How do You Charge A Friend Rent?
As it's your friend, if you do decide to set up an official let and charge them rent, you will most likely want to offer them a discount. However, be careful that this discount isn't so much below the market rate that you're just about covering the additional expenses - you need to see some profit or you will most likely end up resenting them!
Where a lodger and landlord are friends, discussions about rent are likely to be especially awkward, and this is yet another reason why lets to friends are more likely to fail, as I've touched on above. In such situations, the landlord is often loathed to even raise the subject of the rent, leaving it to their friend to pay what they want or they set a rent that is not only well below the market rate, but less than they really need.
This is unfair to both parties, as the landlord is naturally going to feel taken advantage of, and will come to resent their friend's presence in their home, begrudging them the use of utilities and water, and resenting it when they spend their own money (without being in arrears) on anything but absolute essentials.
For example, I've come across two instances of landlords dismissing their "friends'" £300 plus monthly rental contributions as "nothing", which both amounted to around 70% of the full potential going rate for the areas (in Greater London), as the landlords didn't feel it compensated them for the inconvenience of having someone else there - but, to those lodgers, the sums they were paying represented an enormous amount of money that they were struggling to afford. Although there hadn't been a big disagreement between any of these parties, the landlords had stopped regarding their lodgers as friends by this point, and were looking at what they might have got from a "real" lodger under a "real" agreement - this is why you keep the letting arrangement on a proper business footing!
At the other extreme, if you suspect that your friend is the type to duck responsibility, and might even be likely to freeload, even if you can afford to support them, by doing so you're helping to enable their destructive behaviour by not forcing them to face their responsibilities.
If you're the prospective landlord, provided your friend has the means to pay, bear in mind that this is a business arrangement; you are providing an essential service (in common with all other service providers) and you deserve and may even need to be paid. You are also likely to be charging them much less than the going rate, so you're already helping them considerably.
Despite this, many people who take in their friend as a lodger report that they can't bring themselves to discuss rent, and if they do, they set it way too low. They also feel awkward drawing up a formal Lodger Agreement - which is there for the lodger's protection as much as the landlord's. If this is the case, why not approach a letting agent (either online or on the high street) who belongs to a professional body such as ARLA or UKALA and ask them to draw you up a Lodger Agreement, to include house rules pre-agreed with your friend, and determine a rent for your room. You might then want to take off a discount of between 25% - 50% (depending on the circumstances of both yourself and your friend). This final figure should be the rent on the Lodger Agreement.
This might seem over the top, and unnecessary expense, but it will save a lot of problems going forward and most likely your friendship - almost all the friend as lodger scenarios I've experienced (both personally and friends') have ended up with both parties falling out big time!
But what will happen if they genuinely can't always pay? Will you be able or willing to carry them for a while? Can you honestly afford it (especially if they'll be at home during the day and using more utilities). Either ensure they're paying you rent that's enough to cover the odd month they can't pay, or ask yourself if it's really better not to allow them to move in, if you can't afford missing payments or you're likely to feel taken advantage of. If that is the case, you'll almost certainly fall out, if not directly over the rent, then over something else because of the mounting resentment between you!
Remember, as discussed in Letting to a Friend and Houseguest, Lodger..., if you're accepting a rent that is more than just the lodger's actual reasonable expenses, you are granting that person a licence to occupy your home, and you are now bound by a live in landlord's obligations - see Who do you need to inform (in the UK)?, Health and Safety and Unofficial Lets.
If they have the use of separate bathroom and cooking facilities (e.g. a "granny flat"), you need to be especially careful as any money over £250 a year could legally count as rent, and you will therefore have created a tenancy and will need a court order if your friend refuses to move out!
To minimise arrears, and ensure rent is paid on time, ask your friend to set up a standing order in your favour to leave their account the day after they're paid. However, if you or your friend don't want to do this, or the lodger is really short of funds on occasion and would prefer to pay by credit card, there is a very useful website, Wrinq, that enables rent payment by credit card, for a very small charge and without the need for registration.
- If the agreement runs from week to week, by law you must give your lodger a hard copy rent book (even if the lodger is a friend or relative) however the rent is actually paid. A rent book for all types of weekly let, including room lets to lodgers, can be also be downloaded for free from here. Rent payments do not need to be regularly recorded in the rent book.
Just to be clear on what is meant by "rent", if no or little rent money is being paid, but the lodger is doing several hours of work for you each week (above and beyond their reasonable share of the housework) or does a one off big job for you (e.g. home improvements), and you agree to this arrangement (verbally or in writing) or you at least tolerate it for more than two months, this is very likely to be legally defined as rent (rent being a "consideration for money or money's worth").