Letting Covenant

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    Letting Covenant

    I have owned a flat for 20+ years and I’m now keen to let. Several other units in the block are already let. I have been informed by the freeholder that a letting covenant exists and that a charge of £10000+ is payable to secure their consent. I know that this formality has not been part of other subletting arrangements. I prefer to remain compliant yet question the reasonableness of the charge and ask if any regulation exists to control the scale of charge imposed by the freeholder, as this would probably nullify any income in the first year. I’m also assuming this consent would be transferable without further charge when the flat is sold sometime in the future. Comments and advice welcome. Thanks

    #2
    What does the lease say? Is subletting prohibited?

    Comment


      #3
      Your lease is always the starting point

      Comment


        #4
        Its a typically wordy document (dated 1968) and runs for 900+ years. Included within various terms and conditions, it states that the lessee will not assign sublet or part with the possession of the whole or any part…. except to an assignee who acquires and becomes the registered holder and beneficiary for own use of shares of the lessees holding in the Management Company. It separately states that each flat shall be used as a single private dwelling in the occupation of one family only and for no other purpose.
        Although the language does not use terms such as prohibit or anticipate situations where consent to vary the lease may arise, my only telephone enquiry to the Lessor met with a response that it would cost me £10000 to change my lease.

        Comment


          #5
          It would be somewhat unusual for a 999 year lease granted in 1968 to prohibit subletting absolutely. With assignment and subletting clauses all the conditions are important. So that we know precisely what the position is please quote the relevant clause(s) in full.

          Comment


            #6
            Originally posted by Darcy View Post
            except to an assignee who acquires and becomes the registered holder and beneficiary for own use of shares of the lessees holding in the Management Company
            It seems clear that currently, with the term "acquires and becomes the registered holder and beneficiary for own use of shares of the lessees holding in the Management Company."
            Means you must sell your flat, and the new resident becomes a Member of the Company, with your share transfered to the new ocupant -- which again means - You no longer own the flat -- you have to sell it to anyone else to live there, and sell it to them..

            This is designed to stop subletting.
            Hence the £ 10,000 fee also to put off people from Subletting.

            To issue a Deed of variation to your lease should not cost more than £ 1500 to £ 3000.
            All above is designd to PREVENT sub-letting ( underletting / letting out ) hence the high price for consent.

            You either pay the £ 10000, or don't sub-let.



            Comment


              #7
              Thanks for feedback. Although I struggle with the notion that letting the flat is now a common scenario, the lease as written 50+ years ago does appear to describe a very different world and one of my questions is the reasonableness of the £10000 and whether there exists any regulatory body other than a court that can keep this cost reasonable. 6 of 18 flats are currently let and so far, the management company has been passive in this regard. If as I understand that purpose of prevention is to maintain market value for other flat owners, then this rationale appears to be operationally nonexistent. The actual extract of the clause reads as follows:
              The lessee hereby covenants with the lessor and separately with the management company that the lessee will not during the term hereby granted assign sublet or part with possession of the whole or any part or parts of the demised premises except that this covenant shall not prevent the assignment of the whole of the demised premises to an assigned who has acquired and become the registered holder beneficially for his own use of the lessees holding of shares in the management company or has agreed in writing to become the registered holder beneficially…..

              Comment


                #8
                You can't have a sub tenant having shares in the management company ( Not the managing letting agent )
                You don't allow ( Never allow ) sub-tenants to go to the A.G.M. of the company, nor have a vote at the AGM, nor let them attend or vote at any other meeting.

                Regarding the last 5 lines in post 7, You can't give shares in the Managing company ( i.e. the freeholder ) to sub-tenants who don't pay any service charges, - and don't own the flat.

                Reading above, not to have to pay the £ 10,000 you would have to assign your share in the freehold company ( Managing company ). That means if you are not a shareholder YOU can't attend or vote, as you would not be a shareholder.
                You can't have sub-tenants voting on how the place is run
                NOR can you have sub-tenants being "registered holder beneficially"--- Disaster awaits.

                As far as I can gather ( i "may" be wrong") but my comments are what I would see having to happen via the lease.
                Assign your flat to a sub-tenant ( not paying the £ 10,000 ) giving them a Share, means your sub-tenant gets your flat for free, and you lose it.


                Comment


                  #9
                  "The lessee hereby covenants with the lessor and separately with the management company that the lessee will not during the term hereby granted assign sublet or part with possession of the whole or any part or parts of the demised premises except that this covenant shall not prevent the assignment of the whole of the demised premises to an assigned who has acquired and become the registered holder beneficially for his own use of the lessees holding of shares in the management company or has agreed in writing to become the registered holder beneficially….."

                  The above is an absolute prohibition against subletting. Unfortunately that means that the landlord can charge what he likes to change the lease. Fairness does not come into it.

                  If you pay £10,000 it must be on the basis that the lease is varied permanently and the change must be agreed by both landlord and management company. If the lease contains a covenant by the landlord that all leases in the block will be the same then each leaseholder should also agree.

                  Comment


                    #10
                    Does the lease actually state £10000 is payable for subletting consent to the freeholder ? The often quoted figures for subletting consent is around £95 - £150 per letting to around £400 for 5 years global sub-let consent.

                    Is your 1968 lease for flat in a council built block or a luxury retirement block ? In 1968 you could buy a 3 bed semi for £3000 in many parts of Northern England.

                    Comment


                      #11
                      TBH it's probably not a bad fee for a deed of variation to permanently allow letting and would likely add that to the value of the flat.
                      The other option is just let it anyway and way up the chances of them taking any action.

                      Comment


                        #12
                        Replies to posts 10 & 11

                        From post number 6 ( Lease ) is designd to PREVENT sub-letting ( underletting / letting out ) hence the high price for consent.
                        The freeholder initially did NOT want all his flats to become filled with sub-tenants.

                        We NEVER had any problems at our place until flats started to be inundated with inconsiderate, nasty sub-tenants who would breach the lease constantly, AND again with the next that replaced them. So i agree with the lease terms of Darcy.

                        and as regards the comment "The other option is just let it anyway and way up the chances of them taking any action".Then Darcy is in breach of the lease, and CAN be taken to court and be forced to pay £ 10,0000, or court orders immediate eviction of his tenants, if he wont pat the £ 10,000( it HAS happened ) Then the sub-tenants sue the leaseholder
                        for breach of contract ( it happened at my place, when retoactive application to sub-let was refused.)

                        So Darcy,, take your chances.

                        Comment


                          #13
                          Thanks again for all the feedback. To clarify the £10000 was quoted during a telephone query last year as the lease does not indicate any specific sum. As such it suggests that the original prohibition has been replaced by a charge for making this change. I assume this amount will update as prices increase. In response to another comment as sub tenants increase, overall attendance and interest around meetings to discuss property management issues has noticeably diminished.

                          Comment


                            #14
                            You should contact the other flat owners who have let out their flat, to find out if any paid £10,000 for change to their lease ?

                            Comment


                              #15
                              I can confirm that none of the 5-6 who sublet have paid any amounts so far

                              Comment

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