typical rules include not letting to tenants on benefits and a maximum contract length of 12-months.
Under new rules, currently being trialled in the Midlands, landlords also have to check the immigration status of tenants.
If a landlord loses the right to say who can or can’t live in a property, who’s going to make all these checks?
The majority of buy-to-let mortgages will also contain a “no sub-letting” clause. So, unless mortgage lenders are forced to change their terms and conditions, I can’t see how allowing sub-letting can possibly work.
Landlords’ insurance policies will also stipulate who can live in a property and under what kind of contract. In general, landlord insurance won’t allow sub-letting either.
Has the Government really thought this through? Have your say below?
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More on property:
The lessons I've learned as an accidental landlord
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