Permissions and obligations when entering into a rent to rent arrangement?

Leaseholder, Mortgagee, Planning, Right to rent, Council tax, Gas and electrical safety checks

CHAPTER SEVEN

Permissions and obligations when entering into a rent to rent arrangement?

Leaseholder

If the landlord is a leaseholder they will need the permission of the freeholder to enter into a rent to rent arrangement. Ordinarily freeholders will allow subletting to specific categories of tenant on an AST only, which would exclude the possibility of a rent to rent arrangement entirely. Landlord leaseholders should check the terms of their lease and be aware that if they apply for consent there will be a fee to pay to the freeholder. Failure to observe the lease terms could result in forfeiture of the lease.

Mortgagee

Where there is a mortgage in place the landlord will need the consent of the mortgage lender. Again, as with insurance, most mortgage agreements require the property to be let on an AST or occupation contract only. As the rent to rent arrangement is giving a commercial tenant an interest in the property the mortgage company will need to take a view on this, given the possibility of an increased risk.

Planning

Consent will usually be required from the local authority if an HMO is created. An HMO licence, as well as potentially a local area selective or additional local authority licence, may also be required.

In Greater London, specific legislation means that planning consent is necessary where a property is to be let for less than 90 consecutive nights (short term Airbnb lets fall into this category) in any one calendar year. This requires a change of use.

Right to rent

Under the right to rent legislation it falls on the person granting permission to occupy to comply with the provisions, including carrying out the appropriate checks and copying ID and other documents. The agreement between the landlord owner and the rent to renter should make it clear that it is the rent to renter who is responsible for these checks.

In other jurisdictions there may be additional requirements and complications. For example, in Wales landlords need to be registered and obtain a licence to self-manage. In the case of rent to rent it is not the landlord owner who needs to be registered but the immediate residential landlord, the rent to renter, who will also need a licence to manage. Again, this should be stipulated in the rent to rent agreement when letting in Wales.

Council tax

Although the rent to rent operation involves a business arrangement, the property remains a dwelling house for council tax purposes. This means that the rent to renter is liable to pay council tax for the periods when the property is unoccupied. If the property is let on a divided basis, such as HMO bed-sits, then the rent to renter will be liable to pay council tax on the individual rooms, whether they are occupied or not. Total Landlord’s guide, ‘When is a landlord responsible for council tax?’ contains more useful information.

Gas and electrical safety checks

During the normal management of the rent to rent arrangement the rent to renter will be responsible for ensuring making sure that gas and electrical checks are carried out at the time required – every 12 months for gas and every five years for electrical checks – and that the relevant landlord safety certificates are supplied to the tenants or the local authority on request.