Renting out a spare room: what you can and can’t do

A couple’s attempt to rent a room in their family home – on the condition the prospective tenant babysits their children – has sparked a debate about Britain’s rental market.

The advert, posted on SpareRoom, offers a reduced monthly rent of £400 a month (for only five days a week) for a room in Clapham in return for part-time childcare duties.

Here, Telegraph Money explores what legal implications lay in wait for landlords opting to offer reduced rent in exchange for work.

Is it legal to charge for a room and ask for childcare in lieu of rent?

In short, yes. In this instance, the tenant and landlord are entering into a lodger tenancy agreement, said Sean Hooker, head of redress at The Property Redress Scheme, a rental complaints service. Unlike an assured shorthold tenancy, the lodger is living with the landlord and sharing communal spaces such as a kitchen, bathroom or living room.

Mr Hooker said: “It is a lodger’s arrangement and therefore the rules are as negotiated between the parties.

“If the landlord sets out the conditions and the lodger agrees to those conditions, there is nothing illegal about that. You have no additional rights as a lodger – all you are doing is renting a room out on whatever basis the parties agreed and they can do that.”

Al McClenahan, of Justice for Tenants, a campaign group, said these types of arrangements are not new. 

He said: “If you think about the standard au pair arrangement, normally you get room and board for the entire time of your stay and for four or five days a week your job is to look after the children. It is exactly what is happening here except you don’t get to stay at the weekend and you still have to pay rent.”

Nick Hurley, a partner and head of employment at Charles Russell Speechlys, said it would not be illegal for the family to charge subsidised rent in exchange for childcare employment.

He says: “It wouldn’t be illegal. There are lots of arrangements where people get subsidised or free housing in return for their employment.

“It’s more unusual nowadays, but if you’re wealthy you might have domestic servants living in your property on subsidised terms.”

Are there any restrictions?

As a landlord you have far more flexibility with a lodger than with a traditional tenant. Unlike with an assured shorthold tenancy, where you agree to let the property for a fixed period of time, landlords need only provide “reasonable notice” to end the letting with a lodger.

This is not explicitly defined but often means the length of the rental period. If rent is paid monthly, as is the case with the family seeking an au pair, it would be reasonable to give one month’s notice. However if rent was paid weekly, you would only need to provide seven days’ notice.

A deposit does not need to be kept with a third party under a deposit protection scheme, as is the case with a shorthold tenancy. The landlord can choose to hold the deposit however they wish, although a lodger could still take legal action if they disagreed with any reason to withhold the deposit at the end of the tenancy.

Although the lodger does not have exclusive possession, as with conventional tenancies, the landlord should avoid going into the lodger’s room without permission. A landlord can enter the room without permission if it’s been agreed in the contract, they need to carry out repairs or there is an emergency such as a leak in the room.

Make sure you lay out your rules and conditions clearly in the contract with the lodger from the beginning. Both the landlord and the lodger are bound by the terms of the contract which you both agree to, so make clear what you expect from them.

Do you still qualify for rent-a-room relief?

The rent a room scheme lets a landlord earn up to £7,500 per year without paying tax for renting a furnished room in their home. This can be shared between two partners in which case the amount is halved.

If you earn more than £7,500, you must complete a tax return. You are then able to opt into the scheme and claim your tax-free allowance. If you are a resident landlord with a lodger you are eligible to take advantage of the scheme. It is also open to those who run a bed and breakfast or a guest house.

What responsibilities do you have as a landlord?

Renting a room in your home means you’ll become a “resident landlord”. As such, you are responsible for keeping the property safe and in good condition. You’ll need to check that your furniture complies with fire safety regulations and ensure that all electrical appliances are safe to use.

It is also your legal responsibility to check that your tenant or lodger has a right to rent in the UK. The Government has a list of documents you can use; you must see the originals and the details must be matching and not look as though they might have been changed.

In terms of how long they’ll stay, you must agree to either a fixed term of a few months or a year, or a rolling contract with no set end date. This agreement then needs to be put in writing. 

You should also establish how much notice the lodger needs to give you if they intend to leave, which should also be added to the contract.

This written agreement could also include any ground rules you want to establish with your lodger. It is also a good idea to write an inventory before they move in, to avoid any awkward confrontations later down the line over broken or missing furniture.

Do you count as an employer?

Landlords renting to a lodger at a reduced rate in exchange for childcare or other tasks, such as cleaning, will effectively be their employer.

“You’d definitely be the employer, and there will be a service occupancy arrangement,” Mr Hurley said.

“This is where someone is employed, and for the better performance of their job, they’ll live in the property. If the employment terminates – then they leave the property.”

As with conventional employment, you will be responsible for holiday entitlement, sick pay and even pensions under the “automatic enrolment” rules.

“The responsibilities will be exactly the same as any normal employer,” Mr Hurley said. “The hired individual living in the property would be entitled to the usual rights.”

He added: “It really isn’t just a simple thing of renting your room out with a discount. It could be quite onerous as there are regulatory and compliance issues you need to think about.”

Employers have to contribute to the tenant’s pension if they earn more than £520 a month, £120 a week or £480 over four weeks. For those passing these thresholds, the minimum pension contribution rate is 8pc of the salary (3pc from the employer, and 5pc from the employee).