Tenancy agreement (from landlord's POV)

[Mitzimaybe]

My friend is moving in with her DP and plans to rent out her own house to another friend. I advised her to put it all on an official, legal, footing, because things like this have been known to break up friendships. She's happy to do this, pay tax on the rent etc. so it's all above board.

What are the pros and cons of different types of tenancy agreement for the two of them? She wasn't planning to insist on a deposit; I think she should, but am I right that she would have to lodge that with a deposit guarantee scheme? Is there only one of those?

N.B. She's lucky enough that it's mortgage free so that's not an issue.

TIA

Bitter experience tells me always get a deposit. I had a property that a member of staff had as part of their package, should have taken a deposit. I only got in after that had left with final salary all paid, they hadn't opened a window in 15 months so there was mould every where and they had kicked in an original 18th century door.

Of course she must must must get a deposit.

You don't have to pay the money over to a scheme but you have to register and follow the rules on the deposit. Some schemes require they hold the pensions but others don't.

She must get an assured shorthold signed. She can probably buy the form on line. If you don't do it right the tenant can get a right to stay for life I think so it is important to get it right.

She should:

1. Get a formal agreement. Minimum terms for an assured shorthold is 6 months, though standard is normally a year. Landlord needs to give 2 months notice, so if she wants flexibility should things go wrong with her relationship, she should word it so she can give notice after 4 months.
2. She should ask for a deposit. Usually one month.. This needs to be lodged with TDS.
3. She should have a proper inventory done, by professional (and insured) inventory clerks.
4. She should take references. (Failure to do so could cause her problems as if things went wrong courts might not be sympathetic to anyone who has not taken due diligence.) Bank reference, previous landlord, and employer reference as a minimum. Bank references seem to be taking an age to come through at the moment, so alternative is 6 months bank statements.

You can buy standard Assured Shorthold contracts. When I've done a direct letting I have asked a friendly local estate agent to do the paperwork, references etc for me. The contract just rolls off his computer so money for nothing, but it saves me time and allows for a level of detachment. It also makes the referencing easier.

Her house is a huge investment. It is not worth taking risks. Friend should also welcome the level of formality and safeguards for her. Contracts are fairly standard but they set out what would happen in a host of eventualities.

Once you have done the first one, and you fail to formally renew, the tenancy drifts onto something called a Statutory Periodic. Same terms, same rent, but the tenant only has to give a month's notice. The landlord still has to give two. The initial inventory and deposit are not affected.

there are three deposit schemes. She can look it up. No deposit, nothing to fix damage (not wear and tear)

I remind you of a recent channel 5 programme about the bailiffs. They were evicting a woman who had rented a house from a friend. It was trashed and filthy and no rent had been paid for 10 months. Despite evidence of plenty of money in the family.

insure against legal expenses, malicious damage plus buildings and contents. Meet all conditions for those.

the law sides with the tenant - as it should. So landlords need to protect themselves.

Definitely buildings insurance. You would need to inform insurer and might need different insurance. I tend not to bother about the rest, relying instead on a carefully selecting tenants and referencing.

Don't forget the gas safe certificate. This is a legal requirement. If you leaving portable electrical appliances it may be worth having a PAT test. Easier though not to supply appliances in the first place. Rental properties are required to have an energy efficiency rating (forget what it is called) every 10 years. I don't think anyone ever reads them, so in these circumstances I would be tempted to forget.

Start of tenancies involve both work and expense. But normally things settle down quickly.

Your friend should not forget to declare the income with the Inland Revenue. They are currently clamping down. If the property is let furnished you get a 10% wear and tear allowance which is useful.

Get a deposit. I have had multiple "friends" turn into enemies because they trashed my rental and I had no deposit.

I would advise her to do everything officially and tell the tenants that it is for their own protection. Which it is. They need to know that she is not going to throw them out when they have only been there three months or whatever as it costs a lot to move.

she can't throw them out after three months. She can't 'throw them out' even after the end of the tenancy if they don't go without a lot of expense and legal procedure.

and it is not 'might' need different buildings insurance. It is 'WILL need different insurance'. No standard policy covers a house if the owner isn't living there.

Thank you all for the advice; sorry I couldn't get back on here yesterday as my phone went funny.

Lonecat and SofiaAmes that's exactly why I think she needs to take a deposit.

Greengrow So Assured Shorthold Tenancy is the best one?

Needmoresleep thanks for the comprehensive information. My friend already does tax returns every year and will be including the rental income in it but didn't know about that 10% wear and tear allowance.

specialsubject I hadn't thought about landlords insurance being needed but thankfully my friend had and is already onto it.

Savoy Yes she wants to do everything officially and legally as it will cost a bit more initially but could end up saving a whole lot of money and hassle down the line. Everyone knows exactly where they stand and there's nothing (touch wood) to fall out over!

I've shown her this thread so I'm sure she will now go ahead with getting a deposit. After all, if there's no damage, it will be refunded in full and the tenant will then be able to use it as a deposit on her next place, or just a nice bit of cash. She's not going to ask for references, though, as she knows her, sees how nicely she keeps her current place, knows where she works, etc. Hopefully it will all go well for all concerned.

No point taking a deposit unless you have an inventory. The normal approach is to use an insured third party. However you could do it yourself and get the tenant to sign. Take lots of photos.

Still think no taking references is a mistake. If it turns out that our friend does not know everything about her tenant, she might have problems taking legal action as she did not undertake due diligence. As above my approach is to ask a local estate agent if he will, for a small fee, reference and prepare a contract. Depending on the referencing agency they use, the landlord will not see the detail, just the overall score. Some even come with a year's cover for legal costs should the tenant prove a problem.

One of my most difficult tenants ever (demanding and self-entitled, who kept pets without permission, drilled holes into walls and was really difficult about access, even for work he had requested, and needed to be chased for rent) has just moved to a flat within the same block. He is perfectly personable on first meeting and so presumably presented himself as the perfect tenant. Both the Agent and I are sure that this will end in tears. I was on firm ground as I had all the paperwork in place and the resources of a multi-Agency agent to support me. Once the honeymoon period is over, the new landlord will regret not at least seeking a phone reference.

Thanks again, Needmoresleep

The reason for no references is that the landlord and tenant have been close friends for years, she knows she cares for her current place well, knows where she works and what her job is, etc.

10% wear and tear only if the landlord provides all the furnishings - enough that the place can be lived in without anything else.

your mate also needs to check that her insurances are valid without references. In particular the malicious damage one. Yes, I know it seems unlikely but things quite often go wrong if tenant starts a relationship with a wrong'un.

--she knows she cares for her current place well, knows where she works and what her job is, etc.--

this means nothing - I had a lodger who was a friend and all of the above--but she moved her boyfriend in...

and there endeth the tale in disaster...

you have no control over who she brings in to stay. temp or perm. so while the friend might be nice you need to make her responsible including paying deposit or she (or her friends) will take advantage.

I don't see how references would help if she starts a relationship with a wrong 'un. How would squeaky clean references prevent that situation arising?

it won't - but it means the landlord can get insurances.

Oh, well she's looking into insurance so if it's a condition of getting the insurance then she'll have to get the references, I suppose.

Thanks again.