Here is a, very long, question to the Blog Clinic from Andrew (not his real name) who is a landlord.

As a newish landlord (this is not my job), I have just found out I have a possibly major problem, and would be grateful for any salient advice.

FACTS:
I own a mortgage-free 3-storey 4-bedroom freehold house in London which I have let out to 3 tenants via an AST (12 months, no Break Clause; each is listed on the contract) for the past 2 years via a local Letting Agent.

They have been unproblematic (until now); kept the Property in good condition (even minorly improved it in some areas); always paid rent on time; never caused problems or nuisance; never even asked for any repairs.

They renewed their Tenancy a week ago and I intend this to be the last year of rental.
I hope to get planning permission over the coming year to start major construction works on it in a year’s time. I need the rental income to help fund the future build.
.
I have just discovered to my horror (initially online, and then via a visit to the inside of the building) that the tenants have turned the entire building into a series of Airbnb lets – with 6 rooms (including the 2 living rooms) listed at the property.

Upon further research I found that they are also doing this at almost 40 other listings across 6 other properties – some of which, including mine, they have listed on Booking.com & other sites.

This is contrary to the terms of my contract with them, which forbids Subletting (as well as use of the living rooms as bedrooms).
.
Deeply worryingly, their subletting also potentially invalidates my landlords insurance (which I just renewed and paid for in full up-front), which is invalid with change of tenant circumstances, & any loss or damage caused by non-tenants.
.
(1) INSURERS:
I want to tell them immediately and discuss this with them, thought fear that they will regard this as void; refuse to alter the contract; refuse to repay any portion relating to the remaining term.

–Is there any way in which Insurance Policies in such instances can be honoured, e.g. though amendment? I worry that they may agree to an amendment yet later claim that the Policy was automatically invalidated when the tenants started renting out.

–Is there any insurer out there who would insure this situation?
.
(2) ENDING THE TENANCY:

(a) My initial instinct is to talk to the tenants and get them to stop, but that might not work – and they clearly have a large number of upcoming bookings which they would probably want to try and honour – motivating their resistance.

Despite having suffered broken trust, I’d be amenable to them staying if they desist, though I’d clearly need to more actively monitor the property, and would probably be best getting them out ASAP.

My concern about the Airbnb discovery rests with the invalidation of insurance and any potential illegality, rather than increased wear & tear on a property that I hope to eventually gut.

The Letting Agent says they cannot amend the contract in any way that will allow subletting.

(b) From my understanding I cannot serve the Tenants a Section 21 notice until 2 months before the end of their AST – almost 10 months away. There is no Break Clause.

(c) From my understanding I could theoretically serve them a Section 8 notice – on discretionary rather than mandatory grounds (#12) –– but because there are no rent arrears, this would not be likely to succeed, and be a waste of time and money, going to court & hiring a solicitor.

I have heard and read this depressing (and seemingly illogical) advice from several people, including the National Landlords Association helpline earlier today.

Everyone seems to be in agreement to avoid Section 8 if at all possible

So, scarily, it seems I am all out of options and cannot get the property insurable – unless we come to a Mutual Agreement of some sort, which I’ve read is usually triggered by Tenant request; best executed by deed; and difficult to achieve.

The Letting Agent says my only option is a good solicitor.
–Does anyone have any good advice on how to remedy this situation?

(3) LICENSING:

I have been reading around the topic since this arose and discovered another horror fact: that the local council designated a selective licensing zone 18 months ago – and my house falls just within the zone, and should be licensed, even though my tenant arrangement would not ordinarily be subject to the HMO licensing covered by broader UK legislation.

There seems no way round this other than to confess my idiocy in not knowing, and hope we can come to some agreement – which could entail large repayment of rent to them, and worse (though I do wonder how I would and could have known without reading the entire council’s website – and why the Letting Agent didn’t know).

I’m scared (a) of possible punitive measures for something I had no idea about, and (b) that any remedies to the property that the council might require (e.g. it has basic carbon monoxide detector and battery smoke alarms, not interlinked electrical ones; no fire-escape signage or lighting) will be inordinately expensive for the brief period of further time that I hope will lapse before we start building works.

–Does anyone have any good advice on how to remedy this situation, and pitfalls I should avoid?

Answer

I don’t normally publish such long questions from the free blog clinic but I have made an exception here as it is a good example of the sort of thing that can go wrong.

This is a shining example of why landlords need to do regular inspections of properties. You have obviously been renting to these tenants for some time but equally obviously, it sounds as if you have only recently carried out an internal inspection.

Had you done regular three months inspections, this would have picked up a long time ago the fact that the property was being used in this way. For example, you would have seen that the living rooms were being used as bedrooms.

You could then have ended the tenancy at the end of the fixed term and evicted the tenants (if they had refused to stop subletting).

Incidentally, if your three tenants are not family members, then the property is an HMO (and subject to the HMO Management Regulations) even though it would not normally be a licensable HMO.

Let’s take a look at your three issues. Note that my advice is based on the supposition that the tenants are still living at the property.  If they have moved out then the tenancy will no longer be an assured shorthold tenancy and different rules apply.

1 Insurance

An insurer who specialises in landlord insurance may be willing to insure the property in these circumstances. Have a word with Alan Boswell Group who I know will sometimes insure when tenants are subletting or have lodgers.

Note that if you have a mortgage, tenant subletting is almost certainly a breach of the terms of your mortgage.

2 Ending the tenancy

It is unfortunate that you do not have a break clause in your tenancy agreement. As you rightly say, you will not be able to use section 21 until after the fixed term has ended.

In point of fact, you wouldn’t be able to use section 21 anyway at the moment as a valid section 21 notice cannot be served if a property which should be licensed is not licensed.

Although landlords can serve a valid section 21 notice after an application for licensing has been submitted (even if it is later refused, this will not invalidate the notice) or after obtaining a Temporary Exemption Notice.

However, your only option at the moment is to use section 8 to get an order for possession – see below.

3 Licensing

This is a major problem. There are heavy penalties for failing to get a license which include:

• A prosecution in the Magistrates Courts (where fines are unlimited)
• A penalty charge notice which can be for up to £30,000
• The right for your tenants to apply for a Rent Repayment Order which can be for up to 12 months worth of rent – although in this case where they are clearly in breach of contract the First Tier Tribunal would not be sympathetic towards them.

So you need to apply for a license. I can’t say what the Local Authority view of the subletting will be, but I suspect that they will be unhappy about it. Most licenses will limit the number of occupants in a property and no doubt the Airbnb subletting will bring the occupiers above this number.

Evicting the tenants

If the tenants refuse to stop subletting and this prevents you from getting a license, then I can see no alternative to eviction.  Section 21 is not something you can use right now so your only option is to use one of the grounds for possession in Schedule 2 of the Housing Act 1988 – which would mean serving a section 8 notice.

There are no mandatory grounds available to you so you would have to use discretionary grounds, probably the best one would be ground 12 – breach of an obligation of the tenancy.

Subletting the property without permission is a pretty serious breach of tenancy particularly if it will affect your ability to obtain a license from the Council and invalidates your insurance. So I think you would have a reasonable chance of success. It is the sort of thing that a Judge would take very seriously.

Taking Legal Advice

However, before doing ANYTHING you should take legal advice.

I would highly recommend that you use our HMO Hotline service and book a telephone advice call with David Smith of Anthony Gold who has a lot of experience with this type of thing and will be able to give good advice.

If necessary his firm will also be able to represent you in any possession proceeding you may bring.  These are not proceedings you would be able to bring on your own.