Renting your empty house or flat to family and friends is quite common. It’s an excellent alternative if you’d prefer not to sell or deal with the hassle of finding tenants on the open market.
But even when renting to someone you know, it’s best to do everything by the book to avoid any complications later on – and to ensure that your friendship remains intact by the end of the tenancy!
Here, you’ll find tips for renting to family and friends, along with advice shared by some of our landlords.
- Do you need a tenancy agreement?
- You can skip referencing… unless you want rent insurance
- Check your mortgage terms
- Don’t forget about tax
- Repairs, rules and regulations
- OpenRent landlords offer tips for renting to family and friends
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Do you need a tenancy agreement?
You might think that a tenancy agreement isn’t necessary when renting to people you know. While it’s true that you don’t need a written contract to collect rent, you can’t completely avoid the law.
If someone moves into a property and starts paying rent, an unwritten tenancy agreement is likely created. This occurs when an offer to let the property is made, and accepted, and then a payment is made (e.g., rent). Just because the agreement isn’t written down doesn’t mean it doesn’t exist.
When an oral agreement is formed, your friend will gain certain rights and protections. For instance, if you want them to leave but they wish to stay – perhaps due to paying mate’s rates rent – you may face a lengthy eviction process.
In general, you won’t be able to enter the property without their permission and you will be legally required to make repairs.
Considering that these legal protections will come into play automatically, it’s wise to put the agreement in writing. This ensures that both parties are clear on the terms, helping to prevent any misunderstandings in the future.
You can skip referencing… unless you want rent insurance
If you’re renting a property to someone you already know, you might consider forgoing the usual referencing checks.
These checks typically provide information about a tenant’s credit history and income before you decide to rent to them. However, if you’ve already made the decision to rent to a friend or family member, this information may not matter to you.
That said, be careful – skipping referencing could mean missing out on rent guarantee insurance. This policy protects you against non-payment of rent but is only available if the tenant passes the referencing process (or provides a guarantor who does).
While it might seem like unnecessary admin, having such a policy in place could help prevent conflict in the future. For example, if your friend struggles to pay rent, you’ll be able to claim it through your insurance, alleviating some of the pressure on your personal relationship.
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Check your mortgage terms
Like rent insurance, some mortgages include specific terms regarding renting to family members or close friends.
This is particularly common with standard residential mortgages, but even buy-to-let mortgages can have clauses that restrict renting to relatives.
If you obtained your buildings and contents insurance through your mortgage lender, you might find similar restrictions on who can occupy the property.
It’s important to review these documents to avoid any unpleasant surprises when you need to make a claim.
Don’t forget about tax
Keep in mind that renting out a property comes with tax implications, even if it’s to family members.
If you buy a property to let your loved ones live in and charge them rent, you will be liable for the 3% stamp duty surcharge, even if it’s their primary residence. This is because you, as the owner, don’t reside there as your primary home.
If you choose not to charge the full market rent, you may limit the tax-deductible expenses you can claim on your self-assessment tax return. Renting to someone you know at ‘mates’ rates’ means that the associated costs cannot be considered wholly and exclusively for business purposes.
Likewise, if you decide to sell the property, any profit will be subject to capital gains tax. You will also need to pay income tax on the rent you receive, just as you would with a tenant found through sites like OpenRent.
The first £1,000 of rental income is tax-free, known as your ‘property allowance’. If your rental income is up to £2,500 per year, you should contact HMRC to clarify your tax status. If you earn more than this amount, you must request and complete a self-assessment tax return.
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Repairs, rules and regulations
In theory, landlords who don’t follow rules and regulations face large fines. In reality, there is little active inspection of private properties in the UK, and landlords are rarely penalised unless a tenant reports them.
If you’re renting to people you love and trust, it’s unlikely they would report you for failing to meet your legal obligations as a landlord. However, this shouldn’t excuse you from following the law and adhering to best practices.
To help landlords, we’ve created a checklist outlining all your legal duties. This resource helps ensure that no responsibilities are overlooked when renting out a property.
Every item on the checklist is important, but pay particular attention to safety regulations. Conducting electrical and gas safety tests is essential to ensure the property is safe for your tenants to enjoy as their home.
OpenRent landlords offer tips for renting to family and friends
We asked landlords in our OpenRent Community forum to share their experiences and insights about renting to family and friends, including both the positives and the challenges they’ve faced.
Nick
“If anything you’ll need to be a better landlord when renting to relatives and friends – by that I mean you need to be on top of all the paperwork and legal requirements and maintain the property – these are tenants not just mates!
You’ll need to consider if you can face evicting them if they stop paying rent or break the AST. How will being a Landlord affect your family and relationships? Do you want to risk family gatherings becoming landlord-tenant discussions? Do you want your Landlord decisions to be discussed and disagreed with by your other friends or relatives? In my experience of a family rental, when it goes bad it can be very damaging for family relationships.
The upside (or downside, depending upon the friend or relative) is that you already know how they live and whether they are reliable payers, but be prepared to see their worst side!”
David
“I rented to the ex of a friend at their request. The new partner acted as guarantor. It was a nightmare of unpaid rent, melted carpets due to fags and disgruntled commercial neighbours. This individual was eventually evicted and I recouped some funds from the guarantor which caused relationship issues for a while.
After eviction I got plagued by repeated requests to get back in, to the point I had to block the numbers etc. I should have known better and not tried to help out. The tenant concerned was the issue, not the fact I had a connection. My problem was trying to help out a friend and not being objective enough.
Lesson: Be business like, do be swayed by emotional links but only AFTER due diligence.”
Ultimately, when renting to people you know well, it’s still best to set up the tenancy properly, ensure the property is safe, and have clear, written agreements about your arrangements.
This approach will help prevent issues, keep your friends and family safe, and allow things to run smoothly if unexpected circumstances arise.
The easiest way to achieve this is through OpenRent’s tenancy setup service, Rent Now. Check it out today – it’s quick and costs just £69, which includes a professionally drafted contract for your use.
