Leases can vary enormously, and it takes a professional eye to understand their terms. In a recent case which underlines this point, a couple who sublet their flat in breach of an ‘owner occupier’ covenant in their lease ended up at risk of losing their home.

The lease did not contain an explicit prohibition on subletting. However, the relevant covenant specified that the premises were only to be occupied by tenants and their families. After the couple moved abroad, they sublet the flat for 12 months under an assured shorthold tenancy. With a view to taking possession of the flat, their landlord sought a declaration under Section 168(4) of the Commonhold and Leasehold Reform Act 2002 that they had thereby breached the covenant.

The First-tier Tribunal found that the covenant did prohibit subletting of the flat. However, in rejecting the landlord’s application, it found that there had been a common understanding, or assumption, that subletting would be permitted. It also ruled that the covenant was an unfair term within the meaning of the Unfair Terms in Consumer Contracts Regulations 1999 and was thus invalid.

In upholding the landlord’s appeal against those rulings and granting the declaration sought, the Upper Tribunal (UT) noted that the landlord had made clear to the couple its view that the covenant prohibited subletting. There had never been a mutual understanding that the covenant would not be enforced.

The UT noted that the Regulations have no application to contractual terms which are entered into pursuant to mandatory statutory provisions. The landlord had been obliged to grant the lease under the provisions of the Leasehold Reform, Housing and Urban Development Act 1993 and the Regulations did not therefore apply.