Shared house ownership, room rent dispute – What’s the logical solution?!

[phil lawlor]

I hope you can help me understand the below dispute.

Here’s the scenario:

A 4 bedroom house has joint-ownership between two friends who needed to buy together to get onto the property ladder.
Of the 4 rooms, each owner/landlord obliviously lives in what you could call their agreed/chosen room. The two spare rooms are rented out to lodgers and the rent is split 50/50.
Both landloards/owners keep up monthly payments to cover all bills, this is split 50/50.

The twist:
One landloard/owner wants to move out ( retain ½ ownership in the property by continuing the mortgagee/bill payments + split in repairs & maintenance) but needs to rent the room that they’ve lived in from the beginning out to a tenant, in order to financially cover the cost of renting/living elsewhere. For example – they want to rent the room they’ve lived in for £300/month.
Assuming that the remaining landlord/owner who remains in his/her own chosen room (who continues to benefit from this room entirely) accepts this change in ‘occupancy’ (absolute agreement is a must and both parties need to be content with the choice) the big question is:
Who should receive the rent from this room?
Should it go 100% to the owner who is moving out of the room that they have lived in since the start, as they are continuing to keep up all payments (mortgage/bills), with the other owner continuing to 100% occupy their chosen room.

Or should the rent be split between both home owners based on the fact that the house is owned equally by both of them, and although the owner who is moving out has lived in that room since the beginning, as it will no longer be seen as ‘their room,’ then any rent income should be split down the middle.

Really interested in people’s opinions here!

Many Thanks

[property mongrel]

Who will receive the rent from the room that Owner 2 used to occupy?

There could be a possibility here that instead of a lodger occupying that room, the new occupant becomes a tenant, with tenant rights and tenancy rules and regulations. And it does not matter that the "owners" may call that occupant a lodger, if the circumstances are right they will be a Tenant. And the absent owner will become a LL with a Tenant in his or her old room.

i will pop acorss to moneysavingepert.com and ask their views on this scenario.

Or you can, the usual LLZ regular experts are all over there for a time following artistic differences here:

http://forums.moneysavingexpert.com/...3229366&page=6

Interesting question though.

pm

[Sad S]

A & B bought the house together. A has the benefit of occupying a room, B has the benefit (so far) of occupying another. C & D are lodgers.

Suppose B moves elsewhere, A stays and the mortgage/bills are split as you described. C & D are presumably paying nothing extra towards gas, electricity, water and council tax.

The only equitable solution I can see is for the rent on B's former room to be treated as B's income (A's notional rent is A's income, if you like). B therefore receives all the rent for his former room from the pot, C's and D's rent stays in the pot. I would think both A & B have to continue together as the Landlords.

I suppose the downside for B is that his rental income is taxable, whereas A's (notional rent) income is not.

[property mongrel]

What needs clearing up is the status of A and B and the two other occupants of the house at this moment? Are A and B landlords of 2 lodgers, or do the 2 lodgers have exclusive use of their respective rooms from which the landlords are excluded by locks on doors? Or do they have regular access to clean and dust etc? In one scenario the 2 other occupants are lodgers, in the other they may already be tenants.

If landlord B moves out to live elsewhere and accepts rent for his/her old room from another occupier then that occupier must become a tenant. You can call them what you like and describe it how you like on a piece of paper, but they are a tenant, AFAICS.

Unless sad S, you know different for sure?

Oh where are the experts when you need them? PMSL, on mse.

pm

[bhaal]

Make sure that all lodgers have the name of the owner (A) still living in the house as their landlord. That should stop them from claiming to be tenants, provided that they are clearly informed they are lodgers not tenants and their agreements don't purport to be anything but lodging agreements which expressly deny them exclusive occupation of their rooms. A should also retain a key to any lock or not allow them a lock on their doors to avoid them claiming they have actual occupation. This shouldn't be too tricky though.

The owners can then make another agreement to effectively pass on the rent in return for allowing the extra room to be rented out. So A would agree to allow B to rent out another room to a lodger, in return A pays B the rental income or an amount equal to it every month. It is immaterial to the lodgers if another part-owner of the house lives elsewhere and provided that everyone declares their income on their tax return and complies with any other relevant tax legislation no-one will pay much attention to what A and B agree between themselves.

Obviously you should get the agreement drawn up by a solicitor; make sure it's executed as a deed to avoid consideration issues.

[Grrr]

Aside from the legal tenant / lodger issues, I would say the income from the room should go exclusively to the owner who has moved out. The remaining owner gets benefit from living in 'his' room, the absent owner gets benefit from earning rent on 'his' room.

[property mongrel]

You are assuming bhaal, that the non owner occupants are, in law, lodgers. Until their status is determined A and B do not know what they have how to move on and sort it out.

Would it not be advisable to establish this first?

pm

[bhaal]

You are assuming bhaal, that the non owner occupants are, in law, lodgers. Until their status is determined A and B do not know what they have how to move on and sort it out.

Would it not be advisable to establish this first?

pm

True, but the lodgers currently live with both their landlords. unless they've been given agreements which say something silly, like 'AST' on their face or have other drafting defects they are almost certainly lodgers. Even if their agreements aren't correctly drafted they are very probably lodgers simply because they do live with both owners of the property. Those cases in which someone in this situation is not a lodger are very rare.

[Sad S]

I think it would be equitable if the arrangement went as follows:
B moves out. A new person (E) moves into B's former room.
Lodger agreement between A and E, and new agreements drawn up with C, D, indicate that A is their resident landlord, and all rent money goes to him. [Rent money could be paid into a joint rent account set up by A&B?]

Separate written legal agreement between A and B (properly drafted of course) defines how the proceeds from C, D and E are to be split. First call would be mortgage, council tax and utilities.
From the remainder, B would be paid E's rent (gross).
Assuming there's anything left it could be split equally between A & B. B's taxable amount is higher than A's by the amount of E's rent. No idea what the situation is if they are going for the rent-a-room allowance.

What a complicated situation: unless someone can be found to buy out B's share, I can't think it could be made simpler.

[bhaal]

I think it would be equitable if the arrangement went as follows:
B moves out. A new person (E) moves into B's former room.
Lodger agreement between A and E, and new agreements drawn up with C, D, indicate that A is their resident landlord, and all rent money goes to him. [Rent money could be paid into a joint rent account set up by A&B?]

Separate written legal agreement between A and B (properly drafted of course) defines how the proceeds from C, D and E are to be split. First call would be mortgage, council tax and utilities.
From the remainder, B would be paid E's rent (gross).
Assuming there's anything left it could be split equally between A & B. B's taxable amount is higher than A's by the amount of E's rent. No idea what the situation is if they are going for the rent-a-room allowance.

What a complicated situation: unless someone can be found to buy out B's share, I can't think it could be made simpler.

This is what I was attempting to explain as my solution, though you have done it far more clearly than I managed.

[jeffrey]

How come no-one though to write any rules before (or at time of) original purchase? Now's a bit late!

[property mongrel]

True, but the lodgers currently live with both their landlords. unless they've been given agreements which say something silly, like 'AST' on their face or have other drafting defects they are almost certainly lodgers. Even if their agreements aren't correctly drafted they are very probably lodgers simply because they do live with both owners of the property. Those cases in which someone in this situation is not a lodger are very rare.

The courts are often visited by unwitting defendants who wrongly assumed a set of circumstances was in the 99% group but their's was actually in the 1% group, and they lost, and they paid.

That is why I suggest the status be determined before giving advice and before they proceed.

pm

[property mongrel]

How come no-one though to write any rules before (or at time of) original purchase? Now's a bit late!

Okay, I just know you're gonna love this Jeff.

Pedants note (how I love that) - I presume you inadvertently omitted a "T" at the end of "though" in your post Jeffrey?

Anyway, to answer OPs original question - the logical solution is to establish the status of the occupants before you take any further action.

pm

[mariner]

Complicated
IMO residenrt LL A rents his spare room to lodger with tax advantages
absent LL B rents both his rooms to T's with ASTs & negotiates witrh LL A re purchase agreement or LL A could buy out LL B, based on inc rental income.
Other permutations may be avail.

[Sad S]

But both A and B own the whole house jointly.
It is not the case at present that one of the spare rooms belongs to A and the other to B. (any more than A owns the kitchen and B the bathroom).

B may in future be absent, but A will still be sharing kitchen, bathroom etc with the "guests", whichever room each occupies, and that seems to make them all A's lodgers and not tenants.

Question for OP - are there locks on the lodgers' doors? are any services, cleaning for example, provided?