Here is a question to the blog clinic from Miles who is a landlord:
How to handle a second property occupied by a Student Daughter (over 21) with a Lodger sharing.
Our Daughter who will be at University until 2015, currently lives in a leasehold property we purchased and is about to take in a Lodger to help with the costs.
Our daughter currently occupies the property on an informal basis at no cost other than Bills. However to take on a lodger we wonder if her status needs to be formalised with a tenancy agreement in order that she has the formal legal right to take in a lodger.
There is also a financial issue here, because we have financial commitments for loans and service charges which we wish the rental from the lodger to offset. At this point our Daughter would have to start paying rent to return this to us.
We prefer the lodger approach because with our Daughter in residence it affords her more flexibility and seems appropriate to the situation.
Can you advise the best course of action for handling the arrangements with our daughter please.
When you let family members stay in a property the law does not always assume that a tenancy will be created (as it would with a stranger) particularly as here where your daughter is not paying rent. It is often assumed in family situations that there is ‘no intention to create legal relations’.
If you want to make it clear that this is not the case, then a tenancy agreement is a good idea. It can also have a psychological effect – signing a document will make the arrangement feel more formal.
So in the case of your daughter, at the moment she almost certainly does not have a tenancy, and her occupation will be an informal family arrangement. So if you want to change this, once she has a lodger , I think a tenancy agreement would be a good idea.
Note thought that if this is not done, it does not mean that she is acting in any way illegally if she takes in a lodger with your consent. However as you suggest, it is better at this stage to adopt a more formal approach.
The standard forms generally prohibit lodgers so you wil need to give her specific approval to take in one lodger. Some tenancy agreement forms (such as mine) allow you to add extra clauses. Otherwise permission can be granted by giving her a letter which can be kept with the tenancy agreement.
Your daughter will need to give a lodger agreement to her lodger – note the the lodger’s landlord will be your daughter and not you. You can find out more about logers on my Lodger Landlord site.
Finally, note that your daughter should try to have only students as lodgers as otherwise she may lose her student exemption for Council tax.
This is a plan we also have in mind for the future.
I haven’t thought through the ins and outs but one approach could be to set up a formal tenancy agreement with your daughter, allowing a lodger. Your daughter takes in the rent from the lodger (benfitting from the tax free Rent a Room allowance up to a certain amount)but then is obliged to pay you a market rent for renting the property – technically then she is passing on the rent from the lodger to you along with her rent allowing you to cover service charges etc.
You are then formally renting this property so would need to complete tax returns etc, if you are not already doing so, and would be taxed on this income, but could then offset your mortgage loan payments, service charges, advertising costs etc.
I will be interested to see other comments on this as we may have neglected to cover a point. I would like to add that if your daughter has council tax exemption she will not lose this if a working person joins her as a lodger, but the lodger will be liable to pay council tax on their own. This may put off some lodgers as they may enquire if your daughter is a student, as it means they end up paying more council tax then if the CT was just split between the 2 of tenants. This is my understanding of how it all seems to work from experiences with my own tenants.
Hope this helps – what you are doing is a good idea.