Worried about underletting clause in lease

by Readers Question

10:35 AM, 8th February 2017
About 2 years ago

Worried about underletting clause in lease

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Worried about underletting clause in lease

I have a flat which I have let out for the past few years. The last tenancy change was last summer (2016). I let it fully managed using a local letting agent – I am very hands off.licence

Both my management company and freehold owner know I do not live at the property (all correspondence is sent to my home address – different to my flat) and I have verbally informed the management company (when discussing another matter) that it is currently rented out (but never been in any discussion with the freehold owner). I’ve never made it a secret that I rent out the property.

Neither company have ever objected or questioned anything.

Looking at my lease, it seems to read I am allowed to rent out the flat (as a whole) however, there is a clause as follows:

“within one calendar month of every transfer underletting assignment other form of disposal…. …. provide the company’s solicitor and management company’s solicitor with a certified copy for the purpose of registration and to pay not less than £100 + VAT per notice….. ”

This is the first property I have ever rented out and I am now really worried I have done something very wrong by not officially informing and paying the freeholder and management company a registration fee when the first tenant moved in and each subsequent change of tenant (3 changes in about 5 years)….

Does the clause above mean that I should have informed them and paid £100 + VAT on each new tenancy. Again, forgive me – I am new to this.

If so, where does that leave me – the freeholder (a large investment co.) is not known to be particularly approachable so this is a little scary.

Can anyone offer any advice. The current assured shorthold tenancy ends later this year and I was planning on selling the property when this tenancy ends anyway.

Peter



Comments

Neil Patterson

10:39 AM, 8th February 2017
About 2 years ago

Hi Peter,

Do not panic. You and or your solicitor have just made a mistake. If your solicitor knew it was to be rented when you purchased you may have recourse back to them.

However, worse case scenario I would offer to pay the £300 plus Vat as if it gets out of hand later down the line then the Freeholder can try and claim breach of contract and it is possible to lose the leasehold.

This was only very recently threatened against my business partners and resolved from a long running error.

terry sullivan

11:28 AM, 8th February 2017
About 2 years ago

i have never paid--they have stopped pestering me--unfair contract terms!

Clint

12:57 PM, 8th February 2017
About 2 years ago

Like Terry, I have never paid and others in the complex that I know have never paid and for the moment (Two years) like Terry they have stopped pestering me. It is an unfair term as it is only there for the Freeholder to make money.

I would be extremely surprised if one could lose the leasehold under this clause.

Gary Nock

8:46 AM, 9th February 2017
About 2 years ago

I agree. If they have never bothered you for it then don't worry about it. Arguably, the fee chargeable is an "administration fee" and as such has to be demanded for it to be payable. It has to be in a prescribed format. An extract from the Lease website is reproduced below.

"The Commonhold and Leasehold Reform Act 2002 introduced rights in respect of administration charges. These are defined as ‘an amount payable by a tenant as part of or in addition to rent, which is payable directly or indirectly for:
the grant of approvals under the lease or applications for such approvals;
for or in connection with the provision of information or documents by or on behalf of the landlord or a person party to the lease other than the landlord or tenant;
costs arising from non-payment of a sum due to the landlord;
costs arising in connection with a breach (or alleged breach) of the lease.
Any administration charge demanded by the landlord must be reasonable in order for the landlord to recover the charge, and must be accompanied by a summary of the leaseholder’s rights and obligations in respect of administration charges. If the summary is not included, the charge is not regarded as being payable unless, and until, the demand is made with the summary"

The problem for Freeholders is that the law has overtaken the lease in that they have to formally demand the fee but unless you tell them or they find out through trawlling property ads they won't know. So they can't issue the demand. So many do not bother with it.

Clint

9:39 AM, 9th February 2017
About 2 years ago

Just remembered, I was being charged £120 per flat and this is not reasonable as highlighted in some high court case and a reasonable charge was determined to be something like £40 and my freeholder then reduced the charge to £30 which as Gary stated is an administration fee which to date, I have not paid as detailed in my previous comment.

P. MC-K

11:46 AM, 10th February 2017
About 2 years ago

Thanks all for your responses. It doesn't look like the end of the world now!

Another thing which I didn't think relevant at first but might be now is that the current freeholder is quite new. The timeline is:

May 2016 - Current AST started - for 6 months initially, new tenant moved in. No demand from the then freeholder for fees or registration.
Aug 2016 - New freeholder took over.
Nov 2016 - Nov 2017 Current AST extended for 12 Months.

So, the old freeholder or their agent (which used to be the same as the mgt. co) never demanded any fees or demanded any need for me to register the AST. Although they were aware the apartment was/has been let:

e.g. - by sending building insurance docs to my letting estate agent on my request due to me letting it out...
- and by always use my contact details at my alternative address because I told them it is let out and I don't live there! That is how we kept in touch.

Again, worth saying too, there is nowhere in the lease which requires consent or prohibits renting it out as a whole - just a clause about registering.

So I am guessing (sorry I am no expert) that this is slightly more favourable too because since the new freeholder took over and there has been no new AST started since then (only an extension of one which was already running when they took on the freehold of the block), even less need to register it with them?

So...If my tenant moves out at the end of his AST and I decide to start another AST with a new tenant, then maybe I should review the need to register then?

Finally, on another forum someone said that because the registration clause came under a section entitled "disposals", an AST wouldn't be relevant in that context either (i.e. disposals are only where the lease ownership actually changes)... I'm not sure I understand this or if it is right....

Sorry for the lengthy response.... steep learning curve this. Any further commentary appreciated.


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