Should the new person renting be a Tenant or Lodger?

Should the new person renting be a Tenant or Lodger?

9:54 AM, 16th February 2014, About 8 years ago 31

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My husband and I are about to buy a 2 bedroom flat for our daughter who will use the living room as a bedroom, the small bedroom will be used by us when we visit the city from time to time and we propose to rent out the other big bedroom. Should the new person renting be a Tenant or Lodger?

We have experience of renting properties and usually choose excellent tenants. However, in the circumstances of a shared flat if something went wrong it would be easier to ask the renter to leave if she was a Lodger. However, as this is not our main home but a place where we will visit and stay at times, technically can she be a lodger?

Could we rent the flat to our daughter and let her take the new person in as her lodger but all the rent received would be given directly to us. The annual rent would be in excess of the government’s Rent a Room Scheme so if our daughter received the rent would she be liable for tax even though she would pay it all over to us along with the smaller rent she would pay us.(She will be a poor student for the next couple of years!)

The other option is to rent the room as an AST and hope we make a good choice of renter!

Any advice would be gratefully received.

Thanks a lot.

Marie



Comments

by Richard Kent

20:09 PM, 16th February 2014, About 8 years ago

Marie,

Put your daughter forward as the person offering the lodger a room as your daughter will effectively have an AST.

IMPORTANT: If she does not issue the lodger a Lodger Agreement she WILL create a default AST tenancy for the lodger.

Issuing a lodger agreement, also known as a license, in this way will mean the property not be classed as a HMO as it falls outside the definition of a HMO.

A resident occupier/landlord is allowed to have up to 2 lodgers without it becoming a HMO. (That's 2 lodgers- not to be confused with 2 Households)

Please see HMO exemptions widely published on the internet.

Ensure your daughter has the lodger sign a Resident Landlord or Lodger agreement available for free here: http://www.limecastle.co.uk

From my experience this particular lodger agreement withstood the scrutiny Local Authorities and Solicitors.

by Richard Kent

20:40 PM, 16th February 2014, About 8 years ago

P.S

General Rule: Bear in mind that if declaring the rent is below approx £80 a week (£4,250 p.a) you/she will not pay tax on this income. However, likewise no expenses can be claimed.

In other words you can not claim an exemption from paying tax on this income and then claim for property expenses to create a loss for future years.

http://www.hmrc.gov.uk/manuals/pimmanual/pim4010.htm

But seek the advice of an accountant as I rarely study tax specifics unless one of my clients is presented with a specific scenario.

by Mark Alexander

7:52 AM, 17th February 2014, About 8 years ago

Did you all know that students can get 100% mortgages for the purpose of buying a property and subletting?

As you might expect are heavily reliant on the strength of a guarantee that parents can offer, both in terms of their incomes and taking a second charge on their homes. However, it's a great way to help the kids get onto the property ladder and give them some responsibility without having to raid the life savings.

Further details via this article >> http://www.property118.com/student-buy-to-let-mortgages/33850/
.

by Mandy Thomson

7:54 AM, 17th February 2014, About 8 years ago

Reply to the comment left by "Richard Kent " at "16/02/2014 - 20:09":

"IMPORTANT: If she does not issue the lodger a Lodger Agreement she WILL create a default AST tenancy for the lodger."

Hi Richard - I've never come across this before - could you please supply some background information? I can see how, without a definitive lodger agreement, a lodger could try to argue that he/she was a tenant, but I've always understood that under English law, unless the lodger has exclusive rights over his room (e.g. a lock on the door - as opposed to a bolt) he is a licensee, not a tenant? See Tessa Shepperson's Lodger Landlord site here: http://www.lodgerlandlord.co.uk/2010/02/01/day-1-what-is-a-lodger-2/. This condition was defined by a case where a long term hotel resident tried to argue that he had a tenancy, but the court decided he was a licensee as the staff had access to his room to provide services.

by Highland Lass McG

8:27 AM, 17th February 2014, About 8 years ago

Reply to the comment left by "Richard Kent " at "16/02/2014 - 20:09":

Hi Richard

Thanks a lot for the link to the Lodger Agreement Form.

You have all been very helpful

by Richard Kent

8:31 AM, 17th February 2014, About 8 years ago

Reply to the comment left by "Mandy Thomson" at "17/02/2014 - 07:54":

Mandy,

I am not being too direct I hope.....

Can you please do your own research as my time is not free 🙂 The information is on the net if you wish to spend time looking for it.

One of the basis of my argument is on the first page of the Limecastle lodger agreement you will see that it says this agreement " so that a tenancy is not created"

EVEN if a solicitor told me that there is little chance of creating a tenancy without issuing a lodger agreement I would still issue the agreement as solicitors can get it wrong in my personal experience.

IMPORTANT - Never invite legal test cases at your expense 🙂 Especially over whether locks on door imply a tenancy or not.

The bottom line is always cover yourself legally. Surely you must agree? 🙂

If you wish to debate about locks on doors then fine 🙂 Most lodgers want a lock on their door in my experience 🙂

My advice is always make it clear to the the person by asking them to sign a Lodger Agreement. This way, if the lodger approaches a solicitor claiming rights to Tenancy it is clear that there was never a tenancy - Verbal or otherwise.

There are also house rules on the lodger agreement. Please read it 🙂 I invite you to.

Quote from Shelter UK - "If you pay rent to a private landlord, you will have either a tenancy agreement or a licence. Both tenancy agreements and licenses can be written or verbal."

So in other words the person could assume you have given them a verbal tenancy agreement.

And see this legal website here:

http://www.landlordlawblog.co.uk/2010/05/03/tenancy-agreements-31-days-of-tips-day-3-tenancy-or-license/

by Highland Lass McG

8:34 AM, 17th February 2014, About 8 years ago

Reply to the comment left by "Mandy Thomson" at "17/02/2014 - 07:54":

Hi Mandy

Thanks a lot for your advice.
We were thnking of having a door handle with key lock for each bedroom to offer a feeling of security and privacy for the Lodger and also in case it is a requirement for her personal contents insurance,

By having a lock will that void the Lodger agreement?

I also read somewhere that you should gain access now and again to clean the room but that does not sound very practical and I'm sure the Lodger would not appreciate it! Though if it's a requirement we could suggest a 'maintenance check' or something to have officially gained access and ensure the Lodger element is kept?

by Mandy Thomson

8:45 AM, 17th February 2014, About 8 years ago

Reply to the comment left by "Richard Kent " at "17/02/2014 - 08:31":

Hi Richard

Thank you for helpful advice about doing research - I did a year's research for my specialist lodger site - I also spent some time rechecking my understanding of this aspect of English landlord tenant law before I responded to your comment, to rule out a subsequent change to the law that I was somehow unaware of.

I agree that lodger landlords should always issue an agreement, and as I said in a previous comment on this thread (and ad infinitum on my site) - they also need to agree and write down house rules.

by Mandy Thomson

8:55 AM, 17th February 2014, About 8 years ago

Reply to the comment left by "Marie " at "17/02/2014 - 08:34":

Hi Marie,

If the lodger has a lock on his door (as opposed say to just a bolt) he could argue that he was a tenant, the main reason you don't want this happening is because it could cause problems with the mortgage company. He would, however, still just be an excluded tenant.

As for "service" this can just be something as simple as putting the lodger's mail or clean towels in his room - of course the lodger's right to privacy still has to be respected.

If this is awkward for your daughter, she could just explain that as the landlord she has to have access to the room to comply with the mortgage and possibly insurance agreement.

On the subject of insurance, some ordinary domestic insurance policies will cover a lodger, but as presumably this will be taken out from scratch anyway, googling "insurance with lodger" should find you some specialist products.

by Richard Kent

8:59 AM, 17th February 2014, About 8 years ago

Reply to the comment left by "Mandy Thomson" at "17/02/2014 - 08:45":

Mandy,
Thanks for your reply.

You seem to be agreeing with me now 🙂

Your comments are noted. 🙂

I'm going to leave this conversation at that 🙂 Please don't be offended if I don't reply.


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