The potential pitfalls of sub-letting

The potential pitfalls of sub-letting

 

Sub-letting is becoming increasingly popular in Australia, particularly as the cost of rent and living rises. While sub-letting is legal in most Australian states and territories, things can become unclear if the property is damaged, someone is hurt or the rent is not paid on time. For this reason, most landlords and property managers are not fans of the practice. But because a landlord cannot unreasonably refuse a tenant’s request to sub-let their rental as long as the original tenant continues to live there, property managers must take action to mitigate risk in these situations.

What is sub-letting?

Not to be confused with ‘assignment’, which is where a tenant transfers the entire lease to another person, sub-letting is where a tenant transfers part of their interest in a lease to another person. The person named on the lease is then known as the head tenant and the person renting from them is the sub-tenant. The agreement made between them is known as the sub-lease, which can be set for a fixed or periodic term.

Click here for a link to the NSW Tenancy Fact Sheet on sub-letting or head to your state’s Fair Trading website for detailed information on sub-letting and a tenant’s rights and obligations in your area.

When can a landlord refuse consent to sub-let?

In most Australian states and territories, a landlord can only refuse consent:

  • If the original tenant proposes to sub-let the entire premises and/or for the full duration of the tenancy;
  • If the proposed number of occupants will exceed the number permitted by the Tenancy Agreement or local planning laws;
  • If the proposed sub-tenant is listed on a tenant database.

Does a sub-tenant’s name appear on the lease?

No, which poses potential legal issues if problems arise. Why? Because the head tenant takes on the full legal responsibility of a landlord when they choose to sub-let and this is something many tenants don’t understand. Taking on full legal responsibility means they must comply with all tenancy legislation, including maintenance and repairs, safety, security, bonds and payments etc. Meanwhile, the property owner/landlord has a duty to the head tenant. As you can see, it is a recipe for confusion and potential problems.

Who is responsible for damage to the property?

Sub-letting not only increases the risk of damage to a property, but also creates confusion around who is responsible for the damage. Is it the head tenant or the sub-tenant? For this reason landlord insurers are reluctant to offer cover for properties being sub-let.

From a property management point of view, maintaining a detailed audit trail using a cloud-based system like Maintenance Manager will help protect you against litigation by showing that you have been diligent in conducting comprehensive regular inspections and promptly handling repair and maintenance requests.

What happens if someone gets hurt at the property?

This is another one of those potentially grey areas in a sub-letting arrangement. Without the right checks and balances in place, the finger could end up being pointed at you.

As a property manager, you are not expected to be a safety or building expert. However, as a number of legal cases have shown, property managers can be held accountable in a court of law if proper procedures and processes haven’t been carried out.

By offering your landlords the opportunity to have a PropertySafe inspection conducted every two years, the onus is placed on the landlord to accept or decline the offer. That means if something goes wrong, you are not at fault. And if they choose to have the report done and resolve any safety hazards identified, the risk is transferred to PropertySafe should anything go wrong. There is no other national safety inspection service that offers such a comprehensive report and service for landlords.

Call 1300 350 000 for more information on PropertySafe or 1300 155 888 for an obligation-free demonstration of Maintenance Manager.

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