How to earn money by taking in a lodger

In these difficult times with increased interest rates and energy bills, we are all looking to earn as much as we can.

So have you considered making money from your home by taking in a lodger???

Assuming you choose the right person, it can be a very pleasant experience, and you can earn up to ￡7500? pa tax-free under the government's ‘Rent a Room’ scheme.?

So what are the rules, and are there any pitfalls?? Let's take a quick look at the main points:

1 Do you have the right to take in a lodger?

If you are an owner-occupier living in the property as your main residence, almost certainly, yes.? However, if you are a tenant renting your home from your landlord under an assured shorthold tenancy or similar - almost certainly not.? Let's take a closer look at the rules:

Owner-occupiers

If you own your property outright, then you should be OK, although if you own with a mortgage, you may want to check with your mortgage company.

If your property is a flat or similar held on a long lease, you may need to get permission from your freeholders, although in most cases, it should be all right.? Leases often forbid subletting but this is normally in the context of subletting the whole property to tenants or renting it out as holiday accommodation.? However, you should check your lease and do what is necessary.

Tenants

The situation is very different if you are a tenant, particularly if you are renting from a private landlord.? Almost all tenancy agreements will prohibit subletting, and few landlords will be willing to give permission.

One important reason for this is that if you take in a lodger, this could turn the property into a 'House in Multiple Occupation' (HMO) and make the landlord liable for HMO licensing with the Council.??

Or, if the property is already an HMO, there will normally be a limit on the number of occupiers permitted under the landlord's HMO license, which would be breached if you took in a lodger.

So as you will see, landlords have a genuine reason to object to lodgers (apart from their concerns about having someone living in the property who they have not approved), and if you go ahead and take in the lodger anyway, this can form grounds for a claim for possession or even injunction proceedings.? So don’t do it.

Social tenants may be in a slightly better position as I understand that social landlords will often agree to at least one lodger - but check your tenancy agreement and speak to your housing officer to find out.

Insurance - it's also worth mentioning here that you need to check with your insurance company that having a lodger will not invalidate your insurance policy. Read more about this here.

2 Will the lodger have a tenancy?

Probably not, although it is possible.? The most important thing, though is that

• You live in the property as your main home, and?
• You share living accommodation with the lodger

So far as the first point is concerned - minor absences such as holidays, short stretches in prison and spells in hospital will not affect this.

As regards the second point, the living accommodation must be ‘proper’ living accommodation - halls, stairways, cupboards and corridors do not count.

Why are these points so important??

1. In England, under the Protection from Eviction Act 1977, landlords who rent living accommodation in the property where they live and share living accommodation do not need to get a Court Order for possession if they want their lodgers to leave - provided they comply with the terms of their lodger agreement.? The occupation is classed as an ‘excluded tenancy or license’ under s3A of the act.
2. In Wales, if you comply with both of these points, your lodger will not have an ‘occupation contract’ under the Renting Homes (Wales) Act 2016 (Schedule 2 of the act),? and you will not have to comply with the onerous rules which now apply to occupation contracts.? So the lodger arrangement will be treated in the same way as lodger agreements in England.

3 What rules do lodger landlords have to comply with?

Lodger renting, per se, is not encumbered by special rules.? However, there are some health and safety regulations which apply to all property letting, which also apply when renting to lodgers.? Briefly, these are:

• Getting an annual gas safety certificate and providing a copy to the lodger
• Making sure that the property is in a safe condition - this includes electrical safety, fire safety and things such as condensation, damp and mould.
• Having furniture which is compliant with the furniture regulations (ie it should be fire safe and carry the proper labels - new furniture should be fine)
• If you are in England, you will also need to carry out a 'right to rent check' (explained here).

If your property falls short of these standards, it is possible for the Local Authority to carry out an inspection and order you to bring it up to standard, although this is fairly unusual in lodger situations.

There is also the question of HMOs.? I mentioned these above in connection with landlord's obligations if the property is occupied by you as a tenant.

However, as a landlord yourself, you can become liable under the HMO rules too (and may even need to get an HMO license from the Council).? Although as a live-in landlord, you are allowed two ‘non-family’ lodgers before your property is classed as an HMO.?

So in most cases, you will not need to worry about this. Find out more about HMOs in lodger situations here.

4. How do you find your lodger?

Once you have checked whether you are allowed to take in a lodger and have prepared their room, you need to think about finding one.

Probably what most people do nowadays is use one of the online services such as Spareroom.co.uk.? Although you can also advertise in local shops, newspapers and maybe with large local employers or student accommodation offices.

However, probably the most important thing to be aware of is your own security.? Not all people contacting you will be genuine - for example, some may be burglars looking for a likely prospect.? ? So

• Never put your address in an advert?
• Never say that you are living alone
• Particularly if you are female!

You also need to be very careful who you see - so if you feel uneasy about anyone who rings, play safe and say the room is no longer available.? This is your home, after all, and your safety is paramount.

You also need to be sure that any applicant is in a position to pay your rent so do take references and maybe get a credit check done.

Find out more about the process here.

5. What paperwork is necessary?

Renting a room to a lodger does not involve the amount of paperwork that is needed when renting to tenants, and some lodger landlords use no paperwork at all.

However, it is a good idea to have a properly drafted lodger agreement - as this can protect your position if there are disputes later.

You should also hang on to all invoices and receipts for furniture purchased for the room, repair work and the like, and of course, your gas safety certificates.

You will find a rundown of the main paperwork you will need here.

A good place to get all the forms and paperwork you need, including all the forms you could need when finding and signing up a lodger, is Your Law Store which specialises in lodger forms.

The Your Law Store forms

For example, our handy 'Lodger packs', which contain not only a lodger agreement but also forms for taking information from prospective lodgers, checklists and letters, which are very popular. There is a version for 'Monday to Friday' arrangements.

There are also forms for permitting a pet, an inventory form, carrying out a 'right to rent' check, a data protection notice and various letters - including letters to use if you want your lodger to leave.

6 How should you treat lodgers in your home?

Provided you have chosen carefully, most lodger arrangements work out very well.

However, it's best not to get too friendly with your lodger, at least at first.? This is, after all, a commercial arrangement and the reason they are there is to pay your rent, not because they are your friend!??

Until you know them better, it's best to be friendly but slightly aloof and keep your privacy as well as respecting theirs.? Things to keep in mind at all times:

You should maintain the right to go into their room at least once a week

Providing clean sheets and towels is often a good way to do this.? Or you may decide to provide cleaning services - which can be a useful way to earn a bit extra.

You should never prevent them from sharing the property with you

For example, by preventing them from using the kitchen or bathroom.? If you do this, you may find it difficult if you ever have to evict them (for example, see here).

Always make sure that the rent is paid on time

Accept no excuses.

This is, after all why they are there!??

And finally

This is a very abbreviated version of the information provided on my Lodger Landlord website, a free information service where you can read all about what you need to do to prepare for, find and live with your lodger.

And evict them, too, should this be necessary (although hopefully, it will not).

You will find the Lodger Landlord website here.