The feeble deal between the Office of Fair Trading and the Tchenguiz Family Trust over retirement leasehold exit and subletting fees – the one in July 2012 where the OFT said they were an unfair contract but, no, it was not going to do anything about them – has been clarified to Carlex today.
It had been our assumption that subletting consent fees applied per sublet and did not have to be renewed annually.
That is not the case: they do.
Somewhere we are sure we have seen an OFT email stating that the fees did not have to be renewed annually, and if any Carlex reader has this, please forward.
But the correct position was explained by the OFT today:
Here is the full letter explaining the position on subletting fees.
Thank you for your email of 9 October seeking clarification of the undertaking given to the OFT by Fairhold Homes Limited and associated group companies (‘Fairhold’) in relation to transfer fees payable upon sub-letting.
Under the terms of the leases we reviewed, a transfer fee of one per cent of the open market value of the property is payable to the landlord on each sub-letting. However, Fairhold undertook to accept a reduced flat transfer fee on subletting. Specifically, paragraph 2d of Schedule 1 of the undertaking, which came into effect on 30 July 2012.
(see ‘related documents’ at http://www.oft.gov.uk/OFTwork/consumer-enforcement/consumer-enforcement-completed/fairhold/) , provides that Fairhold shall:
‘calculate the Transfer Fee arising on a sub-lease (by way of an assured shorthold tenancy) of an Existing Lease as being the Fixed Subletting Fee. For the avoidance of doubt:
(i) if a sub-lease by way of assured shorthold tenancy continues beyond its fixed term period, a further Fixed Subletting Fee will become payable (even if no further formal assured shorthold tenancy is entered into); and
(ii) if a sub-lease by way of assured shorthold tenancy is entered into for a fixed term period of greater than one year, a further Fixed Subletting Fee will become payable at the start of each subsequent year that the assured shorthold tenancy continues’;
The Fixed Subletting Fee was £85 for the calendar year beginning 1 January 2012, and for subsequent calendar years it is adjusted by the retail price index for that previous calendar year.
As such, if a sub-lease by way of assured shorthold tenancy is entered into for a fixed term period of greater than one year, a further fixed subletting fee will become payable each subsequent year that the tenancy continues. For example, assuming an assured shorthold tenancy entered into for a fixed term period of 2 years, £85 will be payable upfront at the start of the tenancy, with a further £85 payable at the start of the second year of the tenancy.
For clarity, the position is different in relation to contingency fund fees payable upon sub-letting where waiver of the contingency fund fee is permitted by the terms of the lease. Where it has discretion under a lease, Fairhold undertook to waive the separate contingency fund fee of one per cent of the open market value payable upon sub-letting and instead charge a fee equivalent to one month’s rent for each sub-let. Specifically, paragraph 2e of Schedule 1 of the undertaking provides that Fairhold shall:
‘in relation to leases where waiver of the Contingency Fund Fee is permitted by the terms of the lease, calculate the Contingency Fund Fee arising on a sub-lease by way of an assured shorthold tenancy as being a sum equal to the average of the rent payable under the sub-lease for a one-month period (or the open market rent that would be paid for a one-month period, if greater), provided that this shall not exceed the sum that would otherwise have been payable under the Existing Lease. For the avoidance of doubt:
(i) where Fairhold has discretion under the terms of the lease permitting waiver of the Contingency Fund Fee, the Contingency Fund Fee arising on a sub-lease by way of an assured shorthold tenancy (i.e. a sum equal to the average of the rent payable under the sub-lease for a one-month period (or the open market rent that would be paid for a one-month period, if greater)) will only be applied once for each sub-lease (regardless of the fixed term period of the assured shorthold tenancy or whether the sub-tenant “rolls over” at the end of the fixed term);
I hope that this clarifies the position.