Underletting – an unfair contractual term?

Many years ago the writer of this blog appeared at the Property Tribunal on behalf of a freeholder to argue that the words in a residential long lease to “only use the premises for the occupation of the Tenant and the Tenant’s family” constituted a owner occupier restriction. She was successful. Residential leases regularly contain the words to only use “for the occupation of one family only” and that will mean any family, not just that of the tenant. Owner/occupier restrictions will inevitably down value a flat: it will not be of interest to a buy to let investor so there will less potential buyers on the open market and any potential purchaser wanting the freedom to sublet in the future will be discouraged by such a restriction.

It was with interest that we noted the reporting of the Court of Appeal this week in the decision in Jones & Anor v Roundlistic Ltd [2018] EWCA Civ 2284 (19 October 2018) which held that  a similar clause did not constitute an unfair contract term under the Unfair Terms in Consumer Contracts Regulations 1999. The relevant lease appears to have undergone a statutory renewal under the Leasehold Reform Housing and Urban Development Act 1993. In the first instance the First-tier Tribunal considered that the clause constituted an unfair contract term. On appeal it was found that the restrictive clause was sound for various reasons not detailed here. The covenant had been in the original lease and incorporated by reference in the renewal lease. The tenant had failed to challenge the clause on renewal. However, even had they tried to relax that restriction, statutory lease extensions must mirror the terms of the existing lease save for modernisation and rectification. The writer suspects that to have requested the relaxation of the owner/occupier restriction would have constituted an alteration of the existing lease terms so may not have been accepted on statutory renewal.

Contact Nicky Cleightonhills on ncleightonhills@meaby.co.uk for any enquiries on the construction of lease terms.