Letting rooms in your home can be a useful way to get extra income. Letting a room offers more benefits if modest extra income is your goal. There are no extra bills to pay if you cannot find a lodger straight away and HMRC will allow you to earn up to £7,500 a year tax-free from letting a furnished room in your home.
The main drawback is that if you don't have a friend or relative who is in need of a room it will mean taking in a stranger, which does involve a certain degree of risk and lifestyle change if you're used to living alone. You are in a business relationship when you let a room so you are strongly advised to get a legal agreement in place.
If you are letting (or thinking of letting) part of your home, it is important to understand your obligations. In England and Wales, there is a distinction between lodgers and so called 'sub-tenants'. Lodgers are not seen as tenants in the eyes of the law. That is, if things were to go disastrously wrong, you can end your lodging agreement without needing a court order. However, if the lodger refuses to leave you may need to get a court order and must not forcibly evict them. In Northern Ireland and Scotland, there is still a requirement for the person letting the room, the 'licensor', to obtain an order for possession. However, the process will be much quicker as the lodger will have little or no defence which will enable them to remain in the property.
In law, a lodging arrangement is defined as 'a residential licence', one where the landlord and the lodger live in the same building and share the living space. This includes conversions where they live in different parts of the same property (however long ago the property was converted) but excludes purpose built flats, with landlord and tenant living in different flats.
To be classed as a lodging arrangement, the lodging arrangement must provide that the landlord:
The landlord does not have to own the property - a lodger could also have a lodging arrangement for a room from another tenant or lodger who lives in the property, provided they have consent from the owner or landlord to do so.
Tenancies or licences which do not have a resident landlord (i.e. the person renting the premises out doesn't live on the premises) are generally, in England and Wales, regulated or assured (including assured shorthold) depending on whether they were granted before or after 15 January 1989. In Scotland they would be short assured, assured or regulated tenancies, depending on when they were granted before or after 2 January 1989.
In Northern Ireland, such tenancies are classed as tenancy agreements and will give the same rights as a landlord and tenant in English law
There are 2 main issues where the rights of landlord and lodger differ compared with these other types of tenancy:
Broadly, a lodger does not have a right to challenge the level of rent that he or she has agreed to pay. Nor does the lodger have exclusive use of the entire premises. There are some variations according to where the lodging arrangement was entered into:
Lodgers can be given less notice to leave if the landlord wants to end the letting, and in some situations, can technically be evicted by the landlord at the end of the notice if he or she refuses to leave. Landlords have greater freedom to end a lodging arrangement because it is acknowledged that should the relationship between the landlord and lodger, the landlord is more vulnerable in his or her own home.
You must still serve the notice to quit and you must still seek an order for possession as it is a criminal offence to forcibly remove or evict a person from the property if they refuse to leave.
In Scotland, at least 4 weeks' notice must be given to the licensee. If the licensee does not leave the premises at the end of the notice period, the licensor will need to apply for an order from the Sheriff Court telling the licensee to leave.
In England and Wales (for lettings that started on or after 15 January 1989) or Scotland, (for lettings that started on or after 2 January 1989), the important point is whether you are using the property as your only or principal home, both at the start of the letting and throughout it.
It is accepted that, for short periods, a landlord may not live in the property yet still be considered to be resident, so long as he or she intends to return and this is apparent from the circumstances (e.g. if he or she has left belongings). However, only a court can say for certain whether a licensor has maintained enough residence in the property to count as a resident licensor; if not, then it is possible that the letting arrangement may be deemed to have become a regulated or assured tenancy, depending whether it first began before or after 15 January 1989 (or 2 January 1989 in Scotland).