Illegal subletting's impact on London's property market

The London rental market is in flux: increasing demand for rental properties by ‘Generation Rent’ on the one hand, and politically uncertain climate and increased regulations on the horizon on the other. The last thing it needs is further destabilisation. Unfortunately, short-term subletting - posting the property without landlord permission - is on the rise, threatening to affect both landlords and tenants.

Short-term letting has become popular in recent years and is one of the fastest growing accommodation channels, particularly in big cities. It is a great way to travel to new places, and stay in central locations, without blowing the budget on hotel bills.

However, this new trend has also given rise to a new type of offender. ‘Tenants’ renting properties for 12 months or longer, with no intention of ever living there. Within days of signing the contract, and without the property owner’s knowledge, the property is being sublet through various short-term letting channels, for a substantial profit. With multiple guests staying every week, many of whom have no regard for the property’s condition, the results can be disastrous. At the end of the lease, the property is returned to an unsuspecting landlord who is often saddled with large repair bills and none of the profit generated from the process. Furthermore, it is the landlord who bears most of the risks: a potential breach of the tenancy agreement, building lease or local authority regulations, property insurance or mortgage conditions, not to mention HMRCi. With 7% of landlords reporting first-hand knowledge of illegal subletting, the true number of people engaging in this type of behaviour is potentially much higher.

With the recent rise in short-let platforms, both in terms of popularity and acceptance, Subletting has become significantly more widespread in many cities around the world, including London. In fact, AirBNB is projected to become one of the top 3 hoteliers by 2020iii. Worse still for landlords, they are at a significant disadvantage when it comes to tackling this problem due to a lack of awareness and no effective way to monitor it. There is also the challenge of stopping these ‘tenants’ from subletting once discovered. From serving notice to court hearings, it’s a consistent thorn in the side of landlords.

Subletting affects private landlords and large property funds alike. With the number of Airbnb listings growing 60% last year, the problem shows no sign of slowing. Harold Phillips from Phillips & Southern says that “this is nearly an epidemic in London - it's hurting everyone but the sub-letters”.

So, what can be done?

There is hope, however, for those worried about their properties. The first is through pre-vetting of candidates. By carrying out external reference checks on applicants and paying attention to the reports these checks generate thousands of pounds in potential repair costs can be avoided, making referencing a small price to pay. Doing the minimum in terms of referencing might save a few pounds in the short-term but could potentially cost landlords dear come the end of the tenancy.

The second is through rigours monitoring. By monitoring the various short-let platforms, properties that have been illegally sublet can be identified quickly and the process of evicting the tenants can begin. This protects the property and prevents the sub-letters from profiteering at the landlord’s expense. By monitoring, it is also possible to identify serial offenders, allowing for a database of illegal sub-letters to help prevent this type of behaviour in the future.

It is for this reason that we developed a Subletting Detection Tool, the first of its kind, which allows us to automatically monitor our landlords’ properties and flag if tenants are illegally marketing the property for short-let. This new addition to our suite of landlord tech tools offers our customers greater assurance that their properties are in good hands.

i https://www.axa.co.uk/insurance/business/residential-landlord-insurance/landlord-subletting-sharing-economy/ ii Tom Simcock (2017) From Long-Term Lets to Short-Term Lets: Is Airbnb becoming the new buy-to-let?, https://research.rla.org.uk/wp-content/uploads/Is-Airbnb-becoming-the-new-buy-to-let-Residential-Landlords-Association-August-2017.pdf iii https://skift.com/2016/06/17/the-business-of-hotels-vs-short-term-rentals-in-4-charts/ iv Tom Simcock (2017) From Long-Term Lets to Short-Term Lets: Is Airbnb becoming the new buy-to-let?, https://research.rla.org.uk/wp-content/uploads/Is-Airbnb-becoming-the-new-buy-to-let-Residential-Landlords-Association-August-2017.pdf