Buy-to-let investors beware!

Caroline Linsdell, Cozens-Hardy LLP

Many buy-to-let investors are attracted by the idea of investing in residential flats, but beware…

On the face of it, the lease may not prohibit subletting, and the owner is therefore free to enter into a short term letting, usually on Assured Shorthold Tenancy terms. However, the lease may contain a covenant that says that the flat can only be used as a private dwelling for the tenant and his family.

The recent case of Burchell v Raj Properties Ltd looked at this issue. The tenant of the flat wanted to sublet it for investment purposes and argued that it was still being used as a private dwelling “for” the tenant, (ie he was taking the benefit of the rent) even though it was not being occupied “by” the tenant.

The landlord successfully argued that the tenant was at liberty to sublet to members of his family but not to anyone else, as the flat could only be used as a private dwelling for the tenant and his family.

Anyone looking to invest in residential flats should look closely at the wording of the lease to ensure that there are no restrictions on who can occupy the flat. Subsequent discussions with the landlord to vary such restrictions could prove costly and substantially reduce the anticipated return on the investment.

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