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I currently own a flat (UK) and have a mortgage for said flat. My girlfriend is looking for a place to stay and it would seem mutually beneficial that she stays with me. She has offered to pay 'rent' money to me, as it would seem to make more sense that I get the money than some random landlord a few streets away.

Neither of us have done this before so we would like to make sure that there are no precautions we need to take.

Here's roughly the arrangement I've proposed, with numbers nicely rounded:

My current Mortgage costs £300 a month and my Gas/Electricity/Internet comes to £100. Current average rent in the area is £450 per person a month, so I have offered to let her stay at mine and give me £200 'dig' money. This helps me out with my bills and is significantly cheaper than what she would normally pay. Also, the money stays in our couple meaning I have more disposable income which ultimately benefits us both as well. Seems like a win-win.

The question: Is there anything worrying about this arrangement that puts either of us financially or contractually at risk?

Key concerns:

  • Should I be declaring my girlfriend as a renter and thus pay tax on what she pays me?

  • Is there any risk of my girlfriend 'owning' part of my property under this proposal leading to a mess in the future if we were to split up?

  • Should we enter into a contractual arrangement that we both can sign to cover ourselves from either or both of these issues?

Edit: after a few comments, I thought I'd add some extra info. She currently lives with me rent free and it is her idea to pay me now that her old lease is finished (she was splitting time between my flat and her old flat). I'm not dependent on her money in any way.

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    Personal tip: Ask her to set up periodic transfers, if you two end up thinking about the transaction every month, this may not be beneficial for the relationship. – Dennis Jaheruddin Aug 14 '17 at 15:01
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    You're buying a home for a monthly £450. This means that each month you put roughly £350-£400 in a safe for your future. Meanwhile, she pays you £200 each month. Meaning that you put £350-£400 each month in a safe and get £200 extra. In 10 years, you'll have £42,000-£48,000 to your name, plus £24,000, while she has -£24000. Wow, that's fair... All you both see is the short term. You want real fair? Tell her to put £350-£400 per month on a spare account or invest on the market, and each of you share all the daily expenses. Or buy a home together. – Olivier Grégoire Aug 14 '17 at 21:03
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    (follow up) If she really wants to pay something, share what the mortgage actually costs you: so split the £50-£100 you actually spend each month. – Olivier Grégoire Aug 14 '17 at 21:10
  • As an aside from the question of tax and future ownership claims, it may also be worth checking with your mortgage and insurance companies if you need to notify them of a future lodger and/or change of occupancy? This would presumably be in the terms of conditions of both the mortgage and the insurance. I imagine this is much less likely to be an issue with a lodger than if you were renting out the entire property. – pwdst Aug 15 '17 at 13:19
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    @OlivierGrégoire another way to look at it is that she's getting a discount on rent and keeping all of the benefits of renting vs buying a home (can move on a whim, doesn't have to worry about the real estate market crashing, doesn't have to plan for home repairs, etc.) Unless you think the very concept of renting property is unfair, I don't see any problem with the proposed arrangement. – Kat Aug 16 '17 at 22:35
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The rent payment is in principle taxable. However, you should be able to take advantage of the "rent a room" scheme, and the proposed rent falls well under the £7,500/year tax threshold for that. So no tax will be actually payable and you don't have to formally declare it as long as you stay below that threshold.

You should also be fairly well legally protected in case you do split up in future and you want to remove her. As you would be living there too, she would just be a lodger, not a tenant (technically, an "excluded occupier"). If you did want her to leave you would only need to give reasonable notice and wouldn't need a formal court order if you needed to force her to go.

As JBentley points out, there have been court cases where domestic partners contributing to household expenses while the other partner paid the mortgage have later been able to claim that this implied joint ownership. This was on the basis of a "constructive trust" being implicitly setup by the way they arranged their finances.

In your case, if there's a clear intention, formalised in writing, for the money to be treated as rent rather than a contribution towards purchasing the property, I think it should make it very hard to claim the contrary later. I would also suggest you be clear about whether the rent includes a share of the utility bills, and that things like groceries would be handled separately and split 50:50 or whatever.

As pointed out in a comment, there are template agreements for lodgers you could use a starting point (e.g. this one), but it's likely you'd need to customise it to your circumstances.

Another point made in another answer is that there's potential upcoming legislation to give some rights to cohabiting partners. In the current draft, those would kick in after three years or having children. If the bill does come into effect, you'd also be able to sign an opt out, but only after getting legal advice, and it would still be possible (though presumably hard) to persuade a court to overturn an opt out.

Overall that does create a small risk to you, but not one that comes directly from your girlfriend paying rent. It's likely that if you are both on an equal financial footing and had always kept your finances separate, that there wouldn't be any award made anyway. And you can't run your entire life on hypothetical risks.

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    I'd be very wary of being this optimistic. What if the girlfriend later claims that she understood the arrangement to be a contribution towards the mortgage (a significant one at that - more than 50%) and that she'd be acquiring ownership rights, and the court agrees and implies a trust? Similar things have happened. I will see if I can dig up a case. – JBentley Aug 14 '17 at 18:57
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    @JBentley that's what I was roughly getting at with a formal agreement minimising the risk. I may be being naive, but I'd be surprised if she could turn around and claim something different later if such an agreement existed. – Ganesh Sittampalam Aug 14 '17 at 19:48
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    Agreed, that a formal agreement which makes the intentions of both parties clear, should minimize the risk. All of the cases I've come across and which I posted in my answer seem to rely on the principle that there was an intention (whether express or implied through actions) that one party should acquire a beneficial interest. Proof that that is not the case would presumably cause such a claim to fail. – JBentley Aug 14 '17 at 20:16
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    Really any clear agreement between the parties, even an oral one, should prevent a trust being implied etc unless one party persuades the court to disbelieve the other. Harder than it sounds. Having things written down clearly on paper should help. Of course who knows how the courts will develop the law in years to come. But this is something that I know people do successfully. – Francis Davey Aug 14 '17 at 22:46
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With regard to worries about ownership:

I'll point you towards this - The Cohabitants Rights Bill currently in First Reading at the House of Lords. Without a date for even the second reading yet.

In short the Bill is attempting to redress is the lack of rights when a non-married relationship ends when compared to married relationships; that is that one of the "cohabitants" can end up with basically nothing that they don't have their name on.

So currently you're in the clear and (Part 2) Section 6.2.a says the Bill cannot be used retroactively against you if your relationship is over before it becomes law (I expect with Brexit etc, this Bill isn't a high priority - it's been a year since the first reading).

Section 6.2.a: This Part does not apply to former cohabitants where the former cohabitants have ceased living together as a couple before the commencement date;

However, if you're still together if/when this Bill becomes Law then basically all of (Part 1) Section 2 may be relevant as it notes the conditions you will fall into this bill:

Section 2.1.a: live together as a couple

and

Section 2.2.d: have lived together as a couple for a continuous period of three years or more.

and the "have lived together" at that point counts from the start of your cohabitation, not the start of the Bill being law:

Section 2.4.a: For the purposes of subsection (2)(d), in determining the length of the continuous period during which two people have lived together as a couple - any period of the relationship that fell before the commencement date (of the Bill) is to be taken into account

If you have kids at some point, you'd also fall under 2.2.a through 2.2.c too.

After that, the financial parity decided upon by the court depends on a whole bunch of conditions as outlined in the Bill, but Section 8.1.b is pretty clear:

Section 8.1.b: (b)the court is satisfied either— (i)that the respondent has retained a benefit; or (ii)40that the applicant has an economic disadvantage, as a result of qualifying contributions the applicant has made

I'm not qualified to say whether your partner helping to pay off your mortgage in lieu of paying rent herself would count as just paying rent or giving you an economic benefit.

Sections 12, 13, and 14 discuss opt-outs, also worth a read.

The a major disclaimer here in that Bills at this early stage have the potential to be modified, scrapped and/or replaced making this info incorrect.

As an additional read, here's an FT article from Feb 2016 discussing this lack of rights of a cohabitant which should alleviate any current concerns.

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    Can you summarize what the likely result will be, if the bill isn't modified too much? You explain quite well that the bill is likely to apply, but what's the upshot? N months notice before eviction? – PotatoEngineer Aug 14 '17 at 18:13
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    The existence of a bill doesn't mean there isn't already established case law that is relevant. I wouldn't assume that the OP has nothing to worry about just because this law hasn't been passed yet. – JBentley Aug 14 '17 at 18:53
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Disclaimer: I am a law student, not a lawyer, and don't claim to have a legal opinion one way or another. My answer is intended to provide a few potentially relevant examples from case law in order to make the point that you should be cautious (and seek proper advice if you think that caution is warranted). Nor am I claiming that the facts in these cases are the same as yours; merely that they highlight the flexible approach that the courts take in such cases, and the fact that this area of law is complicated.

I don't think it is sensible to just assume that there is no way that your girlfriend could acquire property rights as a rent paying tenant if arranged on an informal basis with no evidence of the intention of the arrangement. One of the answers mentions a bill which is intended to give non-married partners more rights than they have presently. But the existence of that bill doesn't prove the absence of any existing law, it merely suggests a possible legal position that might exist in the future.

A worst-case assumption should also be made here, since you're considering the possibility of what can go wrong. So let's say for the sake of the argument that you have a horrible break up and your girlfriend is willing to be dishonest about what the intentions were regarding the flat (e.g. will claim that she understood the arrangement to be that she would acquire ownership rights in exchange for paying two thirds of the monthly mortgage repayment).

Grant v Edwards [1986] Ch 638 - Defendant had property in the name of himself and his brother. Claimant paid nothing towards the purchase price or towards mortgage payments, but paid various outgoings and expenses. The court found a constructive trust in favor of the claimant, who received a 50% beneficial interest in the property.

Abbot v Abbot [2007] UKPC 53, [2008] 1 FLR 1451 - Defendant's mother gifted land to a couple with the intention that it be used as a matrimonial home. However it was only put into the defendant's name. The mortgage was paid from a joint account. The claimant was awarded a 50% share.

Thompson v Hurst [2012] EWCA Civ 1752, [2014] 1 FLR 238 - Defendant was a council tenant. Later, she formed a relationship with the claimant. They subsequently decided to buy the house from the council, but it was done in the defendant's name. The defendant had paid all the rent while a tenant, and all the mortgage payments while an owner, as well as all utility bills. The claimant sometimes contributed towards the council tax and varying amounts towards general household expenses (housekeeping, children, etc.). During some periods he paid nothing at all, and at other times he did work around the house. Claimant awarded 10% ownership.

Aspden v Elvy [2012] EWHC 1387 (Ch), [2012] 2 FCR 435 - The defendant purchased a property in her sole name 10 years after the couple had separated. The claimant helped her convert the property into a house. He did much of the manual work himself, lent his machinery, and contributed financially to the costs. He was awarded a 25% share.

Leeds Building Society v York [2015] EWCA Civ 72, [2015] HLR 26 (p 532) - Miss York and Mr York had a dysfunctional and abusive relationship and lived together from 1976 until his death in 2009. In 1983 Mr York bought a house with a mortgage. He paid the monthly mortgage repayments and other outgoings. At varous times Miss York contributed her earnings towards household expenses, but the judge held that this did "not amount to much" over the 33 year period, albeit it had helped Mr York being able to afford the purchase in the first place. She also cooked all the family meals and cared for the daughter. She was awarded a 25% share.

Conclusion: Don't make assumptions, consider posting a question on https://law.stackexchange.com/ , consider legal advice, and consider having a formal contract in place which states the exact intentions of the parties. It is a general principle of these kinds of cases that the parties need to have intended for the person lacking legal title to acquire a beneficial interest, and proof to the contrary should make such a claim likely to fail.

Alternatively, decide that the risk is low and that it's not worth worrying about. But make a considered decision either way.

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    Thank you. This is a good factual answer to a factual question. Lots of rally useful information there and I may take this to Law Stack. – Smeato Aug 14 '17 at 20:27
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Edit #2
My whole answer was based on my misunderstanding that you were renting out a totally separate property to your girl friend. I finally understand now that you're renting out a room in YOUR apartment flat to your gf. So, based on my new understanding, I don't think it's necessarily a bad idea. The answer below is my answer to a different question ;)

Original Answer
My answer has nothing to do with business, but is totally relationship based.

If you care about her in a "we might be together a long time" way, then I wouldn't do this. I don't care what arrangements you setup before hand, at some point, you're bound to feel like she owes you something at some point. Let alone the easiest of situations to imagine (she's late on the rent, she loses her job and can't pay, etc) you'll be forced to make decisions about how much your desire to love and care for her outweighs your need to pay your mortgage. You can argue how magnanimous your are all day long, but is this something you want to bring into your relationship?

Now, if you don't really care to stay with her that long and you could do life with or without her, then go for it. I think the big question is, is your relationship worth £200?

Edit
In the interest of supporting my opinion, here are a few articles I found on the subject:

Unfortunately, the way renting to friends or family often works out is far from what would be expected between people who care about one another. For the most part, friends and family members will actually make bad renters, because they’ll expect more from you than a tenant who doesn’t know you. You may get a lot of requests for maintenance and repairs, even for minor things, and you may also find that family members and friends think they should be entitled to perks because of your personal relationship with them. When they don’t get special treatment, they can get angry with you, and that hurts both your professional relationship and your personal relationship.
American Apartment Owners Association

"In my experience, landlords renting to relatives doesn't work out perfectly," said Ceyhun Doker, a REALTOR® associate at Keller Williams Realty in Burlingame, CA. "When you don't know each other, there are fewer problems."
realator.com

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    I like this answer. Along those lines, maybe just ask her to pay the £100/mo for utilities, plus maybe some grocery shopping? It's good to talk about money and come to an understanding about these things, especially if she's "the one". – Rocky Aug 14 '17 at 17:06
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    I'd say that by charging her a fair rent, he's avoiding the feeling that she owes him something. – Ganesh Sittampalam Aug 14 '17 at 17:55
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    And what if he's the one to lose his job and need her to cover the mortgage for a while? While they both can afford it, the proposal is by far the most balanced approach if they're not pooling their finances. – Ganesh Sittampalam Aug 14 '17 at 18:30
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    I don't quite follow this answer. Why would I feel like she owes me something in the future when she currently pays nothing and this agreement would mean she would start contributing? – Smeato Aug 14 '17 at 20:18
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    "... friends and family members will actually make bad renters, because they’ll expect more from you than a tenant who doesn’t know you. You may get a lot of requests for maintenance and repairs, even for minor things ..." - Those are valid warnings against renting to friends and family. But how is it relevant to a couple living together? – marcelm Aug 14 '17 at 21:43
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If you are living together 'casually' (no formal partnership agreement) then my option would be to ask her politely to as she has offered make a contribution by buying the groceries or some such which you share. A 'voluntary contribution' not an enforceable one. Just as between flat mates where only one is the actual tenant of the flat but the tenancy allows 'sharing' . Check your tenancy allows you to share lodgings. PS An old Scots saying is "never do business with close family". I.e do not charge your wife or living in partner rent. It mixes emotional domestic life with a formal business life which can set feuds going in case of a break up or dispute. If you enter into child bearing relationship or parent hood or formal partnership or marriage then all this changes at some time in the future.

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    Same comment as to Wildcard's answer: What happens when we disagree on the amount we want to spend on groceries? Or if I want the more expensive chicken and beer. I'd rather not hold the 'well you don't have a mortgage too look after do you?' line over her head. – Smeato Aug 14 '17 at 20:22
  • @Smeato what i have with my wife is we have simply watched our expenditure towards common household things for a couple months- groceries, utility bills, etc and agreed to each put 1/2 of what is needed in a shared account from which either of us only spends on those things. the rest of our income is each of our own, to buy more or less expensive beer or whatever each of us wants. i am paying all the mortgage, but since she is earning much less then me, we agreed that her spending half of common household expenses is larger % of her salary, so these things are considered balanced by us. – Gnudiff Aug 15 '17 at 2:51
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I have been renting rooms out of my house for over 7 years now. When renting to non-family, the arrangement is usually successful. People leave for various reasons, an occasionally I will ask someone to move out if they are not working out. In the USA, this works well because by keeping things formal (rental agreements, etc) you actually have a great business with lots of deductions that end up reducing you net income quite a bit.

However, US law makes a big distinction about whether or not you're renting to family/relatives, specifically around whether or not they are paying full-market rent for their room. If not, then you are subsidizing them which could disqualify your property (or at least the portion they are using) from being legitimately rented -- and thus no tax deductions for said activity.

The other risk, -- again, in the USA -- is the possibility of a long-term relationship falling under rules of common-law marriage. This is rare unless children are involved. A couple who have children, married or not, may have the courts get involved to oversee the division of assets with regards to ensuring the children have a place to live and adequate financial support.

For the UK, I would think the laws would be roughly similar. Check out this website for more a detailed review. https://www.citizensadvice.org.uk/family/living-together-marriage-and-civil-partnership/living-together-and-marriage-legal-differences/

  • Hi, thanks for the response but it doesn't really answer the question. – Smeato Aug 14 '17 at 20:24

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