What property managers should know about sub-letting

When done correctly, a sub letting arrangement between owners, property managers and tenants can result in a successful tenancy for all parties. However, when it goes wrong - and it can, just ask any property manager with experience in managing them - the results can range from unfavourable to catastrophic.

With many tenants feeling the pinch in the current market and with the recent flooding crisis, the allure of renting out a spare bedroom to a friend or acquaintance may be all too appealing.

As a property manager, it's important that you're across all the rules and regulations surrounding sub letting in order to achieve a successful outcome as well as your clients and your tenants.

First of all, what is sub letting?

In a typical sub letting arrangement, someone rents the property (often referred to as the head-tenant) and then rents out some or all of the property to another tenant or tenants. Sub letting is stereotypically popular in high-density metro areas close to universities. That said, you'll also find other tenants in regional areas of Queensland wanting to sub let for a variety of reasons as well.

Prior to sub letting a property, the tenant should seek approval from their property manager or landlord as they may have conditions for their approval. As outlined on the Residential Tenancies Authority (RTA) website, a head-tenant has similar responsibilities as a property manager/owner. That includes providing a sub tenant(s) with the following resources:

• a written tenancy agreement;
• an Entry condition report (Form 1a/b);
• The RTA's Pocket guide to tenants - houses and units (Form 17a); and,
• receipt for bond money paid.

Once the property is sub let, anyone living at the rental property must be approved by the property manager/owner as a permitted occupant and the special terms section of the tenancy agreement may be amended. The RTA states that "any agreement between a head-tenant and sub tenant should be in writing, and it's recommended to include arrangements for sharing bills (e.g. gas, electricity or internet)."¹

For more information on bonds, approved occupant numbers or the correct process head-tenants must take when approved occupants leave or the tenancy ends, click here.

The downfalls of sub letting

Litsa Kallos, senior property manager at Leo Tsimpikas Real Estate has experienced her fair share of sub-letting stories - some good, others not so. One of the main problems she's experienced is not being informed by the head tenant that other occupants are sub letting some or all of the property.

Of course, it's vital for the property manager and owner to be aware of all occupants - if there are more occupants living in the property than the approved number stated in the tenancy agreement, the tenants are potentially in breach of their agreement.

Moreover, having unapproved occupants living in a rental property can spark major safety concerns for the property manager and tenants alike. For instance, in the event of a building emergency, the property manager would only be able to pass on the details of known tenants and occupants to emergency services. Another major issue that may arise is fire compliance.

Kallos says it's important for property managers to be diligent during routine inspections and look out for signs that may suggest an unapproved occupant is residing in the property.

"A second functional fridge or washing machine in a three-bedroom home is often a telltale sign that a tenant has unapproved occupants in the home," explains Kallos. There are also other obvious hints that unapproved occupants may be living in the property, warns Kallos, such as mattresses on the floor or extra cars or motorbikes out the front of the house that don't match the number of tenants.

Where possible, you may wish to consider assessing their water usage - sudden spikes may mean one or more unapproved occupants have moved in since the last quarter or routine inspection.

Keeping up when Tenants Change

While most head-tenants are honest and inform the property manager and owner that other occupants will be living there, something they may fail to do is report when circumstances change.

"Early on, they'll let us know for example that it's just them and their friend looking to sub let other parts of the house, and they may do the right thing in the first instance...but we need to know when someone has moved out and another person has moved in," says Kallos.

When there's a change in people sub letting, the same process must apply as it did in the beginning - written permission must be sought from the owner and property manager.

Property managers and owners also have the right to ask occupants for an application and references before they agree to allowing a new person or people to sub let from the head-tenant. While this process can be time consuming (and often frustrating if arguments between the head-tenant and sub-tenant keep occurring, resulting in a 'revolving door' of occupants), it's crucial that these steps and procedures are taken.

A Change of Bond Contributors (Form 6) must be filled out and sent to the RTA when tenants and the rental bond arrangements change. The head-tenant is responsible for keeping an accurate record of who contributed to the bond, especially when there's a change in approved occupants. This will assist in a smoother process when tenants and approved occupants request their bond to be refunded once the tenancy comes to an end.

Top Tips for Smoother Sub Letting

• If your tenant has informed you they'd like to sub let some or all of the property, direct them to the RTA website and provide them with as much information as possible. If they've found a person/people to sub-let the property, they must seek permission in writing from your client (the owner).
• You must consider insurance in the instance of sub letting. Can your professional indemnity insurance cover you if something were to go wrong? Most importantly, property owners should consult with their insurer before allowing a sub letting agreement to take place in their property, in case their landlord insurance policy includes a clause that does not allow sub letting.
• Maintain an open dialogue with the head-tenant and check in regularly. This may prompt them to inform you that an approved occupant is soon moving out, and they'd like to replace them with someone else.
• Does the property comply with Queensland Fire and Emergency Services legislation? To learn more, click here.
• Ensure that you as the property manager have correctly identified that the agreement is in fact a sub letting agreement and not a Rooming Accommodation or Residential Service.
• If you have reason to believe a property has unapproved occupants sub letting from the head-tenant, arrange to speak to the head-tenant and calmly explain the importance of needing to know who is living in the property - for their own protection and for the protection of the property manager and the owner.
• Finally, and arguably most importantly, remember as a property manager it's your responsibility to protect the asset, owner, yourself and the tenant.

REIQ Members with further questions about sub letting can contact the Property Management Support Service by emailing pmsupport@reiq.com.au or calling 1300MYREIQ (697 347). Not a member? Join today.

References: ¹ https://www.rta.qld.gov.au/Renting/Before-you-rent/Types-of-tenancy-agreements/Subletting

Important disclaimer: This article is provided for general information only, and the author is not engaged to render professional advice or services through this article. Readers should satisfy themselves as to the correctness, relevance, and applicability of any of the above content, and should not act on any of it in respect of any specific problem or generally without first obtaining their own independent professional legal advice.

This article was originally posted on the 27th May 2020, and has since been updated on the 28th March 2022.