Dilemma regarding rent charge for friend

[Plantyshazfan]

Hello, we have a child with a disability that we bought a flat for (either to live in when he is old enough or to live off the rental income)

The flat is in a desirable area and is lovely. One of our friends has lived in it for nearly 10 years, they would struggle to pay the full rental value so we’ve never charged them that. We have just covered mortgage and management costs.

So, now we know that our son won’t ever live in the flat and our friend is loving living there. We are essentially down financially around £3,000 per year and feel unable to ask them to pay more…. They are a good tenant and friend. What do we do?

We don’t need the money ourselves but obviously we are working hard to ensure that we have enough money for our son to live for the rest of his life too as he won’t be able to work…

AIBU to ask for more rent?

Your friends knows that you've had to spend on the property this year, so I would use this opportunity to put the rent up by £100 a month as a compromise. They are still getting a very good deal.

I've been dealing with my late mum's rental property, which hasn't had an increase in rent in 15 years. Consequently the tenants were paying half of the market rate and my mum hadn't made any profit over the last three years.
I had to serve them notice to sell the property to meet mum's debts, but the gap made me feel terrible, as the tenants would not have to pay double the rent to find anywhere else.

If you don't put the rent up now, @Plantyshazfan the gap will just grow and grow, and make it even harder when you have to serve the friends notice. Also the new regulations will make it almost impossible for you to close the gap even slightly.

You are failing your son if you put your friends before him. Explain to the tenants that the work you've had done means that you need to put the rent up, but that it will still be kept well under market rate.

I am in the same boat as you!!! If I could turn back time I would have got a stranger in it. My advice to you (although I can’t take my own) is you need to out your family first and tell her things have changed now and you are putting the rent up. Technically speaking rent goes up each year by I think 4 or so percent. You can do it that way or drastically.

my issue more so would be does she know that flat will eventually be your sons? Start planting the seed now so she can start looking else where

Exactly this.

It really is a dilemma, OP.

We have two properties that we rent out, we’ve always charged significantly under market value to our (good) tenants as we pay 40% tax on the rental income and it seemed fairer to keep in the tenant’s pockets.

Over the last 18 months, when it became known that Renters Rights would be stiffening, we’ve put the rents up twice to bring it more into line with appropriate values. Its still a bit under, and we are very attentive landlords, but it would be too problematic to have a big disparity in rent, and ultimately locks you and the tenant into a situation that would be very difficult to change.

But this means that at some point in the future they will have to face up to having to move? The asset only works for you if you are able to sell it to release the cash for your child?

I think in your shoes I would set a time frame - be that 5 years or when your child turns 21 etc - so that you can sell the asset and use the money for your child.

I think you and your friend need to have an honest conversation: a) not so much about the rental income (so long as you are breaking even after tax, if not you may actually need to discuss raising the rent annually over the next few years); and b) because you are not - and never were - providing them with a home for life: it is an asset purchased and managed entirely with your DC’s wellbeing and care being the purpose. That may mean agreeing a times-scale to your tenant friend moving out so that you can sell.

@Plantyshazfan if you're in England you will have significant extra costs from next May because of the Renters Reform Act. If your local council is bringing in licensing that will be more significant costs. That's on top of the maintenance costs that aren't covered at the moment. Tbh it probably makes more sense to sell, pay off the mortgage and any capital gains tax and put what's left in the disabled trust. Speaking from direct experience of both renting and setting up a disabled trust. You have enough responsibility with your disabled child to be responsible for subsidising a friend. They've had a very good run.

Google HMRC and the fact that they don’t look kindly on charging less than the market rate for friends / family. At any point they can ask you to pay tax on the full ammount the property rent is worth.

Pretend you have got an accountant and that they have told you this. (Or even that it’s happened)

Agree with this totally

A decent, long term and regularly paying tenant is worth a lower than standard rent.

Obviously you can’t let at an actual loss, ie if the property is costing more than the income.

In your case though I think you need to decide your aims and priorities.

As you now know that your son will never occupy the property you need to consider if it’s the best form of income raising for your son. There are many safer ways to obtain an income from capital.

Unless you never intend to sell, and are prepared to rent to your friend forever, not addressing the rent now is just kicking the can down the road. Actually it’s worse than that as the gulf between the rent you are charging and what she would need to pay elsewhere will keep increasing, making it impossible for her leave voluntarily.

I think its less likely to come to qnything if this is an arrangement of 10 years and they are good friends and deal with it informally first.

just tell her friend she's looking to sell vacant and therefore giving early notice of her intention to serve notice.

It's as simple as saying "look friend, I'm considering placing the flat on the market and don't want to do so with a sitting tenant, nor do I want to shaft you with the minimum notice in the formal agreement so this is just a heads up that you're best off looking to find a new place sooner rather than later. I can wait til Feb to serve notice but that's about the limit unfortunately."

Wherever you rent you're paying someone's mortgage.

I voted YANBU as they knew the flat wasn't forever so realistically, should of been saving up what they saved on rent for the last 10 years

It’s not as simple as just telling the friend you want them out as you’re thinking of selling though. They’re a tenant and they have rights, whether you like it or not, and no matter how good the friendship is the law has priority. If the tenancy isn’t properly covered by a contract, safety certificates, deposit held in a deposit protection scheme etc, then things have the potential to go pear-shaped very quickly indeed. Yes, the friend MAY leave quietly and without a fuss, but what if they don’t…? If they decide to stay put then it’s a long and very costly process to get them out even if there is a proper tenancy in place. If there isn’t - if it’s just an agreement between friends - then the shit could really hit the fan, even more so when the Renters Reform Act comes into place on 1st May next year. The financial penalties for not complying with regulations can be huge and are set to increase after May.

As I said earlier, if this is the case, then whether to increase the rent or not is going to be an academic question. The OP hasn’t said whether it’s a formal tenancy or a friends’ agreement - I really hope it’s the former.

Exactly this!!! If it's in a desirable area, you're likely to get desirable tenants willing to pay a desirable rent! You could have been building your sons 'pot of money' up each year from the extra rental income. YOU are the one doing a massive, I repeat MASSIVE solid, for your friend, over and above and way beyond, what should be expected! C'mon, she knows she's 'taking a lend'!!!