Could you benefit from a sublet on your investment property?
Allowing the subletting of your buy-to-let property might be an investment strategy that you are considering. It could enable you to increase your rent, and may also reduce void periods. On the other hand, do you want a bunch of people that you don’t know using and abusing your property?
Whether to allow your tenant to sublet is a key question for buy-to-let investors and landlords to answer. In this article, you’ll learn the main advantages and disadvantages of allowing tenants to sublet your buy-to-let investment property, and why we, as property investment managers, don’t allow it.
What is subletting?
A sublet happens when your tenant lets part or all of their home (your property) to another person, who is not named in your tenancy agreement.
Subletting legally is a complex issue
The law states that your tenant can only sublet if they have consent to do so in the tenancy agreement terms and conditions.
If they sublet your property, your tenant is known as the ‘mesne tenant’ – the landlord of the subtenant. You are the head landlord.
If the subtenant causes any damage or wishes to report a repair that is needed, they must report it to the mesne tenant. In turn, the mesne tenant reports it to you (or your investment property manager). Your tenant retains all their obligations to you and your property as stated in the original tenancy agreement. As you can imagine, this can create a complex state of affairs and lead to costly arguments about who is responsible for what.
Why would tenants want to sublet?
Tenants might want to sublet for several reasons. These include:
- Changed circumstances, and not wanting to live in their own
- Difficulty in meeting the rent
- Away for periods of time and don’t want to give up their tenancy
In these circumstances, it makes emotional and financial sense for the tenant to sublet. Whether it makes sense for you is another question.
The advantages of allowing your tenant to sublet
Contrary to how some landlords feel about subletting, there are some advantages of allowing tenants to sublet. These include:
· Increased appeal
By allowing subletting, you might increase your target tenant audience. You may attract temporary relocators (for example, because of job placements), people who otherwise could not afford to rent your property, and frequent travellers. The decision you need to make is whether you want these types of tenant.
· Decreased void periods
Some tenants are forced to give up their home (your buy-to-let) if they have to move temporarily. It might be for personal or professional reasons. They would like to remain as your tenant, and move back when their period of absence ends, but cannot afford to. Subletting allows them this luxury. It also means you suffer fewer void periods, and your buy-to-let cash flow is more stable. Of course, provided you proactively seek new tenants when one leaves, you will keep your void periods to a minimum anyway.
· Your property is better protected
Most break-ins and vandal attacks happen to empty properties. If you have a tenant who is on away for an extended period, your property is left empty and therefore becomes a more viable target for criminals. In most cases, however, the risk is no greater than when you leave your home empty when you are on holiday.
When combined, these advantages could enable you to charge a higher rent, benefit from more stable tenancies, and suffer fewer thefts. That’s the theory behind allowing subletting. However, as with all property investment strategies, there will be some drawbacks.
The disadvantages of allowing your tenant to sublet
The biggest disadvantages of allowing tenants to sublet are:
· You lose control
If the tenancy agreement allows your tenant to sublet to a person of their choice, you have no control over who occupies your property. Your tenant is the subtenant’s landlord, and so decides how that relationship works. Can you be sure that your tenant will take the same tenant vetting process and precautions that you do?
· If you need to evict, you may need to evict two tenants
If you need to instigate eviction proceedings, you could find that you need to take two tenants to court. It will double the costs of an already expensive process. Double the cost, double the stress. Hopefully, this will never happen, but you can never be certain.
· Social issues
Especially in properties which are sublet to a lot of short-term subtenants (for example, via Airbnb), you risk suffering several social issues. These range from excess noise to an increase in crime in the local area. Of course, this risk is on top of the risk of damage to your property that remains unreported.
· Insurance costs and mortgage conditions
If allowing to sublet, you must tell your insurance company when taking out landlord insurance. Not surprisingly, your insurance premiums are likely to be higher.
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. If you are going to allow your property to be sublet, speak to a buy-to-let mortgage broker and ensure your investment financing allows subletting.
· You could be breaking the HMO rules
If your tenant sublets each room, you could find you fall foul of the HMO (house in multiple occupancies) rules. Do this, and you could be fined up to £20,000.
Do the pros and cons balance out?
After considering the pros and cons of subletting, many property investors decide against it. We recommend against it. We think the scales of risk and reward are heavily stacked with risks. So, we’re not willing to manage properties which are sublet by their tenants. We make certain that your tenancy agreement is watertight on this issue.
Contact Ezytrac today on +44 1522 503 717 and, we’ll be happy to discuss how we police subletting, and what options are open to you if you find your property has been sublet by a tenant.
Yours in effortless property management,
Brett Alegre-Wood MARLA MNAEA