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Renting out a Leasehold Property in the UK

Published by Susan Basnet
Posted Date: June 6, 2024 , Modified Date: June 7, 2024

If you are a leasehold landlord in the UK and are considering renting out a property you have acquired on a lease, the process involved is not always straightforward. This article explores the ins and outs of renting a leasehold property and clarifies the common burning question: 'Can I rent out a leasehold property?'.

Understanding Leasehold Properties

A leasehold is a long-term tenancy where an individual buys the right to live in a property for a certain period, usually 99 to 125 years. Upon the expiration of the agreement, the property's ownership reverts back to the freeholder (original owner) unless the leaseholder opts for an extension.

A lease agreement could be as long as 999 years or as short as a lease. However, short leases with a term of 80 years or less are not popular. They struggle to attract mortgages and often come with significantly higher costs.

If you acquire a property in a lease, you don't own the land around the property or the ground below it. To understand leasehold in detail, we need to look at several other terms, such as:

Lease

A lease is a contract that outlines the rights and obligations of a leaseholder regarding the use and maintenance of a property. It can include restrictions on what leaseholders can do to the property, the agreement's tenure, and the parties' rights and obligations. The answer to whether you can rent out a leasehold property also depends primarily on the lease agreement.

Ground Rent

Ground rent is a charge set by the property owner (freeholder), in addition to the service charges. Leaseholders pay this fee as part of their lease agreement. Ground rent is usually paid yearly by the leaseholder to the freeholder, but how this is paid varies. Although the cost of ground rent is specified in the lease, ground rent may increase over time.

Ground rent can vary widely—it might be close to zero or just a small amount, but in other cases, it could be hundreds of pounds. The lease will specify how much and when the ground rent will increase.

Service Charges

Landlords also charge you extra fees for providing services to maintain a building like a block of flats. Charges usually include cleaning communal areas like gardens, maintaining lifts, and cleaning windows.

Service charges must only be charged per the lease and must have 'reasonably incurred'.

Subletting a Leasehold Property:

Subletting a leasehold property involves renting out the property to another party, offering a strategic option for the leaseholder to generate extra income. However, the feasibility of subletting depends on the terms outlined in the lease agreement. This segment will explore potential clauses within several agreements that may impose restrictions on leaseholders seeking subletting arrangements.

Key Documents

Whether or not you can take in a lodger on your leasehold property depends on several factors, and you must look into those in detail before establishing whether or not you can rent out the property. Here are the documents to inspect as a part of the process:

Lease agreement

As mentioned earlier, the lease governs the terms of the leasehold agreement. As such, whether or not you can sublet your property or take in a lodger depends primarily on the terms of your lease.

Lease Agreement

Many leases do not allow the subletting of a property without permission from the landlord. In some cases, it is prohibited entirely, or you can be charged for permission.

Even if the lease doesn't contain any restrictions, it is better to talk to the freeholder of the property about your plans before renting out the property.

If you sublet the property without permission from the freeholder, the freeholder could take legal action to repossess the property from you.

Mortgage agreement

Upon obtaining approval from the lease agreement, the next thing to do is scrutinise the mortgage agreement to see if the leasehold property was acquired through a mortgage. Any adjustments required by the mortgage agreement's terms and conditions must be discussed with your mortgage provider.

Insurance agreement

In addition, you should check with your insurance provider to ensure you have the correct insurance to cover your property. Some insurance policies may be invalidated by subletting. Such situations could lead you to unexpected charges. Additionally, you might need to change your current building insurance.

Once all the required permissions have been granted, you may move forward with your plans. However, as a part of that, you must also understand your obligations and responsibilities as a landlord. These are set in the Landlord and Tenant Act 1985.

Additionally, you must carefully consider the tenancy agreement, ensuring that it aligns well with the agreements on the lease.

Conclusion

In conclusion, although renting out a leasehold property is generally possible, it's crucial to verify this through the key documents outlined earlier. Permission from the freeholder and mortgage provider is also equally essential before subletting. Subletting a leasehold property without necessary consent may lead to legal repercussions, emphasising the need for well-informed decisions in such circumstances.

Frequently Asked Questions

Can I rent out my leasehold property through Internet booking agencies?

The same question was put to test on Triplerose Ltd vs Beattie. In this case, a leasehold flat was let out through Airbnb and booking.com, despite the lease clause stating, 'the flat should not be used for any purpose other than as a private dwelling house'. As such, letting a flat on a short-term basis was deemed a breach of the covenant by the tribunal.

Do I need permission from my local council to rent out a leasehold property?

Yes, you must contact your local council for 'permission to let' before subletting a leasehold property.

After I rent out the leasehold property, am I responsible for repairs and maintenance, or is it the duty of the freeholder?

As far as your tenants are concerned, you are liable for such repairs under Section 11 of the Land and Tenant Act, 1988 and your agreement with them. However, you need to review your lease agreement with the freeholder to ascertain who is responsible.

Need more expert advice on renting leasehold properties?

Contact us today for efficient and
hassle-free assistance.

Susan Basnet
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