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Which type of tenancy agreement to use in Shared Properties


This is an article published in the Landlord Law Newsletter for Landlords - September, 2011

When you are going to have people sharing a property there are a number of decisions to be made about what type of tenancy agreement to use.  Perhaps the most important question is:

Is the property going to be let as a unit, or as separate rooms

This is a very important question as they are two very different types of let.  

For some situations it will be obvious what the answer is.  Families are going to occupy the whole of the property as a unit, as will most 'couples'.  

However when it comes to friends sharing, this may not always be best.  It depends really on whether they are going to want to stay in the property for the same length of time.

Students for example will generally all want to stay until the end of the academic year.  So student houses are often let to, say, four or five tenants on a 'joint and several' basis.  However friends in other situations may be different.  Here it may be better to rent out the rooms to them individually on separate tenancy agreements.

So what are the main differences between joint tenancies and lets of single rooms in shared houses?  There are both good points and bad points of either for landlords.

Good points of joint tenancies where all tenants sign the one agreement:

  • Less paperwork - there is only the one agreement
  • The landlord gets the benefit of the joint and several liability - so if one tenant fails to pay (in a shared house situation), you can still claim the rent off the others
  • Utility bills - you can require the tenants to have these in their own name so you will not be liable if they vacate leaving them unpaid

The main disadvantage of this type of tenancy is that it is less flexible if one of the joint tenants wants to leave.   

Good points of renting out rooms in a shared house:

  • If one of the tenants wants to leave it is easy to deal with  - you just re-let that room.  The rest of the tenants are unaffected (other than by the prospect of having someone new living in the property)
  • Landlords often find that they can get more for the property overall by letting out rooms individually
  • You are less likely to have a complete void, as if one tenant leaves, the others will normally still be there paying rent
  • The tenants cannot block you from entering the common parts of the property - only their own rooms (unlike joint tenancies where they can prevent you entering the property at all)

The main disadvantages of this type are that it involves more paperwork, you can't get the tenants to sign up for the utilities, and you don't get the benefit of joint and severalability.  

Choosing which to use

The vast majority of properties are rented out as one unit - indeed some landlords may not realise that you can do it any other way.  Most landlords also prefer the simplicity of this - just the one agreement and then the letting is sorted for another 6 months or a year (depending on how long your fixed terms are for).

However it is worth looking at the room in a shared house option if you are renting to single people - for example young professionals.  It is more work but it can be more lucrative.  

The implications of choosing a room in a shared house option

One important thing is that you need to use an appropriate tenancy agreement.  This needs to be an agreement which makes it clear that the tenant only has exclusive occupation of his or her own room.  There will probably also be different arrangements for the payment of bills.

Needless to say, no tenant is going to have their name put on the utility accounts as they will not be willing to be responsible (for example) for the electricity used by the other tenants where they have no control over who they are.  So the landlord will have to do this.

However many landlords make a virtue of necessity and offer tenancies with all bills included.  This is attractive to tenants as they know where they stand financially.  It is also less hassle for you as your bills are covered by the rent - assuming off course that you charge sufficient to cover the sums involved (we have a special tenancy template for this at Landlord Law).

Another important thing which gets overlooked sometimes is that if the property is an HMO the Council Tax is payable by the landlord and the landlord cannot provide for the tenants to pay this direct to the Council.  Again this is not a problem so long as you are aware of this and have budgeted for it when setting your rent.

Changing tenants in joint tenancies

As most of the shared houses tend to be let on a joint and several basis with all the tenants signing the same agreement, inevitably there will be problems when one of them wants to leave.  What do you do?

There are three alternatives:

1. Get a new tenancy agreement signed with the remaining tenants and a replacement tenant.  
This is the best  option really all round.  It is always best if the people liable to you for the rent under the tenancy agreement are the ones actually living there rather than someone who left six months ago.  Note that you can make this conditional upon having your referencing and any other costs paid for by them.

2. Allow the remaining tenants to take in a lodger to help them pay the rent.  
This is a good short term measure, to see how it works out, and then perhaps the lodger can be added to the tenancy agreement when the fixed term has come to an end.

3. Do nothing.
The trouble with this is that the remaining tenants will not be able to afford the rent.  So either they will be moving in someone new without your consent or they will fall into arrears of rent.  It is best to sort things out with them if you can.

However the tenants are NOT entitled to expect you to take a lower rent just because one of their number has left.  Their liability for rent remains unchanged - the only thing that is different is that there are less people living there to pay it.

Joint tenant giving Notice to Quit

I should mention finally that there is a legal rule which says that if one of joint tenants gives a notice to quit (which they can only do after the fixed term has ended by the way), this will end the tenancy for everyone.  Even if the other tenants do not agree to this or even if they know nothing about it!  

However if the tenants remain in situ and you don't get back vacant possession, what is the situation then?  There are two solutions.

One of them will please landlords - under a very old piece of legislation it is arguable that the tenants are liable to pay double rent until they leave

The second one is probably the one that will apply in practice.  This is that if the tenants stay there and pay rent which is accepted by the landlord, then a new periodic tenancy will be created aromatically.  Bearing in mind that you do not need to have a tenancy agreement to create a tenancy. 

What the terms of this new tenancy will be and what its rent will be will depend very much on the circumstances..   

Published with permission of Tessa Shepperson who is a solicitor specialising in residential landlord and tenant law.  She practices online via here subscription service Landlord Law at www.landlordlaw.co.uk and writes a blog at www.landlordlawblog.co.uk.

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