Factors to consider when renting out your spare room

Homeowners in England have experienced a 23% rise in household bills over the past two years and the average price of groceries has increased by 12% in that time. To compound matters we have just learnt that council tax is set to increase in April, with London and the Southeast predicted to have the largest increases. It is unsurprising, therefore, that Thackray Williams has seen a threefold increase in enquiries from homeowners seeking advice about renting out spare rooms in their homes and also enquiries from those who have already rented out a spare room, seeking advice about disputes that have arisen with the occupier. The common theme has been confusion about the rights of the person occupying the homeowner’s spare room with homeowners keen to limit rights and occupiers trying to assert greater rights.

For those considering renting out a spare room to ease financial burdens, understanding the difference between a lodger and a tenant is crucial, as the distinction between the two governs parties’ legal rights and responsibilities.

Assured Shorthold Tenancy

Tenants have more rights than lodgers because their occupation of a property or part of a property arises from a tenancy agreement with their landlord, most often an Assured Shorthold Tenancy (AST). A tenancy can be agreed orally, but is usually recorded in writing, however in either case it creates an interest in the land being occupied. It provides for a landlord and tenant relationship with the landlord needing to comply with many legal obligations.

Under an AST the landlord can evict a tenant, or the tenant can choose to end the tenancy, at the end of the term agreed, the landlord by giving an eviction notice, or the tenant by giving notice to quit. It is also a legal requirement for all deposits taken by landlords using ASTs to be protected by a tenancy deposit scheme. At the end of the term, a landlord can end an AST without having a reason or ground for possession (such as rent arrears) by first serving a valid section 21 notice in writing on the tenant. The standard minimum notice period for a section 21 notice is two months. In some cases, the notice may need to be longer. A landlord can serve a valid section 8 notice on an AST tenant to start the possession process at any time, however the landlord must have a reason for evicting the tenant, called a ground for possession. The notice period depends on the ground used and ranges from two weeks’ to two months' notice.

The difference between a tenancy and a licence

With lodgers, a homeowner and lodger will have a licence instead of a tenancy agreement. A licence does not create an interest in the land being occupied and provides for a licensor and licensee relationship which is more informal than a tenancy. Unlike tenants, who need a standard notice period before a landlord can evict them, as licensees, lodgers can just be served ‘reasonable’ notice to ask them to leave at any point. This is usually twenty-eight days but can be shorter. As a live-in landlord, it is advisable to require a lodger to sign a written licence agreement which sets out the conditions of their stay in the homeowner’s home and outlines any house rules, before they move in.

The difference between a tenancy and a licence all depends on what has been agreed and the circumstances of occupation.

A tenancy provides a tenant with exclusive possession and a tenant is entitled to exclude others from entering the home or a defined area within the home (except for access). Tenants are protected under statute from unfair eviction and usually occupy a distinct part of a property, such as an annex.

Conversely lodgers occupy part of a property in which the homeowner also resides, so occupation is not exclusive. Whilst lodgers usually have their own room, common facilities like bathrooms and kitchens are shared with the homeowner. In such situations homeowners still exert control over the property and lodgers do not enjoy statutory protection from unfair eviction. Lodgers are excluded occupier, which means they are excluded from protection under the Protection from Eviction Act 1977.

Homeowners seeking to take in a lodger, rather than a tenant must ensure that they meet the provisions of two statutes.

First, schedule 3 Housing Act 1988, which provides that if an occupation arrangement meets the following conditions, it cannot be tenancy; 1) if the landlord lives in the same building, unless it is in a purpose built block of flats and; 2) the landlord must live there as their only or principle home when the tenancy starts and during the tenancy without interruption.

If the aforesaid does not apply, the occupier will be a tenant not a lodger and will usually be covered by the Protection from Eviction Act 1977, meaning that the homeowner would need a court possession order to evict the occupier and often would require the possession order to be enforced via a warrant or writ of possession in order to recover possession.

Obtaining a possession order can be costly and time consuming and with the courts being oversubscribed with cases, it is not unusual for it to take 9-12 months from possession claim being filed until a possession order is obtained at a hearing. Enforcing via a warrant or a writ could take a further 2-3 months.

Excluded occupiers can be peaceably evicted once the excluded licence ends, without the need of a court order, for example, by the homeowner changing the locks while the lodger is out. However, it is an offence for any person 'without lawful authority' to use violence against someone else to secure entry to premises where there is someone present opposed to entry and this includes violence against property and could cover forcing open a door or window if the perpetrator knows there is someone in the premises opposed to entry.

The second statute is section 3A Protection from Eviction Act 1977, where a person is excluded from any protection under the said Act if they share living accommodation with a resident landlord. Living accommodation includes a kitchen or bathroom, but not things like staircases or an entrance hall.

The enquiries received by Thackray Williams have seen both occupiers and homeowners misunderstanding the rights of the occupier. Homeowners have understood an arrangement with a ‘lodger’ to have been informal when in fact they have inadvertently created a tenancy and with there being no breach of the tenancy, such as rent arrears or other breaches of tenancy the homeowner has faced tremendous difficulty in seeking possession.

We have also seen a frequent misconception among homeowners that labelling a document as a “licence agreement” or calling an occupier a “lodger,” is enough to demonstrate a licence. This is certainly not the case and courts will consider all relevant factors when determining the type of agreement.

It is therefore important to take advice prior to taking in a lodger and to instruct a professional to prepare the requisite excluded license agreement to enable a homeowner to ensure that a lodger is regarded as an excluded occupier once their licence ends.

Mustafa Sidki specialises in litigation and dispute resolution matters including all aspects of commercial and residential landlord and tenant disputes, easement, restrictive covenants, boundary disputes, nuisance, trespass, dilapidations, service charge disputes and both residential and commercial possession claims. If you are considering taking in a lodger and/or would like assistance on anything mentioned in this article, please contact Mustafa.