John Murray answers a question on ending a sub tenancy before the headlease expires

This is a question from Thomas Crowley of Montpellier Property Estates Ltd, and is answered by solicitor John Murray.

Question:

We have a three year lease on a property that is due to end in February 2013. The Freeholder provided notice that he did not wish to renew the agreement and wanted vacant possession.

As a result we issued a Section 21 (Periodic Tenancy) and forwarded the papers to the Court. We explained the likely time frame to the Freeholder which he was unhappy about and as a result issued a Notice to Quit.

The County Court Judge granted 14 day possession on the basis of the papers before him. He would not, however, make any comment as to how the judgement would be enforced in relation to the side-by-side Section 21 process.

Essentially, how is it possible to provide vacant possession until we have had a positive judgement in our Section 21 case?

Answer:

Tom, from the way you have phrased your question, I am assuming that your organisation has leased a property from a freeholder (the “the Head Landlord”) for three years and then sublet it to a residential occupier “(the Tenant”) under an assured shorthold tenancy.

The Head Landlord has decided he wants it back at the end of the term; the Judge in these circumstances has no discretion but to order possession if the Notice to Quit has expired.

The net result is that your organisation drops out of the picture, and the Head Landlord becomes landlord to the Tenant directly. The Head Landlord could adopt your proceedings and remove the tenant under s21 Housing Act. Whilst he hasn’t got possession as against your tenant – he has got possession as against your organisation.

As your lease is coming to an end, the Judge had little discretion but to make a possession order – despite the existence of your sub tenant who will carry on their tenancy regardless.

It will leave you in breach of your covenants under the lease – as you have not been able to provide vacant possession. The Head Landlord could take action against your organisation to recover any financial losses suffered for breach of contract.

This situation is more common than you might think; we regularly come across organisations who have granted shorthold tenancies when they themselves hold under a relatively short lease, and it’s often a race against time to remove the tenant before the headlease ends.

Tips to avoid your situation are:

  1. Diarise at least six months before the end of the lease to establish whether you are going to need vacant possession – giving yourself time to serve s21 notice and follow through proceedings.
  2. Never grant a new shorthold tenancy in the last twelve months of the lease – if you need to, then ensure you can extend your headlease first.
  3. Keep dialogue open with the Head Landlord – even now, ensure you give them all assistance in recovering vacant possession, by sharing documents with them and assisting them with court proceedings if necessary.
  4. See if your freeholder will allow you to “hold over” the lease on a month by month basis.
  5. Take legal advice!

You can find out more about John’s Face to Face courses >> here.

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When the headlease ends before the sublease ...

November 20, 2017

About John Murray

John is a specialist property solicitor and a Chair of the Residential Property Tribunal. He has worked in property law for over 20 years for clients in both the private and the social housing sector.