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22 April 2013

Administration charge for sub-letting consent is reasonable

In an important decision for residential landlords, the Upper Tribunal (UT) has ruled that it is legitimate to levy reasonable administration charges (£165 in this case) on tenants to cover the costs entailed in granting lease assignments even where there is no provision for such charges in the lease.
The case, Freehold Managers (Nominees) Ltd. v Piatti and Another, involved buy-to-let investors who held a long leasehold interest in a flat. They had disputed the freeholder’s right to recover its administrative costs for considering their applications to underlet the property to sub-tenants under a succession of assured shorthold tenancies.

Assignment covenants in the lease contained no provision for the levying of such charges. However, the UT ruled that the freeholder was nevertheless entitled to invoice the leaseholders for reasonable costs incurred under the terms of Section 19(1) of the Landlord and Tenant Act 1927.

That section provides that lease assignments cannot be unreasonably withheld and specifically does not preclude the right of landlords to require payment of reasonable sums in respect of any legal or other expenses incurred in connection with the granting of consent.

The leaseholders’ arguments had been upheld by the Leasehold Valuation Tribunal on the basis that it could not have been Parliament’s intention for Section 19(1) to be used to create an obligation in the landlord’s favour where none exists in the lease.

However, in allowing the freeholder’s appeal against that decision, the UT ruled that Section 19(1) was not restricted merely to preserving any right conferred by the lease to make a charge. There was no requirement on the freeholder to grant consent to sub-letting without payment and it was entitled to charge the leaseholders to cover its reasonable legal costs and other expenses.

If you would like to know how this could affect you either as a potential lease holder or a Landlord please contact our Residential property team.

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