Renting to a relative in receipt of LHA/Housing Benefit?

milkbottletops

Hi,


I could do with some advice please. I rent a house out and until recently this has been occupied by a tenant (found and managed via a letting agent).


A relative of mine (extended family, different surname) has now asked if they could rent it from us, but it is a 4 bed and they only need a 3 bed because of the ages of their children. They are all currently living with their parents/grandparents, who will shortly be downsizing, so this is why they are looking for somewhere else to move to. They will be claiming LHA/HB, which will only cover a certain amount of the rent. The shortfall they intend to make up using money given to them by their parents each month.


I need to know whether this is allowed? Does the fact that it is a 4 bed, when they only need a 3 bed, go against them when claiming? If it does, can I appear to let it to them for less than the market rent and then accept the money from their parents to make up the shortfall?


I am unsure of the correct procedures to follow and I don't want to lose out financially if their claim is refused. I also don't want to be in a position where the rent goes unpaid and then I have to evict them, potentially ruining our relationship (but this will have to happen, because I cannot afford for someone to live there rent free, or for a fraction of the market rent, however it is paid).


It seems to me that if it's ok to rent to a relative in this situation then I need to get in writing that their parents will make up the difference each month. If it were for me personally, I'd dispense with all the messing about and just rent a 3 bed, but seeing as they are family, I am trying to find out the pitfalls for me as a landlord before giving an outright no.


Can anyone please enlighten me?


Thanks.

BigAunty

A tenant who claims HB may live in any size and price property they like but their allowance is capped to their entitlement and it is up to them to pay the top-up between the rent and their LHA allowance. There is obviously a higher risk of arrears if they live in a property far more expensive than their HB.

Housing Benefit rules do allow a tenant who rents a self-contained property from a landlord to whom they are closely related (i.e. the landlord and tenant don't live in the same property). However, they are subject to closer scrutiny by local councils to ensure they are contrived tenancies, one set up to exploit the housing benefit, and that they are commercially operated (have a tenancy agreement in place at the very least). Google 'contrived tenancy' to understand why some HB claims get rejected.

Your main issue is the quite common posts we see here from relatives who let out or rent properties from relatives. If there are tenancy issues (landlord slow to do repairs, tenants not paying rent) then the family relationship suffers from conflict. At the end of the day, you've got to think whether or not you've got the appetite to evict your relatives and the fall-out that could result.

Ask on the benefits forum whether there are any issues with the tenants receiving cash gifts from their parents if they are on means tested benefits.

Do you know the difference between their LHA limit and the shortfall with the rent? Any reason why they are avoiding contacting letting agents and landlords directly to enquire about 3 bed properties - i.e. do they have bad credit records? How old are their dependents? As each one leaves home, their LHA limit could shrink further. Are they in employment? Any particular reason why they ended up renting with their parents and not standing on their own 2 feet as a single family?

milkbottletops

Thanks for your reply. If it goes ahead, I was thinking of putting in place a 6 month AST initially, so that I can see how it goes. I would (unfortunately) have to evict them if either the housing benefit wasn't paid, or if their parents didn't make up the shortfall in rent, purely because my own circumstances wouldn't allow me to be charitable.


Yes, I hadn't thought about the fact that the money from their parents could be seen as a cash gift, it's a very good point.


I do know the rough amount of the shortfall in the rent, it's not massive, but I wonder why they are wanting a 4 bed in the first place, when a 3 bed would get fully paid up by HB/LHA, without a shortfall.


I don't think they are avoiding contacting letting agents, I believe it's more because they know me, they know for a fact I'll carry out all repairs quickly and to a high standard and it is a very nice property. I would be surprised if bad credit is an issue.


Their dependents are young, so not at leaving home age for a number of years yet. The relative in question is not in employment as yet (studying) and this is why they've been living at home until now, because their parents/the children's grandparents have been providing childcare/support.

egoode

Personally I don't like mixing business with family and in my family when it's been done it's always ended in tears and people no longer talking to each other. Going into it they would have never thought that would happen as they were all got along so well beforehand. The worse situation is actually my sister renting my Dad's flat. She often asks him if she can not pay her rent because she's between contracts (and doesn't offer to pay back the shortfall when she's working again). She also only pays what she and her partner wanted to pay not what the actual market rent it. Obviously my Dad is part of the problem here as he lets her get away with it but it's making financial difficulties in his life.

I would think long and hard whether you want to rent to family at all and especially in this situation where they are relying on HB and parents support there seems a lot of issues likely to arise. Especially if you can't afford for them to miss the rent payments ever.

BigAunty

milkbottletops wrote: »

I do know the rough amount of the shortfall in the rent, it's not massive, but I wonder why they are wanting a 4 bed in the first place, when a 3 bed would get fully paid up by HB/LHA, without a shortfall.

The feedback from LHA claimants on this forum is that many (the majority) of landlords/letting agents do not want to rent their properties to those on benefits so that would be one attraction in having a relative as a landlord.

The other feedback is that the LHA rates rarely correspond with the size of the property the person is entitled to, many claimants have to top up their rents from other income.

LHA rates are set at the bottom third of local market rents, the cheapest third of rental properties so can often be the less attractive properties in the least nice areas.

Have a browse of 3 bedroom properties to rent in your local area (Rightmove, the Gumtree) and you will probably note that many are above the limit and many adverts won't accept HB claimants. You may also find there's not much difference in price between a 3 and 4 bedroom place but that will vary from area to area.

Also, if their parents are prepared to subsidise them despite their benefits and student income, then I guess they've got no incentive to live within their means....!

G_M

If you are willing to suck up all the possible negative consequemces of this tenancy in the interests of helping family - go for it.

If not, don't go near this arrangement.

milkbottletops

Well when we rented it out previously, we didn't allow HB/LHA tenants either. Yes, any houses they can afford to live in without top-ups from parents, are in worse areas.

Does it make sense to initially go put our relative on a 6 month AST, putting their parents as guarantors, so that one way or another we are covered? Would we need something else in writing (a separate contract) that states their parents will top up the rent, or does having them sign as a guarantor cover us in the event it does not happen?

G_M

Providing the guarantee agreement is properly executed as a deed, it is legally enforcible.

But are you really going to take them to court if the worst happens?

That was the point in my earlier post - where family and emotion and relationships come into it, there are added complications over a simole business deal where there is no problem evicting or suing if needs be.

milkbottletops

As long as the AST is only for 6 months at a time, I feel more comfortable (possibly naively?) because I think taking them to court can be avoided.

The reason being is that if rent/or the parental top up isn't paid for whatever reason, I would just not renew the tenancy citing their non-payment of the full amount.

I would be left in a financial mess, granted, but it would be recoverable, as I would only be 4 months down (they will pay one month up front, plus deposit of one month, which I would keep). And I would've learnt my lesson and never be so trusting again!

Mardle

Would you still use a letting agent or would you manage the property yourself?

G_M

milkbottletops wrote: »

As long as the AST is only for 6 months at a time, I feel more comfortable (possibly naively?) because I think taking them to court can be avoided.

The reason being is that if rent/or the parental top up isn't paid for whatever reason, I would just not renew the tenancy citing their non-payment of the full amount.

You do realise that
* when the 6 months is up the tenants do not have to leave. They can move automatically to a periodic tenancy (SPT)?
* the only way to get the property back (other than with consent) is to go to court? Court is the only way a LL can end a tenancy

Read:

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Ending/Renewing an AST (what happens when the Fixed Term ends?)(What is a Periodic Tenancy?)(How can a LL remove a tenant?)(How can a tenant end a tenancy?)