Letting to Family Member

Please see below an extract of an email received from the London Borough of Hillingdon Council relating to my request to let to my daughter - they don't have any objections providing the tenancy is conducted on a commercial basis:-

Dear Mr xxxxx

Thank you for your email received today regarding the matter of renting your property to your daughter.

This arrangement would be acceptable from a housing point of view and we would have no issues with this at all, as long as it is done properly, as if it were a commercial tenancy.

If your daughter is struggling financially and not keeping up to date with the rent, she will at some point become homeless, whether it be for rent arrears or evicted because the Landlord no longer wishes to have her as a tenant. You have a solution which will suit all parties involved which will prevent your daughter and your grandchild from becoming homeless.

I also would not see a problem with this arrangement from a Housing Benefit point of view.
There are a few factors they have to check before awarding Housing Benefit on a property owned by a close relative, but your situation should be fine as long as you adhere to the following:

• You do not live with your daughter while she claims Housing Benefit when
living at your property.

• You do not use this arrangement to take advantage of the benefit system.

• The arrangement must impose the same conditions as a commercial
tenancy i.e. if rent arrears accrue then you would look to evict, as you would
do with any other tenant.

Dave,

A different perspective.

It is admirable that you want to rent to your family member but I would be with the bank on this one and instead of suggesting ways around how you could do it, like the helpful and well meaning people on this forum, I'd suggest you fight the local authority to rehouse instead of doing so yourself or you might live a miserable old age without the cash from your home. If your relative really loves you they would probably not want that for you.

The LA has a duty to house people unless they intentionally make themselves homeless and assuming this is not the case, it is no surprise to me that they are agreeing to pay rent to avoid this responsibility.

Sorry, but I am a complete cynic & would never advise renting to a member of family, let alone one on benefits for a number of reasons:-

1 The benefit rules could change tomorrow. Whilst you have it in writing that the council will pay you directly now, this can easily change in the future, which is why they clearly state:-
"• The arrangement must impose the same conditions as a commercial tenancy i.e. if rent arrears accrue then you would look to evict, as you would do with any other tenant."
Ask yourself why it is necessary to state this if they are committing to a lifetime of paying you direct?? Of course they are not, it is only "at this moment in time".
Changes to the system have never been more likely, with another wave of austerity cuts looming. We have already seen this happen with Council Tax. In our local area the council now only allow one month void (used to be 12, then 6), at nil charge before the landlord has to pay the full council tax - after 18 months that climbs to 150%. What's to stop them holding the property owner liable in the future for their relatives when resident as they are actually part of the same family? It makes sense to me and I urge all local authorities to do so to stop much of the system abuse. The same is true for services such as Water, Gas Electric, etc. There is a lot of talk about making landlords responsible for them if the tenant fails to pay as the services have been supplied to the landlord's property for which the landlord is responsible and isn't that what landlords hold a deposit for?? - It's certainly in my AST's, rightly or wrongly.

2 Tax implications. You are going to be paying tax (which could possibly be at the higher rate when added to your pension - depending of course on your income), on the benefit your family member receives and as it is a family member the authorities will definitely be watching (should the rent be paid directly to your relative in future), to make sure you are not just using the system so when you declare the rental income on your self assessment they will soon see if your family member is in arrears unless you put the balance in yourself, effectively subsidising your family member indefinitely out of your pension (even if your family member only pays you 25%), or you'll have to evict to avoid being accused of using the system, so the whole exercise would have been pointless and very costly.

3 Your family member knows full well you are doing what you are doing to help them rather than for commercial reasons so you are wide open to abuse if and when they receive the rent direct such as "I had to buy some clothes this month so can't afford to give you the full rent" etc. This is particularly the case if they are in the situation they are in through substance abuse or meet a partner who is. I am not suggesting this is the case but am just raising it. This moral guilt trip only works on family members and if your wife is as soppy as mine, you'll never see any rent whatsoever, even if you do get it direct as she would be handing it straight back. Another packet of cigarettes, drug fix or bottle of whisky is always more important than paying their rent which after all they know you don't need because you have plenty of money - you own this house don't you??.

4 I can't think of a better way to fall out with a family member and possibly the rest of the family who think your threat to evict are either unreasonable or hollow until you are forced to do it or lose the benefit altogether. Watch a couple of episodes of Judge Judy to see how often she says "never, ever, ever act as a guarantor". That's effectively what you are doing when you house a family member.

5 Bedroom Tax. Another example where landlords are being hit. Tenants on housing benefit with spare rooms now need to downsize or lose benefit. If your relative doesn't need three bedrooms and you have a three bed house there will be loss of benefit. This will certainly happen as any children reach working age or leave home, meaning you will have to reduce your rent accordingly at a time in life you probably need more yourself.

6 Probably the most important thing is that currently the council have a duty to house your relative and will do so automatically if evicted from the current accommodation. It might be better to get that done now before any changes in the law to remove this requirement so they are in a secure, low rent property. Of course the council are keen for you to house this person as it removes a problem from their books. They will not take the same line with you if problems arise and will actually fight any attempt you make to evict - as they do with all tenants being evicted coming to them for re-housing, but in your case they will fight doubly hard in the knowledge you will probably never really evict due to the family tie and your feeling of responsibility. "Moral blackmail" is the expression.

I am sure most homeless charities would tell your family member to stay put in the current accommodation and refuse to move out without formal eviction at which stage the Council will have the responsibility to re-house. Then, hopefully you will not have the on-going problem during the retirement you probably deserve.

Good luck with whatever you do.

R

@ro1 - at the beginning of your very long post I wanted to argue with you. However, by the time I got to the end I have to admit to understanding your point of view. Great post, certainly food for thought for many I'm sure, Dave in particular of course.

Thanks Mark, I think it's always worth looking at the other side.

R

Hi Dave

Can I wave a big red flag regarding your enquiry.

I purchased a flat to house my son, his wife and my grandson whilst my son was finishing Uni. (I'm a very young grandmother and the decision to become a granny had nothing to do with me hence the purchase of a small convertible soon after!!!) My daughter-in-law wasn't working at that time as my grandson was only a few weeks old; my son wasn't entitled to a student loan because the education authority disallowed an application as he was attending a private Uni not on their list. I prepared an AST tenancy, inventory and we approached the local council for Housing Benefit. Following several meetings it was agreed that some housing benefit would be paid however they were very suspicious given the close relationship. In fact initially they refused the application but it was granted upon appeal. Payment of HB was arranged directly to the couple.

At this point, if you should decide to proceed you should ensure the rent is paid directly to your daughter not into your account. The council operates a claw back system whereby if they decide at a later date that the applicants received excess payment I.e their circumstances changed at some point, the authority can enforce a refund of the over payment from you. I'm not sure how far back they can go suffice to say it's years not months.

Two years later, Uni finished, both youngsters working and paying the mortgage, bills etc, HB a thing of the past when the Council applied for a refund of an overpayment - nearly £3,000 based on their claim that my son was entitled to a student loan, the amount of loan allowable (whether in receipt of it or not) was taken into consideration in identifying the amount of repayment.. Upon investigation I found the education department had made an error, my son could have claimed a loan and would have also received an amount against his private tuition fees (non refundable) had the department been more transparent. The student loan and fee assistance could not be backdated.

Had financial help been available toward the fees and with a student loan then it would not have been necessary to claim HB. My little family insisted that they repay the £3,000 and a repayment plan was arranged to clear the debt.

I personally think, especially now with the economy as it is, that if you proceed that a decision taken now in respect of HB may well change when the situation is reviewed at a later date. You are trying to help your daughter, you want to help her avoid 'being homeless' to ensure housing via the council even though such housing may well be via the private sector for many years but in doing so (aside of perhaps causing you financial stress (tax, pensions etc) you may also find that her claim, if disallowed at a later date, will place her in financial difficulty too?

If you are purchasing a retirement property and you want to secure an income in retirement, with a currently very small mortgage remaining, would it be better to sell your current home and purchase a flat for income and give your daughter a deposit for her own home? Just a thought!

Anyway from experience I would say don't do it.

Marie

Marie,

I'd heard about clawback issues before but completely forgot to mention that.

R

Just a further point to add regarding renting to family members. U r all correct in your different ways, I've only had a quick scan of your comments, so apologise if anyone has mentioned this:
Yes, they frown very much on family member living in same house, but also:
All different Local HB authorities' interpret it different, this guys already got permission, but for future people, HB don't like it when u rent to family, as in u could have bought a house, let your daughter live in it & u wan't gonna' charge her rent anyway, but because she's on HB, u r now charging-That's how they look at it.
BUT, if u can prove you've rented it out before to someone not related, u can prove u r doing it as commercial business, so the next person, even if being a family member, HB already know u want & need money in to pay mortgage, would charge anyone rent, so now a family member, not that important, because u charge rent for that house to anyone.
So my advice to anyone buying a house to rent to family member, rent it out to Joe Bloggs first either working or HB, get them to pay Council Tax for 1-6 months, then rent it to daughter, u have much stronger case. Unless of course before u buy the house, u get WRITTEN permission like this chap did. All LA's, act different, I know they shouldn't, but they do. I have houses in 5 different LA's, within all within a 10 mile radius, & they all ruddy different, some are easy to get any claim going, some want a battle. The crucial words I use are 'How can we get this claim paid?'/ But they sometimes use 'How can we refuse this claim?'

Much better profile pic Mick, better than the one of you in your Speedo's anyway LOL. Having said that, the lovely bikini clad lady stood next to you in the other picture you were using was rather eye catching 🙂

Right, it's getting changed back to a speedo's one soon then ha ha. That's the wife, got to keep her on her toes, or I told her I'm trading her in for a Russian model-That town where your wife's friends are from-Keep an eye out for me, got to be blonde though. Anyway, enough of that on this professional forum or you'll get me banned.

I leave others to debate the LHA/bank scenario, though I am impressed you can get LHA at all for a family letting and even more impressed the LHA ofice will pay you direct.

My only comment would be, and a personal one based on 23 years at Nationwide, that as long as the mortgage is paid lenders have plenty of delinquent loans to police and worry about. And yours only has three years to go anyway?

My post is about the actual letting itself. Forget it is your daughter and if it goes ahead treat it as though she is a complete stranger. Make sure all the correct legal paperwork is issued down to the last full stop.

I have seen too many friends and family cases over the years to advise anyone to do anything other than by the book. As and when they do go wrong they can be horrendous, all the usual bad tenant problems plus a family torn apart.