Lodger Tenancy Agreement - Tips for 1st Time Landlords
Taking in a lodger can be a great way to turn your spare bedroom into extra income. If you haven't had a lodger before this article will tell you what you need to do to prepare. One of the key things is to have a written lodger tenancy agreement. But before you ask your lodger to sign a legal agreement you should consider the following:
Permission to take in a lodger
If you own your own home outright i.e. no mortgage on it, then you don't need anyone's permission to take in a lodger. If you have a mortgage then you may need the permission of the lender to you rent out a room in your home. If you are in rented accommodation then you are likely to need your landlord's permission. It's best to check if you are unsure - no point going to the trouble of finding a lodger and drafting a lodger tenancy agreement if your lender or landlord objects.
Lodger tenancy agreement and benefits
If you receive housing benefit or universal credit then your entitlement might be affected if you take in a paying lodger. In the case of housing benefit, the first £20 or rental income from your ledger doesn't affect your benefit. With universal credit (UC), the rental income doesn't affect how much UC you get but a size criteria reduction may apply for the room let out in your lodger tenancy agreement.
Some of the benefit rules have exceptions and other restrictions so it's probably best to seek advice before you take in a lodger, if you are on any form of benefit. Your local Citizens Advice office is a good place to start.
Tax benefits of taking in a lodger
If you pay income tax then the HMRC 'rent-a-room' scheme allows you to earn £7,500 tax free rent (£3,750 if letting jointly) from a lodger per year. To qualify you need to be letting a furnished room in your only or primary home. You need to live in the property as well i.e. you need to be an owner occupier.
If you earn less than the threshold then you don't need to do anything to get the tax exemption. If you earn more than the threshold then you can opt into the scheme and claim the tax relief on your tax return form.
You don't have to own your own home to take advantage of the rent-a-room scheme, but you do have to be a resident landlord. You can also take advantage of the tax relief if you run a bed and breakfast or guest house and take in a lodger.
If you currently live alone and take in a lodger you will lose the 25% discount on your council tax. If your lodger is in full-time education then you may not lose your discount.
Home content insurance and your lodger tenancy agreement
Many standard home contents insurance policies do not cover your contents if you take in a lodger. You should check your policy before taking in a lodger and arrange different or separate cover, if necessary. The lodger tenancy agreement should contain relevant clauses to make clear that the lodger is responsible for insuring their own belongings. The landlord would remain responsible for building insurance and insurance for their possessions and anything else that is not the personal property of the lodger.
Fire and gas safety regulations
Any furniture you provide has to meet fire safety regulations. That means that you need to check the labels on furniture such as beds and sofa to make sure that they comply. You also have to make sure that all gas and electrical appliances are safe to use. If you have gas central heating or hot water then an annual gas safety check has to be carried out by a registered engineer.
Drafting your lodger tenancy agreement
You are not legally required to have a written lodger tenancy agreement but it is a very sensible thing to do. At the very least, a written agreement should set out the basics of the house share arrangement, including:
- names of the landlord and lodger (or lodgers if letting to a couple)
- address of the property
- amount of the rent
- the term i.e. how long the agreement runs for
- how the rent should be paid
- how much, if any, deposit the tenant must pay
- the rights and responsibilities of both the lodger and the landlord.
Before your lodger moves in you should prepare two copies of a lodger tenancy agreement. Once your lodger has had a chance to read over the contract, you should both sign in the presence of a witness who should also sign. Each of you should keep a copy of the agreement for future reference.