It’s very common to rent your empty house or flat to family and friends. This is a great option when you don’t want to sell and you’d rather not go through the process of finding tenants on the open market.
But even with a friend or a family member paying you rent, it’s still sensible to do everything by the book to avoid any complications later – and make sure you’re still all friends by the end of the tenancy!
Use a proper contract
You may think that you can go without a contract when renting to people you know. While it’s true that you don’t have to write down and sign a contract to collect rent, you can’t sidestep the law altogether.
If someone moves into a property and begins paying rent, then you will likely create an unwritten tenancy agreement. This is done when an offer is made to let the property, the offer is accepted, and then a payment is made (e.g. rent). Just because the agreement is not written down, that does not mean that it doesn’t exist.
At the point of creating an oral agreement, your friend will receive a range of rights and protections. For example, if you wish for them to leave the property, but they’d rather stay, paying mate’s rates rent, then you will have to begin a long eviction process in order to get them out. In general, you won’t be able to enter the property without their permission and you will be legally required to make repairs.
Given all this will happen automatically via law anyway, you might as well actually write the contract down, just so that you are both crystal clear about what is being agreed. This will save you from any disagreements down the line.
You can use OpenRent’s professional contract for just £49.Set up a tenancy
You can skip referencing — unless you want rent insurance
If you are renting a place to someone you already know, it might be sensible to skip the usual step of ordering referencing checks. These checks usually tell you about the credit history and income of tenants before you decide to rent to them. But if you have already decided to rent the property to your friend or family, then the information in the reports may not matter to you.
Be careful, however, as skipping referencing means you will not be able to access rent guarantee insurance. This is a policy which covers you against non-payment of rent, but it is only available where the tenant passes referencing (or provides a guarantor who passes). If it seems like unnecessary admin, think again — such a policy could save you a lot of conflict down the line.
For example, if your friend finds themselves unable to pay the rent on your home, then you will be able to claim the rent on your insurance, which will help take a lot of pressure off your personal relationship.
Check Your Mortgage Terms
If you have a mortgage on a spare or empty property, then it’s a good move to check the terms before renting it to people you are related or close to. This is especially true with regular residential mortgages, but even with buy-to-let mortgages, there may be terms forbidding letting to family members.
If you purchased your buildings and content insurance through your mortgage lender, then there may be similar terms and restrictions on who you can let into the property. Be sure to check these documents as well, or you may get a nasty surprise when you need to claim.
Don’t Forget about Tax
Remember that there are tax implications when renting a property — even if it is to people you’re related to. If you purchase a property to let your loved ones live in and pay rent for, then you will have to pay the 3% stamp duty surcharge, even if it will be your family member’s primary residence. That’s because you will be the owner and it is not your primary residence.
If you don’t charge full market rent, then you will be limiting the tax-deductible expenses you can claim on your self-assessment tax return. This is because if you are letting to someone you know at ‘mates’ rates’, then your costs in letting the property cannot properly be called expenses incurred wholly and exclusively for business purposes.
Likewise, if sold, then the property will be liable for capital gains tax on any profit. You will, of course, need to pay income tax on the rent you receive just like you would from a tenant you found via sites like OpenRent. The first £1,000 of rental income is tax-free. If you are paid up to £2,500 per year, you’ll need to contact HMRC to enquire about your tax status. If you are paid over this, then you are required to request and fill out a self-assessment tax return.
Repairs, Rules and Regulations
In theory, landlords who don’t follow rules and regulations face large fines. In reality, there is very little active inspection of private properties in the UK, and landlords are seldom punished without a tenant reporting them. If you’re renting to people you love and trust, then it’s unlikely they will report you for not meeting one of your legal obligations as a landlord.
But this is no reason not to follow the law and best practice. The rules are mostly there to make sure the property is a safe and happy home for the people who live there — and since these are people you are close to, you will want to make sure they are living in a fit and proper home.
We’ve made a checklist of all a landlord’s legal duties. It makes sure that landlords don’t forget any of their duties when renting a property. Every item on the checklist is important, but pay good attention to the safety regulations. Performing electrical and gas safety tests will make sure the property is safe for your tenant to enjoy as their home.
Advice on Renting to Friends and Family from OpenRent Landlords Who Have Done it
We asked landlords on our OpenRent Community forum to share their best advice when renting to family and friends. Here’s what they wanted to let you know
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!!
I rented to the ex of a friend on 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.
When letting to people you know well, it’s still best to set up the tenancy properly, make sure the property is safe and have clear, written expectations on what you’ve agreed to. This will help avoid problems, keep your friends/family safe, and let things run smoothly if you get into unforeseen changes in circumstances.
The best way to do all of this with OpenRent tenancy setup service, Rent Now. Check it out now — it’s super-speedy and costs just £49, including a professionally drafted contract to use.