Joint tenants or single tenant plus lodger?

Hi Corinne

It's an interesting conundrum.

Without wishing to complicate matters there is also a third option which you may not have considered.

Is your daughter going to University by any chance?

If so, you may be able to help her to buy the property herself, just by acting as guarantor and without having to help her with a deposit. It will depend on your financial circumstances of course but 100% mortgages for University students are available and have been for many years. Please take a look at this >>> http://www.property118.com/student-buy-to-let-mortgages/33850/

The advantages of a lodger agreement are that it is much easier to evict the "friend" or lodger if things don't work out. The disadvantage is that you have no certainty of income, the lodger could just leave.

Question - would the parents of the "friend" be willing to guarantee her rent for 12 months and if so, are the parents considered good for the guarantee? If not, then the lodger agreement is the more obvious solution.

If my own daughter was sharing with a stranger I would recommend a lodger agreement. Obviously the rent would be payable in full by your daughter on that basis and the lodger agreement would be between your daughter and the lodger, not you and the lodger.

I hope that helps.
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PS - the article I've linked to below is also worth reading, especially if you want to help your daughter financially without having to do it out of taxed income.

If you buy the property yourself then you will be taxed on rental profits. Any money you give to your daughter will also be from your taxed income.
You could structure this so that you charge your daughter just enough to cover your
costs and then she keeps any rental profits from the rent from the lodger. Your daughter then keeps the money from the lodger tax free. Voilà, no tax for you, no tax for her 🙂

See >>> http://www.property118.com/student-rent-a-room/33915/
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I think that you should consider the friend as if (s)he were a stranger. Things can potentially go wrong in the same way.
Based on that a lodger agreement may be preferable.

Hi Corinne,

I'd tend to agree with Mark that having your daughter's friend as a lodger rather than a tenant gives you the most flexibility, but also less reliability of rent, though you can easily find another suitable flatmate for your daughter through SpareRoom.

In either case, make sure you have a proper agreement - AST for tenant or excluded licence for a lodger. You never know when you need to fall back on this, and it's best to have everything in writing, including house rules if there are going to be any. Our guide to taking in a lodger gives you a good starting point for thinking through all the elements involved in going down this route. It's free to download from http://www.spareroom.co.uk/lodger Bear in mind that having lodgers will affect things like insurance and mortgage agreements too, so mention it to your providers before committing.

Corrinne, there are a few more advantages to the property being purchased in your daughters name which I ought to point out. First, it with be her principal private residence so when it is eventually sold there will be major CGT advantages compared to it being owned by you as an investment. Even if your daughter moves out and decides to retain the property as an investment herself the PPR relief will also be very beneficial in terms of reducing CGT liabilities.

You will also be helping your daughter to get on the property ladder.

If you decide to help her with a deposit, this will be treated as a potentially exempt transfer and will not form part of your estate for IHT purposes if you survive for 7 years.
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Hi Corinne

Are you considering buying for cash, or using a mortgage facility? If you choose to buy the property as a 'BTL' investment and you wish to arrange a BTL mortgage, the fact that one of the tenants is your daughter then that makes the BTL mortgage a 'regulated' contract and not all (in fact very few) lenders actually allow this.

If you do wish to progress this purchase using a mortgage then I strongly recommend that you sit down with a whole of market mortgage adviser to consider the options in 'black and white'.

On the subject of which type of tenancy agreement, I totally agree with Sams comment above "make sure you have a proper agreement – AST for tenant or excluded licence for a lodger. You never know when you need to fall back on this, and it’s best to have everything in writing, including house rules if there are going to be any" and in fact that is exactly what I have in place for a property that my daughter and her 'other half' rent from me...... just in case!

Howard

Just to throw a spanner in the works

I have seen arrangements like this go wrong so many times - no matter how you set up the contract. Even close friends often struggle to get on well when they are living together and your daughter will feel under constant pressure to keep the house in good order because you own it. This may make her friend feel like she cannot relax and enjoy living in the flat and could cause friction. There is also the underlying "your dad is rich" issue that can creep in if the sharer is struggling to pay the rent or bills.

When my daughters went to university everyone expected me to buy them a property to live in because I have been letting to students since 1972, but it is because I have been letting to students for so long that I know the pressures that can build up in a shared house - I'm sorry to say that girls are much worse for this than boys. Instead of buying them a house to live in I helped them to buy houses in my own letting area - I did not give them any money towards this but I did stand as a guarantor. I managed the properties at no cost and the income paid for them to rent a "normal" student property near their universities and also paid their bills and I am fairly sure that neither of them admitted to owning a property themselves so that their sharers were unaware of their financial situation and they could be just one of them. My eldest treated the rented property with respect and my youngest lost her deposit every year - just shows that even the children of landlords who had spent all their summer holidays watching mum cleaning after students did not act any differently to any other student.

When my girls left university they both lived in their properties for a while and one of them still owns hers while the other sold her house and moved out of the area using the money to buy another property (in fact she bought one to live in and one to let but that is another story). They will both be/were able to claim their "prime residence" allowances when they sell/sold and this provides a nice nest egg.

If you do decide to go ahead and either buy a property in your own name and rent it to your daughter and her friend do everything to make them equal and do not expect your daughter to be the property manager because this will feel like golden handcuffs in the end. A joint AST is what I would suggest

My book, where I warn about the storm clouds that are gathering for landlords is here >>> http://www.amazon.co.uk/dp/1484855337

Reply to the comment left by "Mary Latham" at "16/08/2013 - 13:44":

You are a clever sort Mary, this thread is of interest to me as I have my youngest daughter off to uni. I have thought of buying her a place down there (Plymouth) which is a long way from Norwich. You also point out the 'rich dad problem' I have 2 daughters and a son, all three have experienced problems with this, here again this is why I will not drive a Range Rover or similar as it displays wealth which causes all sorts of unpleasantness. Interesting thread - I look forward to reading everyone's comments.

Reply to the comment left by "andrew townshend" at "16/08/2013 - 22:34":

Take another look at my very first thread Andrew and then combine that with the advice from Mary.

BTW - please update your Member Profile 🙂
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Whatever the legal arrangement the property will belong to the parents of one of them so they won't be 'equal'. If they were joint tenants and the parents/landlord had to sue for rent arrears I doubt they would include their daughter/son in the claim...
But that's a fact of life when one decides to move in a property owned by their friend's parents.
So the most important here is everyone's behaviour, especially the daughter/son's who should indeed probably avoid considering that (s)he is the boss.