Subletting and the sharing economy: what landlords need to know

Understanding the legal issues around subletting for landlords

Landlord Advice

29 March 2017

As peer-to-peer property rental sites grow ever-more popular, subletting is becoming a big issue for landlords.

Worryingly, the National Landlords Association has found that nearly 50% of tenants who sublet do so behind their landlord's back.

So if you're concerned about your tenant renting out your property on Airbnb, here's what you need to know.

What is subletting?

Although many tenants rent a property directly through the landlord who owns it, subletting is when an existing tenant lets all or part of their residence to another individual, known as a subtenant.

When a property is sublet, the owner of the building is the head landlord, whilst the existing tenant renting out the property (also known as the ‘mesne’ tenant) becomes the landlord of the subtenant. Prior to subletting, tenants must attain written permission from their landlord in order to adhere to the Housing Act 1988.

A subtenant who rents an entire property has the same rights as the original tenants regarding the use of the property. If the original tenancy ends or the tenant is evicted, the subtenant is likely to be evicted too.

Subtenants who rent part of a whole property, such as a bedroom or upper floor of a two-storey house, have exclusive possession of those specific rooms. If subtenants chose to rent out a whole property, this would most likely be in breach of the tenancy agreement and invalidate their status as a secure tenant.

Subtenants must adhere to the rules set out in the original tenancy but the original tenant holds responsibility for any damage caused by the subtenant, not the head landlord.  

Subtenants and lodgers: what’s the difference?

A lodger is an individual who, with the permission of a tenant, lives in and shares specific aspects of a household, including the bathroom and kitchen.

However, unlike subtenants, lodgers don’t have exclusive use of their room or the right to exclude mesne tenants or landlords from entering it or other parts of the residency without permission. Lodgers also have reduced rights, as the residential landlord can evict them without having to provide any written notice.

What are my rights and responsibilities as a landlord?

If tenants rent out your home without permission, landlords are within their rights to take action against said tenants and can even evict them due to breaking the tenancy agreement.

When subletting a property under a tenancy agreement, landlords must adhere to responsibilities set out in the Landlord and Tenant Act 1985. This means landlords are responsible for the upkeep of the exterior and interior of the home, water and gas pipeworks, electrical wiring, radiators, basins, baths, toilets and more.

As a landlord, you should already be caring for these things as well as ensuring your home is clean, free of any hazards and all gas and electric equipment complies with safety regulations.

It’s a good idea to consider investing in landlord insurance so that if your property does become uninhabitable for any reason, it could help to cover the cost of re-housing your tenants, including solicitor fees.

If the subtenant causes any damage or notices necessary repairs, they must report it to the mesne tenant who must in turn report findings to the head landlord in adherence to the obligations set out in the original tenancy agreement.

The insurance implications of subletting

Subletting can increase the risk of damage to a property and, as there is no contractual agreement with the subletting tenant, landlords can’t claim or use the tenancy deposit for any property damage incurred as a result.

As such, it’s a good idea to add contents cover to your landlord insurance to protect your furnishings and appliances – such as beds, televisions and white goods – in the event they’re damaged.

Make sure you inform your home insurance provider if someone is subletting your property. Although this could increase the costs of your premiums, failure to make your insurance provider aware could invalidate the cover of your insurance agreement.

Subletting and mortgage considerations

Subletting can also invalidate the terms of your mortgage. There may also be laws specific to your city or region – for example it's illegal in London to provide temporary sleeping accommodation for paying guests for more than 90 days per calendar year.

Many buy-to-let mortgage products specify no subletting within its conditions. If you plan to sublet, it is worth considering before searching for a mortgage.

About Airbnb

If you haven't heard of Airbnb, you're in the minority. It's one of the sharing economy's biggest success stories. People list their spare room (or home) on the website and make money by renting it out to tourists. Experts predict that over the next few years Airbnb will overtake the world's biggest hotel chains in terms of bookings. The website's growth has been massive, especially in London where its bank of properties has grown by 75% year on year. The city is currently the world's third largest market on Airbnb.

How to approach Airbnb with new tenants

Be realistic and open. Bring up the topic of Airbnb as soon as your tenant moves in. Let them know that if they're considering subletting, they'll need to ask for your permission first. As a landlord you can offer help and assistance to your tenant so that they don't break any laws and inadvertently get you into trouble. Ask if you can vet the Airbnb guests before your tenant approves them. Make sure they know about legal requirements, such as checking the immigration status of every guest.

Sitting down with your tenant and talking through the legal aspects will help them to see what a big task they're taking on, and should also increase the chances of the sublet going smoothly. If you really don't want your tenant to sublet under any circumstances, tell them up front and give them your reasons why.

What to do if you suspect your tenants are subletting through Airbnb

While it could be infuriating if your tenants have gone behind your back, try to stay calm. They might not have realised that they need your written permission. Schedule a time to sit down and chat with them. Tell them about the legal aspects – for example, that renting out the whole property could allow you to evict them. Explain that both of you could get into trouble if immigration checks aren't carried out, and that subletting could invalidate their insurance policies. If you're really angry and feel like they've breached their contract, you could serve a section 146 notice. 

The popularity of sites like Airbnb means that, when it comes to subletting, it’s important to understand your rights and responsibilities as a landlord. Being honest with your tenant and communicating well could solve a lot of headaches in the long term. Looking for more information about insurance? With AXA landlord insurance, we make protecting property simple.