Subletting may soon be legal throughout London. The Chancellor's Budget Red Book outlines the "intention to legislate to prevent the use of clauses in private fixed-term residential tenancy agreements that expressly rule out sub-letting." The Chancellor sees this legislation as an opportunity to "ensure that Britain is the global centre for the sharing economy." Meanwhile, RLA Chairman, Alan Ward, called this as a "nightmare in the making." With the prices of London flats at an all-time high, subletting is a viable living option for many citizens, but will it create chaos for the average landlord?
There are many factors that were left unclear in the Chancellor's plan. How are landlords supposed to enforce good practice with tenants that they never approved? How is the landlord protected from cases of squatting or damage without clear contracts with subtenants? I will highlight the most pressing concerns that, if not addressed in the upcoming legislation, will in fact lead to endless tenant landlord disputes.
Safety & Liability
When there is damage to property, it can create a tricky situation for the landlord and tenant. Subletting further complicated the matter. In May 2014, the GLA created the rental standard with hopes of improving the safety of London's housing market by making sure landlords were better informed on their legal responsibilities to renters and thus able to implement best practices. With renters acting as short-term landlords, the GLA will now need to expand these efforts to include the practice of rent-to-rent so that landlords and subtenants alike are both protected. In addition, we propose that people who rent-to-rent should be legally obliged to purchase "sublandlord insurance" covering all any damage, theft, or accidents on behalf of their subtenants.
It is important for the Chancellor to simultaneously work to increase supply of residential housing in order to counter any negative effects the new subletting legislation could have on housing supply and affordability. Last month, EasyRoommate released a Flatshare Index that analysed the UK rental market from January 2012 to December 2014 based on activity on our platform. The research showed us that one room was available per every ten tenants looking for a London home in 2014. It is fair to wonder whether the city is prepared for this or if legalizing subletting will further dry up the residential housing market. For example, this could open the flood gates for mass rent-to-rent schemes where citizens rent multiple flats with the purpose of operating short-term lodging for tourists. Are we then going to see even faster hikes in rent prices as supply continues to fall short of demand?
After squatting in residential buildings became a criminal offence in 2012, London saw a significant rise in evictions across the city. The London Evening Standard spoke with David Carter, Chief Executive of debt collection agency The Sheriffs Office, who noted a "70 per cent year-on-year rise in possession order case numbers in 2014." Legalized subletting will further aggravate the issue. Eviction specialist Paul Shamplina told Mortgage Solutions, "We have never seen so many subletting cases going to court because of unscrupulous tenants trying to cream a profit from a property they have rented." Receiving a court order for procession can take a minimum of four months during which landlords lose money from unpaid rent and not to mention months of legal fees.
The Chancellor has spoken his mind, now it's our turn. EasyRoommate is an avid supporter of the sharing economy. We believe in its ability to enable individuals and businesses to make the most out of their resources, disrupt monopolies, and empower a greater mass of people. However, we have also acknowledged the importance of proper regulation. When the subletting legislature makes its way to parliament, the Chancellor must take care to ensure that tenants remain safe, landlords hold less liability for subtenants, and the housing supply isn't diminished by mass rent-to-rent schemes.
What do you think of the potential subletting legislature? Tell us in the comments below.