What is Rent to Rent?
Rent to Rent is when an individual or company rents a property for a fixed period of time (‘the Primary Tenant’) and agrees to pay the landlord a fixed rent. The landlord then gives consent to the Primary Tenant to sub-lease the property to other tenants. The Primary Tenant does this via a sublet, often involving a commercial or corporate tenancy, management agreement, lease or guaranteed rent scheme. The Primary Tenant takes on the responsibility for maintaining payments to the Landlord, even during void periods, and maintenance of the Property.
Why would a landlord Rent to Rent?
Rent to Rent is attractive to landlords because it gives them guaranteed rent whether or not the property has been let. Landlords can have a hands-off approach and are not involved in marketing or managing the property.
Why would a Primary Tenant Rent to Rent?
The benefit to the Primary Tenant is the profit they can make on renting a property. The Primary Tenant does not need to own any property so the start-up costs of a Rent to Rent agreement are relatively low.
Rent to Rent agreements can be a profitable and amicable arrangement between the landlord and Primary Tenant; however there are numerous legal consequences that must be considered.
- Perhaps the most important consideration is whether the agreement between the landlord and the Primary Tenant actually allows subletting. Most Assured Shorthold Tenancy Agreements include a provision preventing subletting of the property and some unscrupulous Primary Tenant have misled landlords over the legality of the sublet. This can have particularly disastrous consequences if the landlord’s insurance also doesn’t allow for subletting, or if the landlord has a ‘buy to let’ mortgage. By breaching the terms of the insurance policy, you run the risk of it being invalidated. Subletting a ‘buy to let’ mortgage could result in the mortgage lender recalling the loan.
- Another important consideration is that often a Rent to Rent agreementis used to let HMOs (houses in multiple occupation). Large HMOs require a licence from the local council and must meet certain standards and obligations, for example certain fire and safety measures. Failure to obtain a licence for a HMO that is required to be licenced is a criminal offence. As landlords surrender their management of the property to the Primary Tenant, they could be unaware of whether the Primary Tenant has complied with these obligations or not.
- As Rent to Rent is a commercial agreement, there needs to be a contract between the landlord and the tenant detailing the terms. Whilst the popularity of Rent to Rent has increased, so has the rise of Rent to Rent agencies, not all of whom will provide contracts with satisfactory terms. As a landlord or a Primary Tenant, you will need an experienced solicitor to review any proposed Rent to Rent agreements.
The legal considerations of a Rent to Rent agreement are too numerous to discuss entirely here. It is therefore pivotal that expert legal advice is sought to ensure that neither party falls foul of their legal obligations. If you are considering a Rent to Rent arrangement, our team of expert property solicitors will be able to advise you the legal considerations. Please contact our Commercial Property team at Ison Harrison Solicitors on 0113 284 5000.