This is day 5 of my 31 days of tips on tenancy agreements series.
Are you renting out a room in a shared house or the whole property?
There are two ways you can rent out a property where more than one person or household will be living there:
- You can get all the occupiers to sign the same tenancy agreement as ‘joint tenants’, or
- You can let out the rooms on individual contracts with shared used of the common parts of the property.
Which tenancy type should you use?
Tenancy agreements with joint tenants
This is the most common arrangement. The tenants will all be ‘joint tenants’ and will have what is called ‘joint and several liability’. This means that they are all liable both ‘jointly’ or together, and individually.
So if four tenants, Matthew, Mark, Luke and John all share a flat as joint tenants, if they fall into arrears of rent, then the landlord can sue them all. Even though they may each have agreed to pay a quarter of the rent each, and it is just Luke who has not paid.
So far as the landlord is concerned, it does not matter who is responsible for the arrears. Legally they are *all* responsible, and he can claim the money from each or all of them. Collectively the tenants are ‘the tenant’, and are all in it together. This is why a landlord cannot evict just one of joint tenants (no matter how much his co-tenants would like this!) – he can only evict them all or none of them.
There are a number of advantages for landlords with the standard joint tenant agreement. The joint and several liability is a plus of course. Also, as the whole house is let, the landlord can require the tenants to have the utilities put into their own name, which will mean that he will not be responsible if they fail to pay.
Where the joint and several agreement falls down is when one of the joint tenants wants to leave and a new person is found to take his place. Here either a new tenancy agreement needs to be signed, or the outgoing tenant remains liable for the rent and any damage to the property, even though he is not living there any more.
The joint and several tenancy agreement is best for couples and families (where both partners will sign the agreement), and groups of people sharing, who are friends and who expect to be living at the property for the same length of time. For example a group of students renting a house for an academic year.
They are less satisfactory where people are moving out and moving in at different times. Here the room in a shared house is best.
Tenancy agreements for rooms in a shared house
Here each tenant will have his own tenancy agreement, which will be for exclusive use of his own room (or rooms) and shared use of the rest of the property.
It means that there are no problems if one tenant has to move out before the others. The other tenants are unaffected (other than by the prospect of having a new person living in the house). However this type of arrangement is less popular than the joint tenant arrangement. There are a number of disadvantages for the landlord, mainly that:
- they do not get the benefit of joint and several liability – when one of the tenants moved out there is no rent for that room until a new tenant is signed up, and
- it is highly unlikely that any of the tenants will want to take over responsibility for the utilities (as they will not have any control over who lives in the house) so the landlord will have to remain named on the accounts.
However there are a few advantages, namely that
- the tenants will not be able to keep the landlord out of the common areas in the same way that they can if they are renting the whole property, and
- that the landlord may get more rent from letting individual rooms than from renting the property out as a whole.
Whichever option you choose however, it is important that you use the right type of tenancy agreement. A standard AST document is not suitable for letting out a room in a shared house, and specific tenancy agreements for these are less common. Although they are all available on the Landlord Law site!
Tenancy agreements and HMOs
Finally, note that whether or not a property is an HMO, does not depend on the type of tenancy agreement used. A property is an HMO if it falls within the definition as set out in the Housing Act 2004. So do not worry about using the ‘room in a shared house’ type agreement because you think that by using this you will be creating an HMO. It shouldn’t make any difference.
Do you have any comments on this section? Are there any advantages or disadvantages of renting out individual rooms which I have missed? Have you experienced any problems through using the wrong type of agreement by mistake?
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Tomorrow we will look at issues relating to the parties to the agreement
NB Read about my tenancy agreements service here.