Illegal subletting – what do landlords need to know?

Illegal subletting can cause problems for landlords such as property damage and rent arrears. However, legal subletting can sometimes work for both landlords and tenants.

This article explains everything you need to know about legal and illegal subletting, from how to report criminal activity to the common signs to look out for.

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What is subletting?

Subletting is when a tenant rents all or part of a landlord’s property to someone else, who’s known as a subtenant. The subtenant pays rent directly to the original tenant, instead of the landlord.

Anyone living permanently in a rental property who isn’t named on the tenancy agreement is a subtenant. However, someone staying in the property on a short-term basis (with your permission) isn’t considered a subtenant.

Tenants sublet in different ways – they may rent out an extra room in the property while they’re still living there, or rent out the whole property while they live at a different address.

The reasons for subletting also vary. For example, an existing tenant may need to move away for a few months, or they may need more tenants to help pay the rent.

Is subletting illegal?

Subletting is illegal if a tenant needs their landlord’s permission to sublet and they do so without getting it. It’s also illegal if a tenant sublets a property when their tenancy agreement says they’re not allowed to.

Breaking the tenancy agreement is fraud, so when this happens landlords can take legal action such as an eviction.

What is legal subletting?

Subletting is legal if tenants have your permission to rent to someone else. You might make it clear in the tenancy agreement that you’re happy for tenants to sublet, or you may say they need to ask your permission.

In some cases, subletting can be beneficial for both parties. For example, if you have a long-term tenant who needs to work away for a few months, subletting a room allows you to keep the tenant and make sure the rent is still being paid.

This solution is less hassle for you as you don’t have to relet the property, and you won’t have a void period.

However, it only tends to work if you have a good relationship with your tenant and are able to vet the subtenant before they move in. It’s also worthwhile to have a subletting agreement in place before the new tenant starts paying rent.

The difference between subletting and lodging

Lodging is different to subletting as the lodger doesn’t have exclusive use of the property. This means that the landlord or another tenant could go in their room.

On the other hand, a subtenant will have exclusive use of the property or a specific room. This means that, as with normal tenants, landlords will need to ask for permission to enter the subtenant’s space.

Landlords should make it clear in the tenancy agreement whether they allow tenants to accept lodgers. For example, the tenancy agreement may explain that the landlord allows tenants to accept lodgers under any circumstances, under certain conditions, or not at all.

What is rent to rent?

A form of legal subletting, rent to rent aims to improve the value of landlords’ properties while allowing them to take a more hands-off management approach.

The tenant (an individual or company) usually signs a long-term tenancy agreement and pays the landlord a guaranteed rent.

During the tenancy term, the tenant makes improvements to the property and then sublets it for a higher rate than they’re paying. This allows the tenant to make a profit while the landlord gets a guaranteed rent.

Landlords who go down the rent to rent route enjoy the security of getting their rent on time and having their property looked after, without having to pay a commission fee to a letting agent.

Tenants who manage a rent to rent property often aim to use the profits they make from managing one property to build a portfolio.

Although it‘s legal, rent to rent’s risks for landlords and subtenants have been well publicised.

Some of the problems with rent to rent schemes include:

• properties not meeting basic compliance and licensing requirements
• tenants not knowing who’s responsible for the upkeep of their property
• complications for landlords if they want to evict subtenants
• difficulties for tenants who want to take action against landlords for substandard properties

Can landlords refuse subletting?

If you don’t want tenants to sublet your property, you’ll need to make it clear with a clause in the tenancy agreement. The clause can say that you won’t accept any subletting, or that you’d allow it if certain conditions are met.

If the tenancy agreement allows subletting in some cases and the tenant wants to sublet, they’ll need to ask your permission.

If a tenant asks your permission to sublet and you want to refuse, you’ll need to have a valid reason, for example your mortgage lender won’t allow it or it would invalidate your insurance.

It’s important to make any subletting clause in the tenancy agreement clear with no room for interpretation.

If you don’t allow subletting, or provide a valid reason for refusal and the tenant sublets illegally, it’ll be easier for you to take action if the contract is clear and you have a record of any communication about subletting.

What are the most common signs of illegal subletting?

Spotting the signs of illegal subletting can be difficult if you don’t live near the property. That’s why it’s so important to carry out regular inspections, or make sure someone in the local area like a letting agent can visit regularly.

Here are some of the most common signs of illegal subletting:

• lots of people coming and going – this could indicate that more people who aren’t named on the tenancy agreement are living in the property
• tenants refusing access – if tenants make it difficult for you to get into the property, they may have something to hide
• a key lock box is installed – an outside key safe could suggest the property is being let on a short-term basis on a platform like Airbnb
• the property is in bad condition – lots of damage could indicate the property is being lived in by more people than it should
• the tenant is hard to contact – if you’re finding it difficult to get in touch with your tenant it could be because they don’t want you to find out about illegal subletting, or no longer live at the property
• signs of extra belongings – if you see lots of people’s belongings and extra bedding when you visit the property, this could be because it’s being sublet illegally

How to report illegal subletting

Unlawful subletting can have serious consequences for tenants. Not only could they be evicted, but they could face prosecution from a local authority.

It’s wise to report any cases of illegal subletting to your local authority so they’re aware of what’s happening. If the subletting tenant receives benefits such as Universal Credit, the local authority will need to carry out their own investigation.

Meanwhile, if you suspect illegal subletting has led to further criminal activity such as cannabis farming, you’ll need to tell the police.

If tenants are illegally subletting your property to others, they may have violated Right to Rent rules so you’ll need to inform the Home Office.

By reporting illegal subletting activity to the relevant authorities quickly, you can make sure action is taken against the tenants, and reduce the chances of further problems which could cost you more money.

How to reduce the chances of illegal subletting

There’s nothing you can do to guarantee illegal subletting of your property won’t happen, and there have been reports of a rise in subletting scams in recent years.

However, by remaining cautious and following the below steps, you can reduce the chances of illegal subletting taking place.

• thorough tenant referencing – a comprehensive referencing process can help you to find reliable and trustworthy renters
• do your own research – making extra checks of prospective tenants and meeting them in person can help you to make an informed decision
• regular inspections – visiting the property frequently allows you to identify if illegal subletting is taking place
• build a rapport with tenants – renters will be more likely to ask your permission to sublet, or tell you about financial issues which could lead them to sublet, if you have a good relationship
• make sure the tenancy agreement is clear – your stance on subletting needs to be clear with no ambiguity

Should landlords allow subletting?

There are pros and cons to legal subletting. On the one hand, it could allow you to maintain a tenancy and keep receiving rent with little hassle. On the other hand, subletting is often out of the landlord’s control and could lead to problems such as unpaid rent or property damage.

You’ll also need to consider the legal risk. For example, if your tenant sublets your property to too many people, it could become an illegal house in multiple occupation (HMO).

If this happens, you could get into trouble with your local authority as there are rules on licensing, minimum room sizes, and the maximum number of occupants if you let a HMO.

If you want to allow subletting, you’ll need to decide on the conditions you’ll accept and make sure everything is clear in the tenancy agreement. You’ll also need to have the necessary protections in place such as an inventory, landlord insurance, and regular inspections.

If you don’t want to allow subletting, you’ll need to make sure the tenancy agreement states this clearly. During the tenancy, regular inspections and communication with tenants can help you to make sure no illegal subletting is taking place.

Do you have an unanswered question about subletting? Ask us in the comments below.