So you’ve recently purchased a lovely apartment in the heart of a city, or maybe you’ve owned a leasehold property for some time now. You might be thinking about renting it out to generate some extra income or make the most of your investment. While renting out a leasehold property can be a smart move, before you put that “For Rent” sign up, there are some things you need to know.
Letting Leasehold Property: A Guide
When you buy a leasehold property, you own the lease to the property for a set period of time, often decades. During this lease period, you have the right to use and enjoy the property as if you own it. But remember: you don’t actually own the land it sits on. That is owned by the freeholder.
This is the key point of difference to consider when it comes to letting a leasehold property vs freehold. As a freeholder, you typically have the final say on whether or not you rent a property. Leaseholders, however, must contend with the freeholder and the terms of the lease agreement.
Can I rent out my leasehold property?
Whether or not you can rent out your leasehold property depends on your lease agreement, mortgage terms and, in some cases, whether the freeholder wants you to or not. Below, we have outlined a step-by-step guide you can follow to find out if you can rent out your leasehold property and how you should go about it. Let's jump in...
Check your lease terms
When you bought your leasehold property, you will have signed a lease agreement. This is basically a set of guidelines that tells you what your rights and obligations are, as well as the rights and obligations of the freeholder. This lease agreement is likely contain information on whether or not you can let your leasehold property, which are often referred to as restrictive covenants.
Your lease agreement may contain certain clauses relating to letting out (technically known as subletting) the property. Generally, when it comes to leases, one of the following will be true:
You aren’t able to sublet at all, in any circumstances at all;
You can sublet if you get permission from the freeholder;
You can sublet without the need for freeholder consent at all.
Once you know and understand where you stand in regards to subletting in relation to your lease, you can take appropriate action, such as getting written permission from the freeholder.
If there is no mention of subletting in your lease agreement, it’s advisable to get the lease looked over by a legal professional, like a property solicitor or conveyancer, to ensure your next steps are the right ones.
Get clear on your rental goals
After checking your lease, the next step is to give some thought to how you intend to let the property, who you will let the property to, and for how long.
Again, this all comes back to your lease, as some agreements stipulate that you can’t sublet a property:
In part (for example, you can’t rent out a flat with a garage but exclude the garage from the tenancy agreement);
As a holiday or short-term let;
For business purposes.
If you don’t adhere to the conditions in your lease agreement, the freeholder would be perfectly within their rights to take legal action against you. Something no one wants or needs! So, be sure to read it carefully, check you’ve understood it, and seek help from a solicitor should you need it.
Check your mortgage agreement
If you have a mortgage on a leasehold property, you might also need your lender’s permission before renting it out to tenant’s also.
The reason for this is lender’s (such as banks) want to make sure that nothing is done to the property that may affect its value or the lender’s ability to recover the loan - as this is essentially what a mortgage is.
This is even true for buy-to-let leasehold mortgages in some cases. So check your mortgage terms if you have one, and if you’re not sure on the conditions, seek advice from a property solicitor.
Get permission (if you need it)
If your lease terms ask that you get permission from the freeholder before renting out the property, you must do this first. If you don’t, you could be breaking your lease, which is a legal no-no.
This might feel like an unnecessary formality, but if it is detailed in your lease then you must do it. No ifs, not buts, no coconuts.
Similarly, you should do the same with your lender if your mortgage terms require permission from them.
This should be done in writing to ensure you have records to prove you have been given permission to sublet by the relevant parties.
Comply with any conditions
Even if your lease and mortgage agreement allows subletting, there may be conditions you need to meet around length of sublet, the type of tenant you can rent to, or the rental terms. It’s essential that you understand and adhere to these conditions.
For example, your lease agreement might specify that you can only rent to long term tenants (not short-term holiday rentals, like AirBnb). In this case, you’d need to make sure you and your tenant comply with these conditions.
Get the correct building insurance
If you’re a leaseholder who has decided to rent out their property, you will have to change the type of building insurance you have from residential to landlord building insurance.
This is easily done with the rise of price comparison websites that can help you get the best price for the right kind of insurance. However, if you don’t do this you won’t be able to make any claims against your insurance for damages caused by a subtenant, which could leave you severely out of pocket!
Understand your obligations as a landlord
If you are to become a leaseholder who is renting out their property, you should fully understand your rights and obligations as a landlord according to the Landlord and Tenant Act 1985.
This can get a little complicated and confusing when renting out your leasehold property, because under a long lease it is the freeholder that is responsible for repair and maintenance of common areas.
However, as you are to become the landlord, that also places an obligation on you (referred to as repairing obligations in short leases) to maintain the structure and exterior of the property (including water, gas, electricity, heating, drainage and sanitary appliances) not just for the ‘demised area’ of the property you own (i.e the flat itself) but the common areas too.
This ultimately raises the question of: who exactly is responsible for what? Legally, S11 responsibilities should not override the contractual obligations of the freeholder detailed in the lease but it’s important to be aware that this could be a source of confusion or even friction in the future, especially if a situation arises where the freeholder refuses to take responsibility for repairs in common areas.
Give careful consideration to the tenancy agreement
When you create your shorthold tenancy agreement, it is important to consider the obligations of your long lease.
For example, in your long lease you may have agreed not to store anything (such as bikes) in common areas (i.e. hallways). If you don’t put this obligation in the tenancy agreement, it’s possible that your subtenant might do these things, which puts you in breach of the lease, not them.
Getting a subtenant to comply in these kinds of matters can be difficult if you have not included such obligations in the tenancy agreement, which again could be a source of friction and put you in an impossible position.
Renting Out A Leasehold Property: FAQs
Can I rent out my leasehold property for short-term lets?
The rise of platforms like Airbnb has seen a considerable number of leasehold property owners ask this type of question, especially if they only stay in a property occasionally and want to enjoy the financial benefits of renting it out the rest of the time.
While it might look like a perfectly reasonable request, the matter is not as simple as it may seem at first glance. Recently, there have been a spate of cases where freeholders have questioned whether short-term holiday lets constitute a breach of covenant, particularly where the lease states that the property can’t be used for any other purpose than as a ‘private dwelling’.
In the case of Triplerose Ltd vs Beattie, while The Upper Tribunal found that short-term lets did not amount to carrying on a trade or business within the property, it did breach the covenant that stipulated that the leaseholder could not use the property for anything other than as a private dwelling.
Therefore, if you are considering renting out your leasehold property for short-term lets, it’s doubly important to check the lease to ensure you wouldn’t be in breach of covenant.
Can a freeholder refuse consent to let?
A freeholder cannot unreasonably withhold consent to let. That is, they can not say no without giving good reason for their refusal.
A freeholder can, however, ask a leaseholder to address issues before giving them permission to let a property to private tenants.
If a freeholder does refuse consent to let, then it is in the first instance wise to try and address the reasons why they have reached this conclusion. In many cases, it may be easy enough to allay their fears or take corrective action before taking it any further. Alternatively, you could seek advice from a legal professional to understand any further steps you may be able to take i order to get consent to rent.
Should I use a solicitor when letting my leasehold property?
Let's face it; property laws and regulations can be complex. And letting a leasehold property can be even more so in comparison to letting a freehold. A qualified property solicitor knows the ins and outs of the legal property landscape and can explain the legal requirements, your rights, and your obligations as a landlord on matters such as:
Clarifying if your lease agreement allows for short-term holiday rentals, like those on popular holiday rental platforms;
What special restrictions and considerations you may need to take into account if you’re renting out a leasehold property in a listed building;
What action you can take if you’ve applied for consent to sublet your leasehold apartment, but the freeholder has raised some concerns;
Creating a tenancy agreement that clearly outlines responsibilities, rent amounts, and other terms;
If your tenant claims that you failed to address a serious maintenance issue promptly, and they're seeking compensation.
At Lawhive, our expert property lawyers can help you understand whether or not you can let your leasehold property and what you need to do to achieve it. They can also help you understand where you stand with regards to landlord and tenant law, including drawing up a comprehensive and valid tenancy agreement.
If you are looking to let your leasehold property and need help from a solicitor, tell us about your case and we will give you a fixed-fee quote for the appropriate work or advice in as little as 5 minutes, as well as match you with the very best solicitor to help with your situation.