Business or Friendship? The Live-In Landlord Dilemma
It’s pretty common for someone to come to me with a landlord-related issue - it’s kind of my thing, after all. But this week I got asked something that made me think that quite a few people could find themselves in a similar position.
The subject was that of the ‘accidental’ live-in landlord, driven by the rising cost of home ownership. I should know about this, after all I’ve done it myself in the past. It can have great benefits, but also great risks if mishandled. Of course, I’ve changed names and some minor details, but I’m sure many of you can relate.
Julie is a young homeowner who’s managed to scrape together a deposit and buy her first home. Great. However, to help pay the mortgage, she agreed to rent a room to one of her best friends, Karen. This arrangement has worked well for both parties for several years and being such great mates, they never made any formal arrangements such as a lodger’s agreement. So far, so good – until one man changed it all forever.
Yes, Dave has arrived on the scene and proved to be a decent enough bloke that Julie is now planning on moving in with him. She doesn’t want to sell her own place though, as she has realised it has value as a rental property, and thus a long-term investment in her future. So she want’s to rent it out. Except….
Karen loves living there and would like to stay.
The ladies are still best friends, so this shouldn’t be an issue, right? In fact, I think it could become a minefield of problems!
Firstly, a tenancy agreement needs to be drawn up – but on what terms? Karen wants to have a say in who she will be living with as a housemate, just as I would in her position. But what happens if she cannot find the right person straight away? Should Julie pay the missing rent? Or Karen? In fact, since their informal agreement has worked until now, Karen thinks they should just keep going like that….
But be careful!
If you let someone live in your property without a written agreement, and they can show that they were contributing to the rent/mortgage/costs, you’ve opened up a Pandora’s box of trouble in the event of a disagreement. So here’s my first bit of advice: get a formal tenancy agreement first.
The terms of that agreement are ultimately up to the ladies to agree, (which should then be put into appropriate legal terms by a good letting agent or lawyer), but having one is vital. In this case, I’d recommend that she offer Karen the entire property to rent, with the entire monthly amount becoming due. She should also be granted the right to sub-let (to just one person), in order to meet the rent payments. This allows Karen to have control over who lives with her, but ensures that Julie doesn’t end up out of pocket.
To be honest though, that’s not my best advice – it’s just the best that I think would be accepted. My real advice is this – find a nice way to ask Karen to leave.
What if Karen doesn’t vet her housemates well enough and trouble starts? What if that housemate can’t pay - and won’t leave? Julie, as the landlord, has lost some control here – why?
Julie doesn’t want to cause friction by asking Karen to leave. Perfectly understandable – this kind of thing can really affect a friendship. The thing is, the groundwork for that change in friendship was laid as soon as money became involved. That friendship will probably recover better from Karen finding a new flat now, that from a dispute down the road about who is a suitable tenant, who needs to pay for repairs, or where last month’s overdue rent is. And the more vague the agreement now, the more opportunity for confusion and argument later.
Run your investment property as a business – and by all means make it a honourable and compassionate business.
But don’t mix friendships and money.