Underlettings: prohibitions via the user clause

A restriction on underletting is not unusual in leases. The most common way of doing this is by an express covenant prohibiting underletting or by requiring the landlord’s prior consent to a proposed underletting. A less common method is through a user clause, as demonstrated in the recent case of Roundlistic Ltd v Jones and another (2016).

The Upper Tribunal (Lands Chamber) (“UT”) has allowed an appeal by a landlord who wanted to enforce a breach of covenant in a lease.

Although there was not any express prohibition against underletting in the lease, the user clause provided that the premises could not be used “for any purpose whatsoever other than as a single private dwelling house in the occupation of the Lessee and his family."

Due to work commitments, the tenant needed to relocate for 2 years and wanted to grant a short term underlease. The landlord warned that this would be a direct breach of the covenant but the tenant disagreed and proceeded anyway.

Despite the unfortunate reality of the situation, the UT unsurprisingly found in favour of the landlord.

So what are your options as a tenant?

1. Sell the lease: though this would incur various costs and would prevent the tenant from returning to the property.
2. Pay the landlord to vary the lease: depending on the landlord’s demands, this may not be a financially feasible option either.
3. Apply to the UT to vary the restriction under s84 of the Law of Property Act 1925: note the requirement that the lease in question must have been granted for a term of more than 40 years, and at least 25 years of that term must have expired.
4. Go ahead with the unlawful underletting: this is a risky approach and the landlord can take enforcement actions.

It is very easy nowadays for conveyancers and tenants alike to just look out for the “standard lease provisions”, and as soon as they cannot see a heading stating “Underletting” to then just assume such restriction does not exist. This case is a solid example of the need to go through contractual agreements with a fine-tooth comb and really consider the effects of each and every clause.