AIBU to worry my parents are undercharging rent on their flat?

[Gladdo]

My parents have lived in a 5 bedroom flat in a lovely part of their city for years. Now they have decided they want a bungalow closer to my siblings and I who have moved to another city. My mum doesn’t want to sell the flat and has decided to rent it out.

They have decided to rent it to the son of one of my mums friends, this son and his partner have 5 children, I believe the father works but the mother doesn’t (they may have a newborn if I listened correctly so this makes sense).
My mum has decided to rent it significantly below market rate (the other 5 bed flats in the area are mainly used for student lets but seem to make almost double), the reason being so it falls under the local housing rate for their universal credit.
It’s a beautiful property, probably needs a bit of redoing, but my mum said they can decorate.

Im really worried, I don’t want my parents to be exploited, I’m not sure they are taking any real advice and setting things up, when repairs are needed I’m worried they won’t be making enough from rent to cover it so be paying out of pocket.

I tried to tell my dad and he said they don’t need profit, they just don’t want to sell right now incase they change their mind.

AIBU to be really worried about this and fear they are taking advantage?

Good on them.. They could have asked their friends to house sit for nothing.

Also they must serve the Renters’ Rights Information Sheet otherwise it’s a £7000 fine.
Tenants can now contest any rent rises and the landlord cannot get the increased rent until it has gone to tribunal- probably taking a year. Even if the tribunal agrees to the rent increase, it won’t be back dated to account for the delay in going to tribunal. This is why most landlords have increased their rents while they can.

I'd be more concerned that they're not doing all of their legal obligations

You can’t compare private rent to a single tenant to student multiple occupancy lets because those are exploitative of the students (above market rate) and you need a special license as a landlord too. Students are less likely to take care of a property as well.

I wouldn’t worry about the rent. £1650 isn’t a peppercorn rent. As the flat has no mortgage, it is a decent income stream. Landlords can also deduct any costs for maintenance from the income that is taxed- that includes all the certificates and so on.

Yanbu to worry as they sound very naive about all the legal and tax rules. Before RR it was bad enough- now with RR as others have said, this family will never have to leave.

You shouldn’t rent to friends or relatives in case things go wrong and they can’t pay the rent (or damage the house) as it’s v difficult then.
Perhaps they could speak to a solicitor to ‘check out’ the issues if this happens as they will be more likely to believe what they say then listen to you.
I would say it’s not a good thing to take on lightly. I rented out a property through an agent and even that was a pain - mainly as their plumber etc wasn’t great and I didn’t know enough to call them out.

My 3 bed terrace with house and garden is £850 well below market rate. We've been here 13 years, never missed a payment and don't hassle the landlord. He would much rather have a steady long term tennant than someone that leaves after a year.

£1650 is a lot of money and I imagine your parents feel the same about keeping a tennant long term as my LL does.

How are they being exploited when it is your parents who have set the rent? It's really nothing to do with you.

I'd stay out of it.

From their point of view, where else will they get tenants they know and trust?

If you can't answer that with a viable alternative, then there is your answer.

They've priced to suit their circumstances.

I would strongly advise your parents to turn the whole thing over to a local rental agent, particularly if they’re not living nearby. They’ll pay 10-12% of the rental income in fees but a good agency is worth every penny. They can organise repairs, make sure the flat is compliant with current legislation (have your parents got wired smoke alarms in every room? Fire doors? Gas safety certificate? Legionella certificate?). Are they registered as landlords with their local council? Who will be responsible for bills/council tax/buildings insurance/service charge, etc. Just handing over the flat in an ‘unsafe’ state and then letting tenants make their own repairs could land your parents in all sorts of very hot and unpleasant water.

A good landlord has a legal responsibility to keep their tenants safe, comply with the law, and maintain their property. It’s not cheap and it’s not easy money. If they’re renting out at half the market value they may well not even be covering their costs, and what if they do want to return in a few years - how on earth will they kick out a family with four children? That could become a drawn out and costly endeavour, not to mention the cost of the friendship.

It’s one thing letting friends stay in your house while you’re away for a few weeks over the summer. It’s quite another to rent your home to them securely and legally. Your parents really need to look at this carefully.

Greedy bastard

Nothing indicates they’re being exploited. It sounds like a good arrangement for them and the tenants.

As a landlord I have some tenants paying below market rent, but they are good, long term tenants and it works well for both of us.
I think that is a very different situation to starting off a tenancy on a less than commercial basis.
As far as I know LHA only covers rents on 4 bedroom properties, so they are letting their 5 bedroom flat for a cost within the lower 30% rate of local 4 bedroom places.
I would not be so concerned about the less than commercial rent than I would be at letting to friends. Some of the worst cases I have heard of of tenancies tenancies going wrong have involved letting to ‘friends’
The family might be lovely, need a new home through absolutely no fault of their own, and make excellent tenants, but the potential for this to go wrong is high.
The wear and tear could be huge, they might face extra expenses to make the flat safe for children.
If they do get to the stage of needing to sell they will likely need to take the matter to court as even if the family is willing to leave there will be no other properties in their budget.
As a landlord of 15+ years I would not recommend starting to let out a property. I won’t be giving any of my tenants notices to quit but if any choose to leave for their own purposes I will be selling rather than re letting.

LHA via Universal Credit.

They’ll also need to think about what they’re including. There will be significant wear and tear, particularly on white goods such as the washing machine and dishwasher, from a family of seven, so will they let it furnished/partially furnished/unfurnished? No matter how careful they are, a large family will put much more pressure on furniture, carpets, fixtures and fittings, wall coverings, etc. so are they prepared to replace those regularly?

You can't compare the rent for a family to student rent, student rent is far more.

I agree with PP - it’s not so much about the rent being charged by your parents, it’s that when your parents want them out they’re not going to be able to find a similar property that’s suitable for their needs within the LHA, so they’re not going to want to leave.

The tenants aren’t taking advantage of your parents - presumably your parents are of sound mind? Think that’s a judgemental take, tbh.

Do they have a buffer for maintenance and possible court costs if things go wrong in the future? Is there a good agency nearby they can hand over the reigns to? Or are they up for travelling to the city to sort out problems and keep ontop of legislation? It’s not a good time to be a landlord and it’s unusual now to decide not to sell up and enter the landlord profession for the first time. I wonder what the backstory here is.

Trying to be considerate to a friend is absolutely reasonable. However, I’d be concerned that they are not fully aware of their obligations as a landlord. it is a minefield. It really is.

They would be wise to engage a reputable letting agent to take care of all this. Right to Rent, safeguarding the deposit, safety certifications - it’s a lot for an ‘accidental landlord’ to get to grips with. Forget to give your tenants the new leaflet about their rights, or the DPS terms and conditions, et cetera, and risk incurring a huge fine.

There is no way I’d become a landlord now.

Also they need safety checks for gas and electric. Also landlord's insurance. And a contract drawn up with a solicitor. And how will they ever get rid of them. They need to look into this carefully.

I would bet they’re not very clued up on their responsibilities as landlords to be. They need to look into the legal aspects of being a landlord; is the property compliant with new safety regulations, deposit protection etc. They’ll need insurance s to protect rent payments which may not be offered if the tenants are on UC. They will need to pay tax on the income and capital gains tax when they sell.

What if there are disputes? Will this affect the friendship. What if the property is damaged? 5 kids is a lot of wear and tear on a property.

I wouldn’t do this under these circumstances as there will be a lot of personal costs, particularly as they won’t be charging a market rent. If your parents are receptive then set out the pro’s and cons for them to consider.

None of that is what the OP is worried about? She wants her parents to charge higher rent.

Lower rent to a good tenant is worth far more the market rent to a bad tenant

That's an assumption. And even if they are claiming UC why object to them renting this specific property? They would be claiming the same wherever they live

The two aren’t mutually exclusive. Higher rent to a good tenant is even better.