Government plans to allow subletting.. What effect on landlords?

George Osborne's Budget seemed to be aimed at homeowners and first-time buyers - but hidden in the small print is a change of rules for renters. And it could be a big deal. Renters sometimes face strict rules on sub-letting, which can create a sticky situation if one tenant suddenly needs to leave.

But could this be about to change? In the 2015 Budget, the Government outlined plans to make it easier to sub-let rooms. In particular, it plans to ban landlords from introducing rules preventing us from sub-letting on a short-term basis. This could be on the cards for longer-term tenancies as well.

Almost buried on page 51 of the Budget Red Book the Chancellor gives a very brief outline of his intention to prevent the Private Rental Sector from stopping tenants being able to sublet.

This document states:

“Support for the sharing economy 1.193

The government wants to ensure that Britain is the global centre for the sharing economy, enabling individuals and businesses to make the most of their assets, resources, time and skills through a range of online platforms. This Budget therefore announces a comprehensive package of measures that will break down barriers, create opportunities for sharing, and unlock the potential of this dynamic and growing area. Building on the recommendations of the independent review of the sharing economy, the government will:

Make it easier for individuals to sub-let a room through its intention to legislate to prevent the use of clauses in private fixed-term residential tenancy agreements that expressly rule out sub-letting or otherwise sharing space on a short-term basis, and consider extending this prohibition to statutory periodic tenancies.”

The government hasn’t given any further details about the proposal which could mean anything from letting spare rooms in rental properties to giving tenants the power to sub-let entire properties to third parties.

Residential Landlords Association (RLA) chairman Alan Ward described the move as a “nightmare in the making” and said it smacked of “back of the fag packet” policy making".

Key questions remained unanswered such as who will be responsible for a property if the tenant sub-letting leaves the house but the tenant they are sub-letting to stays? Similarly, given the Government wants landlords to check the immigration status of their tenants, who would be responsible for checking the status where sub-letting occurs?

Eviction specialist firm Landlord Action said the move would be “catastrophic for the rental industry”.

Founder Paul Shamplina has repeatedly warned about the increase in subletting scams in the private rented sector.

“We have never seen so many subletting cases going to court because of unscrupulous tenants trying to cream a profit from a property they have rented,” he said. “We experience continual problems with tenants taking out tenancy agreements and then, in some instances, not even moving into the property themselves, but putting up partitions and subletting to as many people as possible. They draw up separate agreements and trick sub-tenants into thinking they are the landlord. By the time landlords find out, damage to properties from over-crowding can run into thousands, and the tenant who holds the legitimate tenancy agreement is nowhere to be found.”

Sub-letting also throws up problems from an insurance point of view. Pricing for landlord insurance policies is based on the tenant type, among other factors, with insurers attributing higher risk for certain types of tenant.

“It will be difficult for a landlord to disclose the details of their tenants, and answer the risk question accurately if they no longer have the final say on who occupies their property” said Steve Jones, director of Rentguard Insurance. “The real problem would come if underwriters decide to charge the higher rate to everyone to factor in the likelihood of damage cause by tenant’s sub-letting the property.”

Problems may also arise as tenants are unlikely to professionally reference those they sublet to and may as a result know very little about them, their lifestyle, background and ability to regularly pay the rent.

So, it remains to be seen if the government will rethink this move after the backlash it has faced from the private rented sector, as at the moment it is hard to see who this new ruling actually benefits.

Keeping reading my blog for further updates.