Can you rent out a leasehold property? A guide for new landlords
Leasehold properties are often well-located for young professionals and commuters, and can be an attractive investment for landlords. However, knowing whether you are allowed to let your leasehold property and what your responsibilities are if you do, can be confusing.
In this guide, our private rented experts outline everything you need to know about letting a leasehold property.
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What is a leasehold property?
A leasehold is a property where the freeholder owns the land and building. The leaseholder purchases the right to use the property for a fixed period, typically 99 to 999 years. They are often flats or apartments in a block where the freehold is owned by an individual, a company or a group of leaseholders.
The difference between renting out a freehold and a leasehold
The key difference is that you own a freehold property outright. In contrast, a leasehold property is rented for a period of time based on certain terms and conditions (covenants).
A leasehold property will often come with extra costs, such as service charges and ground rent, which you may wish to factor into your rental price.
You should also be mindful of the terms of your lease. These terms set out what you can and can't do with the property. Usually, the lease will also explain when you will need the freeholder's permission to do something.
For example, it is common for leaseholders to need permission when:
- Subletting the property to a tenant;
- Allowing a pet in the property
- Make significant adaptations to the property
You’ll also likely need the freeholder's permission to make larger changes, such as removing walls or altering the layout. In most leasehold properties, you are only responsible for the interior, with the freeholder looking after communal spaces and the exterior of the building.
The key considerations when renting out a leasehold property
There are a number of factors you’ll need to consider before letting your leasehold property, from interpreting your lease and mortgage agreements to checking in with your local council.
Lease terms
Your lease will outline whether you’re allowed to sublet your property, any restrictions on how you do so, and whether you need the freeholder’s written permission.
Every lease will differ, and it’s important to review yours thoroughly before letting your property. If in doubt, always ask a legal advisor.
Freeholder permission
If your lease does say that you need permission to let your leasehold property, you should document all correspondence with your freeholder, including their written consent, to avoid any future disputes. Check whether written permission is needed for each new sublet.
Be aware that it is common for freeholders to charge a fee for granting permission. Especially if it requires an amendment of the lease.
Mortgage agreement
You should also check your mortgage agreement to ensure it allows you to let your property and to see whether you need your mortgage provider’s written permission to do so. While buy-to-let mortgages generally allow letting, you should still check your mortgage conditions.
Insurance
Always tell your insurance providers if you intend to let your property, as this may affect the cover. Check whether the responsibility for buildings insurance lies with you or your freeholder, and ensure you have contents insurance and landlord liability insurance if needed. Find out more about your insurance options through our partners.
Council rules
It’s important to get in touch with your local council if you’re considering letting your leasehold property, as rules differ between local authorities. They may require you to register, get planning consent for a change of use of the building, and meet minimum safety standards.
Airbnb rulings
Short-term lets, like letting your property through Airbnb, may be subject to different restrictions than a standard tenancy. For example, if your lease states the property can only be used as a ‘private residence’ then it may prevent using the flat for holiday lets.
It’s not always straightforward as to what these covenants mean, and what will be restricted. If in doubt, it’s a good idea to check with a legal advisor to ensure you’re not breaching any rules. If you are in the process of purchasing the property, make sure your conveyancer knows what you plan to let the tenancy out and that they need to review the lease with that in mind.
What legal responsibilities do landlords have regarding leasehold properties?
As a landlord, you have many obligations and responsibilities, including complying with health and safety standards, securing deposits and ensuring the property is fit for human habitation.
Responsibilities of the leasehold owner vs the freehold owner
The specific split of responsibilities between you and your freeholder will depend on the terms of your lease agreement. It is common for the freeholder to be responsible for the building’s structure and communal areas, as well as dealing with overriding financial obligations such as collecting ground rent and service charges, and organising building insurance. Leaseholders are often responsible for repairs within the specific property and have an overriding duty to the safety of their tenants.
How we can help you
Can you buy a leasehold flat to rent out? Can you sublet a leasehold property? Our private rented sector experts help members with questions like these every day.
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Tenant not paying rent FAQs
Do I need permission from my local council to rent out a leasehold property?
Not usually, but you may need the local authority's permission if they are the freeholder of the property.
If a licensing scheme is in place in the area you may need to apply for a licence before letting the property though.
After I rent out the leasehold property, am I responsible for repairs and maintenance, or is it the duty of the freeholder?
You have a legal responsibility to your tenants to ensure the property is adequately maintained. Check your lease agreement to see whether the responsibility for carrying out specific repairs sits with you or your freeholder.
Can you make money on a leasehold?
Yes, if your freeholder, mortgage provider, insurance companies, and local council allow, you can let your leasehold property to generate income.
What can you not do in a leasehold property?
This will depend on the terms of your lease agreement, but you are normally precluded from making major renovations, structural alterations or external changes. Depending on your lease agreement, you may need permission to let the property to someone else.
Can a freeholder refuse consent to let?
If your lease allows you to let your property subject to the freeholder's consent, they will often need a reasonable basis for refusing permission. Check the wording of your lease carefully, as some leases prohibit subletting altogether.