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 short lets allowed?
• Are you expected to be responsible for your tenants’ behaviour?
• Are pets allowed?
• Is smoking allowed?

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.

The effect of ignoring restrictive subletting

Remember that any persistent flouting of these clauses will result in a breach of the lease and could, in extreme cases, lead to forfeiture, meaning that you, the investor, end up with nothing, regardless of how long the lease is and however much you paid for it. After all, if the matter comes to court, it will be argued that you agreed to the terms of a legally-binding agreement when you signed the lease.

The lease is paramount when you are renting properties out, in just the same way as when you are living there yourself.

WHAT KIND OF SUBLETTING IS ALLOWED?

The Assured Shorthold Tenancy

In most apartment blocks, only Assured Shorthold Tenancies (AST), of six months or more, are allowed. Many blocks will only allow subtenancies of one year or more.

The AST is the commonest type of tenancy in existence today and means that the property is rented out for one year minimum, with a break clause after six months.

Terms of the tenancy are set out in the tenancy agreement, which both you and the tenant must sign. These are standard agreements, obtainable from most stationers and also drawn up by professional letting agents if you take that route of finding a tenant. It is usually best to use a letting agent that is a member of the Association of Residential Letting Agents (ARLA), which has much useful advice you can download from their website (www.arla.com).

Holiday lets, defined as lettings of one month or less, are not usually allowed anyway as most residential leases state that no commercial business is to be carried on within the building. Holiday lets, as opposed to ASTs, count as running a business. Other types of letting are considered unearned income, as with investments and savings, and taxed accordingly.

In some cases, regardless of what the lease may permit, the local borough will not allow lets of less than a certain length of time, in case this takes away from the hotel trade. In the London boroughs of Westminster and Kensington and Chelsea, for instance, lets of less than three months are not permitted.

Sub-subletting

Remember always that whatever else may be allowed or otherwise on the lease, in law a subtenant is never allowed to sub-sublet, or to allow people to live in the flat who are not specifically named on the tenancy agreement.

Nowadays, most managing agents or freeholders insist on having the names of tenants, contact numbers and a key to the property so they can be contacted at any time. It is very common for absentee landlords to be out of the country most of the time, and not to take much interest in the day-to-day affairs of the tenants in their investment property.

Such negligence has got absentee landlords a bad name which is quite often justified.