Is Rent to Rent Legal in the UK? [With Contract Templates]

A lot of people interested in the R2R model end up stuck with the question, “Is rent to rent legal in the UK?”. 

After dealing with hundreds of R2R properties, we can assure you that, yes, it is legal.  

If you have permission from the owner of the property in a written agreement, you can build a rent-to-rent property investment model. 

In this blog, we have discussed all the legal aspects you need to be aware of for this property investment model and have shared a rent-to-rent contract template UK that you can use. 

What is rent to rent (R2R)? 

Rent to Rent (R2R) is a real estate strategy where someone leases a property from a landlord and then sublets it to others for a higher rent.

The profit comes from the difference between the rent paid to the landlord and the income earned from subletting. For this property investment approach, you need to find a single lease agreement and then let it out to others, either room-by-room or as a whole. 

Is Rent to Rent Legal in the UK?

Yes, Rent to Rent can be legal in the UK, but it depends on several factors, primarily the terms of the original tenancy agreement.

1. Landlord’s consent: The most crucial factor is the landlord’s explicit permission to sublet. Most Assured Shorthold Tenancies (ASTs) prohibit subletting without the landlord’s consent. 

2. Share percentage: You must own a 100% share of the property to sub-rent out individual rooms.

 3. Tenancy duration: If your tenancy duration is less than six months, you don’t need permission from the landlord to sublet the property. However, if there is no fixed date to your tenancy, you will need your landlord’s permission to sublet. 

4. Who you rent from: If you rent from a council, you are not allowed to sublet any part of your home, and the landlord can evict you anytime. 

How does rent-to-rent work?

Rent to rent is a business model where an individual or company (the “rent to rent landlord”) leases a property from a landlord for a fixed term. The rent-to-rent landlord then sublets the property to tenants, typically on a room-by-room basis, and pays the original landlord a guaranteed rent. 

The three parties involved in this business model are-

1. The original landlord: 

This is the person who originally owned the property. This individual enters into a rent-to-rent agreement with the rent-to-rent landlord and receives guaranteed rent for the duration of the agreement. They have very limited involvement in property management. 

2. Rent to rent landlord: 

This is the person who leases the property from the original landlord. This will be you if you decide to go with a rent-to-rent property investment model. 

After signing the lease, this individual becomes the landlord to the tenants they sublet. They are responsible for

• Managing property
• Finding tenants
• Rent collection
• Repairs and maintenance

This party profits from the difference between the rent collected from tenants and the guaranteed rent paid to the original landlord.

3. Tenants: 

This is the party that rents a room from the rent-to-rent landlord. They enter into tenancy agreements with the rent-to-rent landlord and pay rent to them. They have the same rights and responsibilities as tenants in a traditional tenancy in the UK. 

Detailed breakdown of how this model works:

• Rent-to-rent landlord-finding property: As a rent-to-rent landlord, you will first find a suitable property that can be converted into an HMO (House in Multiple Occupation) or has a high rental yield in case of subletting to a single family. 

You then need to negotiate the rent with the original landlord and set an agreement outlining the terms of the lease. In this process, you must be transparent about your plan of subletting and include that in the agreement. The agreement would also include other aspects like the guaranteed rent amount that you would be paying to the original landlord and the rights and responsibilities of both parties.

⭐If you don’t have much knowledge of legal paperwork, you can refer to some online tools to draft your rent-to-rent agreement.  

• Property refurbishing (optional): As a rent-to-rent landlord, you can invest in the property and refurbish it to increase the curb appeal of the property. This can help you get better rental income.  
• Tenant sourcing & sub-letting: Once the property is ready for sub-renting, you can start looking for tenants. For that, you can list the property on websites like SpareRoom, OpenRent, Rightmove, Zoopla, and others. 

Once you find suitable tenants, you need to sign an agreement with each of them. The agreement should outline all the necessary aspects, such as the duration of their tenancy, rent, and responsibilities of both parties. The agreement would follow the normal clauses of a renting agreement. 

• Property management: As a rent-to-rent landlord, you will have the major responsibility of property management. You need to adhere to all the landlord’s responsibilities and perform the safety checks to ensure everything is up to the standards. 
• Profit generation: The rent-to-rent landlord generates profit by collecting rent from tenants and paying the guaranteed rent to the original landlord. Therefore, you must negotiate well with both the original landlord and the end tenant. 

Tip: For the original landlord, you can offer them a guaranteed income for a fixed amount for a long time to get a rate below the market price. 

Another Way Of R2R: R2SA

The previous method is the traditional way of performing R2R; however, there is an easier way where your involvement would be less than half of the original technique, and your earning potential would be greater. 

The technique is called R2SA (Rent to Service Accommodation). It slightly differs from R2R. In R2SA, you rent a property and convert it into a serviced accommodation that offers amenities and services like hotels. This method has lower risk as the operator handles day-to-day operations and tenant management. This makes it a more profitable and scalable version of R2R. 

⭐We have a detailed guide on R2SA properties that you can refer to if this is something that interests you.

What is a rent-to-rent agreement?

A rent-to-rent agreement is a commercial agreement where an individual or company (the “rent-to-renter”) leases a property from a landlord and then sublets the property to tenants, typically on short-term leases.

Types of rental agreements you need

There are two main agreements you need to make for a rent-to-rent investment setup. 

1. Lease Agreement: This agreement is for you to have the property on lease from the original owner. This agreement also includes clauses stating that you can use the property to sublet. 
2. Management Agreement: This agreement is to hand you over the management rights and responsibilities of the property. This is also signed between the original property owner and the rent-to-rent landlord. 

There will also be another general rental agreement between you and the end tenant. This agreement will include the regular clauses that should be included in a short-term rental agreement. 

What’s included in a rent-to-rent lease agreement template in the UK?

Having a loophole-free rent-to-rent lease agreement is crucial for protecting your investment plan.  While specific requirements might vary, here are the essential elements typically included in a UK rent-to-rent lease agreement template. 

1. Parties involved: Clearly identify the landlord, the rent-to-renter, and any guarantors.
2. Property description: Detailed description of the property, including address, size, and any specific features.
3. Term of the agreement: Specify the start and end dates of the lease.
4. Rent amount: Clearly state the monthly rent to be paid by the rent-to-renter to the landlord.
5. Payment terms: Outline when and how the rent will be paid.
6. Permitted use: Explicitly state that the property will be sublet.
7. Maintenance responsibilities: Define who is responsible for repairs and maintenance.
8. Deposit: Include details about any deposit paid by the rent-to-renter.
9. Default and termination: Outline the consequences of rent non-payment or breach of agreement.

Dispute resolution: Specify how disputes will be resolved (e.g., mediation, arbitration).

Download rent to rent contract agreement template UK

Download the rent-to-rent contract template:

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What is a Rent-to-Rent Agreement?

A rent-to-rent agreement, also known as a lease-to-lease agreement, is a contract between a property owner (the landlord) and a tenant. In this agreement, the tenant rents the property from the owner and then sublets it to other tenants, often at a higher rent. The key points of a rent-to-rent agreement are:

Parties Involved

• Property Owner: The landlord who owns the property
• Tenant: The person who rents the property from the owner and sublets it to others

Property Details

• The full address of the property subject to the agreement

Term

• The start and end dates of the rental period, usually a fixed term that does not automatically renew

Rent and Deposit

• The monthly rent the tenant pays to the property owner
• The security deposit required, which is protected in a government-approved scheme

Utilities and Council Tax

• Specifies which utilities and taxes the tenant and property owner are responsible for

Maintenance and Repairs

• Outlines the maintenance and repair responsibilities of the tenant and property owner

Right to Sublet

• Grants the tenant the right to sublet rooms within the property, while remaining fully responsible

Termination

• Provides the terms for either party to terminate the agreement, including notice periods and material breach remedies

Governing Law

• States that the agreement is governed by the laws of England and Wales

Rent-to-rent laws in the UK

Before going into the process of rent-to-rent property deals, here are the five basic laws you must know.

1. You must sign a commercial contract (lease) under the Landlord and Tenant Act 1954 (LTA 1954). 
2. Execute the commercial tenancy agreement with finesse to avoid giving ‘Rent to Rent’ a high degree of tenure protection that makes it difficult for you to regain possession of your property. Take legal advice before agreeing to or drawing up a rent-to-rent lease. You can avoid forced renewal of the lease by letting it be “outside of the Act.”
3. Off-the-shelf Law Society or standard commercial lease cannot apply in a rent-to-rent agreement. You need a purpose-drawn lease that includes specific technical clauses related to the rent-to-rent arrangement.
4. Hire a chartered surveyor for a schedule of conditions to avoid disputes over dilapidations when the property is returned to the owner at the end of the term. You can make the ‘Rent to Rent’ responsible for maintenance and repair if the obligations under Section 11 of the Landlord and Tenant Act 1985 are avoided.
5. Check the track record and reputation of the ‘Rent to Rent’ and don’t sign the agreement unless it has been scrutinised or amended by your solicitor. The rent must be covered by Professional Indemnity (PI) insurance to safeguard the landlord. Ask for an insurance policy that can ensure the same.

What are the differences between lease and rent in the UK?

A lease is a long-term legal agreement between a landlord and tenant, typically lasting at least a year.  It outlines rights, responsibilities, and the duration of tenancy. 

On the other hand, rent is the periodic payment made by the tenant to the landlord for occupying the property. It is a part of a lease agreement or a separate short-term arrangement.

Find the best Rent to Rent (R2R) property deals in the UK with the highest rental yields

If you are planning to be an individual investor in R2R property deals, Pluxa Properties can assist you in finding suitable properties. We can help you with 

• Easy searching- With our long list of properties, you can find R2R deals in various UK cities, all in one place.
• Focusing on high yield- Pluxa prioritises properties with high rental yields, giving you the maximum return on investment.
• Estimation of ROI- Each R2R property listed on our website comes with an estimated ROI calculated for you. This makes your decision-making easier. 
• Expert support- You can leverage Pluxa Property’s expert knowledge of the R2R market to make informed decisions. 
• Management- The listed properties are of two types: self-managed and full hands-off management. You can choose properties with the latter option if you want us to help with management.