When it comes to renting accommodation, be that as a landlord or someone paying rent to a landlord, there are certain legal requirements and certain legal rights depending on the situation.
One important situation that often gets overlooked is when a landlord lets out a room in their own home. In this case the important question is whether that person is a tenant or a lodger and it is an important distinction legally. In this article we will answer simple questions like: What is a lodger? Do lodgers have the same rights as a tenant? Do lodgers pay council tax? Can a tenant become a lodger? Do I have to pay tax on a lodger’s rent? Do family members count as lodgers? What’s the difference between lodging and subletting and can a tenant have a lodger?
The first question to answer at this point is what is the difference between a lodger and a tenant?
Lodger
A lodger is someone who lives in the same property as the landlord and that property is also the landlord’s main residence. The lodger will pay rent to the landlord but will be lodging in the property. Lodgers are often referred to as licensees and will have a licence to occupy the property.
Tenant
A tenant is someone who rents a room or a property from a landlord, but the landlord does not live in the property. Now this can be several people in one property renting out individual rooms, the important distinction is that the landlord does not live in the property.
So, at its most basic when looking at a tenant vs lodger, the distinction is that the landlord lives in the same property as the lodger and that property is the landlord’s main residence. This is not the case with a tenant.
Can a tenant become a lodger?
This question really runs both ways and is equally applicable when asking whether a lodger can become a tenant. The answer is yes. If a tenant is living in a property and then the landlord moves into that property as their main residence, which can only be done after the end of the fixed term of the assured shorthold tenancy (AST) agreement and with proper notice, then the tenant will convert to being a lodger. Conversely, if a landlord is living in a property with a lodger and then permanently moves out and is happy to leave the lodger in situ, then the relationship will convert to a landlord/tenant relationship with an appropriate assured shorthold tenancy agreement. It is important, here, to note that the move has to be permanent. Temporary moves of the landlord do not cause the property to be vacated by the landlord and as such the lodger will stay a lodger.
Lodger agreement
Often slightly erroneously referred to as a Lodger tenancy agreement, a lodger agreement or, to give it its proper name, a licence is a personal permission for someone to occupy part of a residential property in which the licensor is living. The agreement will also set out the terms of the licence, that is to say the terms and conditions that the lodger must abide by. Some standard terms in a lodger agreement are:
- Amount of rent payable
- The right for the lodger to use communal areas such as the living room, the kitchen and the bathroom, for example
- The length of the agreement. Note here that if there is no “end date” to the agreement, it automatically becomes a periodic licence.
- Requirement or not of the lodger to pay towards the bills, this will be covered below.
- The lack of a right to privacy. In a lodging situation, the lodger does not have the right to refuse their landlord entry to their room.
- The notice period required for evictions. Even though a lodger has less rights as far as evictions are concerned reasonable notice must still be given. Typically notice would be seen as reasonable if it is the same as the period for rent payments. So, if rent is paid every two weeks, a notice period of two weeks would be seen as reasonable for the most part.
- The amount of deposit to be paid and circumstances in which the full deposit will not be repaid.
- What bills would need to be contributed towards
Do lodgers have the same rights as tenants?
The simple answer here is no, lodgers do not have the same rights as tenants. There are several main and very significant differences:
- As an excluded occupier under the protection from Eviction Act 1977, a lodger has limited protection from eviction. No court order is needed when evicting a lodger and notice can be given verbally. It has to be noted here, that, if there is a fixed term portion of the licence then the lodger cannot be evicted, unless they have broken the terms and conditions of the licence, until the fixed term has ended. If the licence is a periodic licence, then reasonable notice must be given. At the very least this should be the same as the rental period and, in most cases, 28 days is sufficient.
- The landlord does not have to register the deposit with an approved deposit protection scheme
- The landlord can ask the lodger to move rooms as required
So, when looking at the rights of a lodger vs tenant, the lodger has far fewer rights when it comes to privacy, use of the property and protection from eviction.
Is a family member considered a lodger?
When asking “Do family members count as lodgers” the context of that family member staying in the property has to be considered. If the family member is staying free of charge, with no licence agreement then, no they would be a house guest and not a lodger. If there is a payment of rent and/or a licence agreement in place then, even though they are family, they would be considered a lodger.
What’s the difference between lodging and subletting?
There are circumstances when someone who rents a property from a landlord then rents out space in the property, say a room, or even the entire property in the property to others. This can be either to a lodger or as a sublet and there are significant differences.
Let’s just take a look at the hierarchy here as far as subletting is concerned:
- The person who owns the property and lets it out to their tenant is called the head landlord
- The main tenant who has the agreement with the head landlord is called the mesne (pronounced mean) tenant. This simply means intermediate tenant
- The person who then rents from the mesne tenant is called the subtenant
In the case of subletting the mesne tenant should check in their agreement whether they can sublet and, if they want to and the contract allows it, they should ask the head landlord’s permission in writing. When subletting the mesne tenant gives the subtenant exclusive rights to the space they are renting. This means that they cannot enter that space without giving notice and asking permission. In a subletting situation the mesne tenant has to comply with all the normal legal requirements that apply to landlords. Obviously, the head landlord should also be doing this as standard for the property, but it can get complicated if the head landlord does not sort issues in the sublet space as the subtenant is within their rights to hold their landlord, the mesne tenant accountable. So, can a tenant have a lodger? The answer is yes, they can. This does’ however come with the same legal limitations as a standard lodger has in terms of right to privacy and protections from eviction. It is also important to note that a lodger cannot lodge in the property after the tenancy agreement that their ”landlord” has ended.
Finances and benefits
Some of the frequent questions that pop up around lodgers are things like “Does a lodger pay council tax?”; “Can a lodger claim universal credit?”; “Can a lodger claim housing benefit?”; “what happens to my benefits if I have a lodger?” and “do I have to pay tax on lodger’s rent?”. We would always advise taking professional financial advice when it comes to any of these questions, but in general:
- As the homeowner, you are responsible for the council tax. If the licence agreement requires it, the lodger will be required to pay towards the council tax. The same applies to other bills. These would need to be allowed for in the licence agreement. Bear in mind that, taking on a lodger will mean that any single person discount on the council tax is no longer valid.
- A lodger can claim housing benefits and also universal credit as long as they have a formal licence agreement and are not lodging with a close family member such as parents or siblings. The same applies for universal credit if the lodger claims these rather than housing benefit.
- In terms of the landlord’s benefits, this is a complex area. If the landlord receives housing benefit then the first £20 of any money from the lodger is ignored and the housing benefit payment will not be affected. Anything over £20 will be counted as income towards the calculation. As far as universal credit is concerned any rent from a lodger is not treated as income and as such the universal credit payments should stay the same. Whether it is housing benefit or universal credit the lodger should be notified to the benefits agencies so that the correct calculation is made.
As far as tax is concerned, yes, any income from a lodger under a formal licence agreement would be considered as taxable income by HMRC. Under the Rent a Room scheme £7,500 can be earnt per year tax free. If the lodger pays more than that or the combined income from lodgers is more than that, a tax return will need to be filled out.
Finding a lodger
Because a lodger will typically only be looking for a room, this is where letting/estate agents can help in the search.
There are some big and important differences between a tenant and a lodger and between being a lodger and a subtenant and it is important that everyone understands the distinctions. We hope that this article has helped shed some light on the differences.
Looking for a tenant or a lodger for your rental property? We can help. See the services we offer for landlords.
