Life After You Buy Your Freehold: Subletting

Joining forces with neighbours to buy a building freehold is an exciting, empowering step for today's flat owner. But Collectively Enfranchising your block of flats does not represent a magic pill that will solve all problems in a residential building.

Owning the freehold simply means leaseholders of flats now have the power -- and the joint responsibility -- to tackle problems themselves, rather than to wait for an absentee freeholder to take action.

When leaseholders tell me about badly-managed blocks of flats, one frequent complaint is about subletting.

Many people don't mind whether the person next door owns his or her flat, or rents it. The problem arises when the person next door is a bad neighbour and behaves in a way that damages the quality of life for people in the building.

Sometimes an inconsiderate neighbour is a leaseholder. But, in many cases, he or she is a renter, who cares less about the building and its residents than do flat owners.

When a building is plagued by a "neighbour from hell", it can ruin things for everyone in the block.

Leaseholders that ask me for advice on ways to improve things in their building describe the "neighbour from hell" as someone who plays loud music late at night or throws noisy parties or installs wood floors without an adequate sound-deadening acoustic underlway (see my September 12 blog posting about that) or leaves rubbish next to their front door at midday, despite a known rule to put out rubbish in the evening.

The "neighbour from hell" issue sometimes stems from miscommunication and a generation gap.

One finds in many London buildings, for example, young adults, including students, whose parents own the lease and live outside the UK. While many young people make for wonderful neighbours, I receive a lot of complaints from leaseholders about young adults disturbing dozens of families in a block of flats by playing loud music late at night and throwing parties in which revellers are sprawled up and down the communal staircase, like at a university dormitory.

In some instances, subletting gets completely out of control. 

This happened in a beautiful red-brick mansion block I know in central London, where, over the course of several years, absentee leaseholders rented out two flats to prostitutes that carried out their work on site. One prostitute set up a small video camera outside the front entrance of the building, without authorisation from the building management, so that she could see which client was arriving. The video camera tipped off the porter, who brought in the police.

Leaseholders that have bought their building freehold sometimes get unnerved about how to control subletting. But there is no need for panic. Just establish a workable system and then stick by it.

For instance, many leases state that a leaseholder must obtain written permission from the freeholder before subletting a flat, although the freeholder may not unreasonably withhold permission. If your building is run by a managing agent, then it's normally the responsibility of the managing agent to vet applications to sublet. If permission is granted, then the freeholder, via the managing agent's office, grants a "Licence to Sublet".

If your building and your managing agent don't have a template Application To Sublet and/or a Licence to Sublet, then you need to create or obtain these template documents.

The Application to Sublet is completed and submitted by the owner of the flat, not the would-be renter. The application should contain contact information about the renter and reference letters from the renter's bank and employer.

Remember that a Licence to Sublet is specific to each renter. So, when a renter moves out of a building, the owner of the flat must obtain from the freeholder a new Licence to Sublet regarding the next renter.

Many buildings have a rule that leaseholders may not sublet for a period of less than one year. This helps to avoid a situation in which a flat is being rented out for short stays, such as three or six months, and helps prevent a block of flats from feeling like a hotel or acquiring a transient group of residents.

The lease should state that anyone subletting a flat must adhere to the same regulations that apply to leaseholders. This is a helpful clause, since most leases, for instance, ban leaseholders from playing loud music after a specificied time in the evening or from throwing rubbish in unauthorised locations inside or outside the building.

If the owner of a flat sublets his/her property without obtaining prior written approval as required in the lease, then the leaseholder has violated the terms of the lease -- and the freeholder can and should take action.

Many complaints about the "neighbour from hell" have emerged in recent years as a result of the buy-to-let trend. Buy-to-let purchases have been  financially attractive for many small property investors, but leaseholders in a building need collectively to educate the buy-to-let owner about getting each renter properly vetted and about obtaining a Licence to Sublet before renting out a flat.

When leaseholders that collectively purchase their freehold live in a building with a porter, the porter's job changes. He or she is no longer accountable to an absentee corporate landlord, but, rather, to the freeholder company that is now owned by the residents. 

The porter plays a crucial role in knowing which flats are being sublet. He or she is uniquely placed to help the resident management company that owns the freehold and the managing agent that runs the building to create a workable system of compliance regarding subletting.

Putting an end to out-of-control subletting often requires patience, focus and tenacity once you've bought your building freehold. It can take months, even years, to create a constructive culture of compliance -- especially if the old corporate landlord mismanaged the building and allowed for an atmosphere of subletting chaos to develop.

I recommend that you take a deep breath and consider sorting out subletting as one of the transitional tasks of the resident management company, as new freeholder.

If you have any comments or questions about subletting, do send them to me by clicking on "Comment" here below or by sending me an email from www.rosettaconsulting.com/contact.php.

Good luck!

Comments

[vet]

You are correct. When a building is plagued by a "neighbour from hell", it can ruin things for everyone in the block.

- Mathew J.

[Pauline Hayfield]

I have just moved into a 'residents only' and own part of the freehold.
I now have found out that 3 flats are let out to tenants and the Residents Asslociation Committee seem to have let this go ahead without asking other residentials - We all have a head lease that says no sub-letting and a covenant stating the same. But still the owners of these flats have gone ahead and issued Tenancy Agreements and installed tenants. Can I as a single resident and part-owner of the freehold do anything? I do not want to live in a block with tenants coming and going and ignoring the residents charter as they are only "tenants" - Tried asking the flat owners to abide by their leases to no avail. Help !!

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