Landlord and Tenant solicitor, Emma Slade, takes a look at the dangers of buying property with a sub-tenant.
If you are buying property that has been sublet then you should take legal advice from a specialist solicitor. Call us on 0333 888 0404 or send an email to us at [email protected]
A client of ours had recently agreed to purchase the freehold of a commercial property as an investment. Not an unusual set of circumstances, save that there was a residential tenant in the upstairs flat, an occupation that the previous leaseholder of the premises had granted in breach of the terms of his lease which stated there should not be any subletting. Oh – and the lease itself had been forfeited. So now what? Could the sub-tenant stay… and should our client be advised to continue with the purchase?
Most leases – be they commercial or residential – invariably contain a clause in them that states the lessee may not sublet the premises without the lessor’s (or landlord’s) approval, as in this case. If the premises are then sublet, then it is done so unlawfully and the landlord can apply to the court to, amongst other things, terminate or forfeit the lease with the lessee.
One of the requirements though is that the landlord must act swiftly as soon as they find out about the breach. If the landlord has known of the situation for a while and does not make any objection to it, then they could be deemed to have affirmed (accepted) the sub-lease, thereby waiving a right to forfeit. Indeed, even accepting rent from the sub-tenant will be considered an affirmation.
In this instance, the landlord had already forfeited the lease for rent arrears before he became aware of the sub-tenant. As a result, it meant that the landlord could not be bound by the (illegal) sub-tenancy – there was no contractual relationship between the landlord and sub-tenant after all. The sub-tenant must therefore be considered a trespasser without any legal right of occupation and proceedings can be brought to obtain vacant possession.
However, in cases of forfeiture, the tenant can apply to court for what is known as “relief from forfeiture”, a remedy which essentially excuses the breaches of the head lessee and allows the sub-tenant to step into the shoes of the head lessee on terms of occupation that the court dictates.
This is the same situation that occurs if the head lessee had surrendered the lease. If the landlord and head lessee have discussed and mutually agreed to terminate the lease, the lease itself would be terminated but the sub-tenancy is not, and is allowed to continue.
Unfortunately, that was not the case in this instance. As said, the lease had been forfeited but the sub-tenant had not made an application for relief so in theory, the tenant was a trespasser. Disastrously though, following forfeiture of the lease, the landlord had been accepting rent from the sub-tenant which, unfortunately, created a whole new tenancy – and a messy legal situation.
So what was our advice?
Our strong recommendation was not to proceed with the purchase unless the situation with the sub-tenant could be regularised. As the law currently stands, if our client tried to obtain possession of the property, he could not necessarily rely on the no-fault accelerated possession proceedings under s21 Housing Act 1988 without evidence that all the requirements had been complied with, or specific documents served before the tenancy had been entered into.
Of more concern was the issue regarding the deposit. Where was it? And had it been secured under the required deposit scheme? If it hadn’t, the tenant could sue our client for return of the deposit (which he does not have) and compensation of up to three time the value of the deposit.
There were other concerns as well as landlord obligations which our client would have to take over – too many to be dealt with in a short article like this, but enough that we were comfortable with our advice in these circumstances.
Obviously – and hopefully it goes without saying – each case needs to be assessed on its own merits, and legal advice in one instance may not be correct in another. You should not therefore rely on this case study as an exemplar for your own situation. But there is a simple answer to that. Contact us!
