Brand EditorialEPMEPM: Best Practice & Legislation

Mi casa es su casa: The insurance perils of sub-letting

While many think that sub-letting is a matter between tenant and landlord, it’s crucial for the property’s insurer to be in the loop too, advises EBM RentCover’s Managing Director, Sharon Fox-Slater.

Increasing costs of living and high prices for rentals in desirable areas mean the idea of sub-letting is appealing for many tenants. And while many think this is just a matter between landlord and tenant, it’s important to consider the landlord’s insurer – as generally sub-letting is not covered.

Sub-letting is where a tenant privately organises for someone to pay for use of the home they themselves are renting – when they transfer part of their interest under the lease to another person. (Transferring all the lease is different and is known as assignment.)

The person or people named on the lease are the head tenants and those renting from them are sub-tenants.

The agreement between them is a sub-lease.

The sub-lease may be for part of the premises (e.g. a room) or for a period of the head tenant’s tenancy.

The head tenant may or may not live in the property at the same time as the sub-tenant.

If the head tenant does live at the premises, in order for there to be a valid sub-lease it must be very clear that the sub-tenant has ‘exclusive possession’ of at least part of the premises.

The sub-lease can be for a fixed term or periodic.

Landlords and their agents are often not great fans of the practice as, frankly, it can get ‘messy’ if there are issues around damage, rent not being paid or rights and responsibilities concerning exclusive possession, such as requesting the owner or their agent to leave the premises, for example.

Despite these reservations, in most Australian states and territories a landlord is not permitted to unreasonably refuse a tenant’s request to sub-let their rental and the original tenant (the one named on the lease) will continue to live in the premises.

However, landlords can refuse consent if the original tenant proposes a sub-let for the entire tenancy or the whole premises.

They can also refuse consent if the number of proposed occupants for the rental property will exceed the number allowed by the tenancy agreement or local planning laws; if the proposed sub-tenant is listed on a tenant database; or if they think the premises would become overcrowded as a result of the sub-letting arrangement.

Sub-letting dramatically increases the risk of damage to a property and also blurs the lines of responsibility for that damage.

Unlike a co-tenancy, a sub-tenant’s name may not appear on the lease – and this poses legal issues if problems arise.

Most insurers would caution landlords to insist that all occupants of the home be named on the lease (with the exception being a family situation).

In a sub-tenancy, the head tenant is considered to have made another tenancy agreement with the sub-tenant, while still keeping their original agreement with the landlord.

As such, sub-tenancies are actually tenancy agreements and therefore carry the protection (and responsibilities) of the applicable Residential Tenancies Act.

The head tenant takes on the full legal responsibility of a landlord, which means they must comply with tenancy legislation – including matters such as bonds and payments, notices to vacate/evictions, maintenance and repairs, and safety and security.

At the same time, the owner/landlord still has a duty to the head tenant.

Importantly, the head tenant – as they are the one named on the lease – is the one who is completely responsible for any loss or damage to the home, or rental arrears.

This means the head tenant can be held responsible for any loss that the landlord suffers because of the actions of the sub-tenant.

For example, if a sub-tenant causes damage to the property, the landlord could claim compensation from the head tenant, who would then have to try and recover the money from the sub-tenant.

It is also the head tenant who is responsible for paying the rent to the landlord, regardless of any sub-let arrangement.

If the sub-tenant fails to pay, the head tenant will need to pay up or risk breaching their tenancy agreement.

What is covered

While residential tenancy legislation may allow for sub-letting (with the owner/landlord’s written permission to do so), landlords and agents need to be aware that the landlord’s insurer is not likely to cover claims stemming from such an arrangement.

A landlord insurance policy is issued based on a number of factors, including the tenancy/lease agreement and the specific risks that the let poses.

When an insurer agrees to offer cover, the contract is with the landlord/policyholder and the insurer’s limit of liability is determined by both parties meeting the terms of the policy wording.

The investment property owner’s landlord cover does not extend to their tenant acting as landlord to a sub-tenant.

Sub-letting dramatically increases the risk of damage to a property and also blurs the lines of responsibility for that damage.

For these reasons, landlord insurers are reluctant to take on the risk of offering cover for properties being sub-let, as their right of subrogation (their ability to recover costs) is restricted when multiple people share a property and/or it can’t be proven who caused damage and so on.

In situations where the landlord was not aware (or could not reasonably have been expected to be aware) of the sub-letting arrangement taking place (that is, they did not give written consent), their policy is likely to respond to insured events such as damage claims or rental losses.

Agents should also ensure that they have Professional Indemnity cover in place, as it is not beyond the realms of possibility that if an unauthorised sub-let arrangement goes pear-shaped, and the property investor finds they are not able to claim on their landlord insurance, they may point the finger at their agent and seek compensation for negligence or wrong-doing.

For example, they may allege that if the managing agent had been diligent in carrying out comprehensive and regular periodic inspections, they would have known that the tenant was sub-letting.

If a sub-letting arrangement has been agreed between the landlord and head tenant, the landlord or agent should contact their insurer to discuss options for cover.

The insurer may agree to extend cover (and may state that certain sections of the policy will not apply) or insist on separate policies being taken out to cover the individual risks of each tenancy agreement (landlord policies generally only cover one lease at a time). They may also simply decline to extend cover.

Landlords or their agents should contact their insurer to discuss any sub-letting arrangement and the implications for the landlord’s insurance cover.

Show More

Sharon Fox-Slater

Sharon Fox-Slater is the Managing Director of EBM RentCover, which protects more than 165,000 rental properties across Australia. For more info, visit