7 steps to screening and selecting your lodger

Lawpack on March 27, 2020

Taking in a lodger by renting out a room in your house should be an easy process. And taking in a lodger is a great way to earn money tax-free under the Rent a Room scheme. But it’s important that you get the right lodger for you.

In this article we outline what you should do to ensure that you get the right lodger, and how you can check your lodger’s references and run some effective security and credit checks

Lodger Screening and Selection – Step 1

Set the scene for your lodger – rent a room advertising

Sometimes your search for a lodger will help determine the ‘sort’ of lodger you get. Here are some simple things you can do to ensure that you attract the right ‘sort’ of lodger.

Make sure that your property is clean and tidy. Your property should provide the lodger with all they need: cooking, washing, drying, home entertainment and a reasonable level of privacy. Most lodgers will expect a double bed and a TV in their room, preferably with an easily accessible bathroom, or, better still, an en suite.

If you can find a lodger through word of mouth, so much the better. It’s a bit like an instant guarantee! Failing this, you could extend your search to large, local employers, such as educational establishments, local authorities and hospitals. Many of these will have Accommodation Officers who can help.

The internet is increasingly popular with sites, such as SpareRoom.co.uk, making your search so much easier than ever before. And don’t forget the old-fashioned methods, such as an ad in the local shop or a classified ad in the local paper.

Remember that your advertisement is the first stage of your lodger screening process. You can aim to attract a certain ‘sort’ of lodger and to clearly exclude others. Although discrimination laws apply to lodgers, you can’t discriminate on the grounds of age, sex, race, disability, etc., but you can discriminate on the merits of a particular individual qualifying as a lodger in your house.

Lodger Screening and Selection – Step 2

Meet your potential lodger – the lodger interview

For your first lodger ‘interview’, have a checklist drawn up to make sure that you ask all the questions you need to, and give the prospective lodger all the information they need. Your lodger checklist should include information about:

  • Where your property is
  • What facilities it has
  • What the local area is like
  • What the rent is
  • What the payment arrangements are
  • What your deposit is
  • Any specific ‘house rules’ or conditions

And your lodger checklist should allow you to get basic details that you need from the lodger:

  • The lodger’s full name
  • A permanent address for your lodger
  • Your lodger’s contact telephone number
  • Why your lodger is looking to rent a room
  • How long your lodger intends to rent a room for
  • When your lodger can move in
  • Details of your lodger’s employment, etc.

At the first meeting you should always have a Lodger Application Form with you and a receipt book or rent book for any cash holding deposits taken.

Lodger Screening and Selection – Step 3

Collect the lodger’s details: lodger application forms

You should screen your would-be lodgers by using a Lodger Application Form. You should at least make basic checks that the information they have given to you is correct.

Each lodger you take in should complete the Lodger Application Form. This application form provides a legal declaration of your lodger’s identity, accommodation and employment history, their personal details, income status and references. It also explains to your lodger how you will collect rent, how much the rent is, as well as outlining the terms of your Lodger Agreement.

The Lodger Application Form is the basis of your lodger screening. It tells your lodger that credit and references checks will be made (in accordance with the 1988 Data Protection Act). Ask your prospective lodger to return this completed form as soon as possible.

We strongly recommend that, in addition to any checks you make yourself, a lodger credit check is always carried out. You may wish to charge the lodger a fee for this process, in which case the Lodger Application Form should state this.

Lodger Screening and Selection – Step 4

Verify your lodger: lodger credit checks

For very little cost you can professionally verify your lodger. Given the risk of fraud or bad debt, this is a highly recommended security check. Lawpack recommend Rentchecks’ Tenant Checking Service for both tenant and lodger verification. Rentchecks are affordable, reliable and quick.

Credit check out your new lodger here.

You can also conduct some basic checks yourself. Chase up the bank, employer and previous landlord references. It’s best to verify all references by telephone as people will often give a more full and frank assessment in conversation than in writing.

And remember the ‘last but one’ rule for previous landlords. Whilst the current landlord, who may want to see the back of your prospective lodger, may opt to give a glowing reference, this won’t be the case with the last but one!

Lodger Screening and Selection – Step 5

Make a formal Lodger Agreement

Once you have selected your lodger, let them know and get them to sign a Lodger Agreement. A formal Lodger Agreement can prevent a lot of arguments and trouble later. A Lodger Agreement gets everything down in writing and offers both of you legal protection.

Lodger Screening and Selection – Step 6

Make clear the house rules

Alongside your Lodger Agreement we advise that you provide a Starter Pack which can include a set of your house rules. This can be as detailed or as loose as you are comfortable with. Here are some things that your Lodger Starter Pack may include:

  • House rules – access areas, no-go areas, responsibilities, smoking/no-smoking, etc.
  • Appliance information (e.g. how to use TV, VCR, cooker, etc.)
  • Local information
  • Emergency information and contact numbers (e.g. fire procedure, door keys, isolator switches, water stop taps, electricity and gas meters, etc.)

Lodger Screening and Selection – Step 7

Set up a banker’s standing order

Make your life easy. If you set up a standing order payment to collect your rent, you can avoid a number of disputes and friction that can so easily arise if rent is a little late! You can use Lawpack’s Bank Standing Order Mandate Form to do this.

Further information

 

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When landlords need a rent book

Lawpack on March 27, 2020

Rent is the money which a tenant pays the landlord in exchange for their right to occupy the property.

In England & Wales and Northern Ireland the payment of rent isn’t absolutely needed to create a tenancy, but in Scotland it’s vital.

For lodgers the money paid isn’t rent but is simply a licence fee as lodgers don’t have tenancies.

Homeowners should be careful not to describe money paid as rent if they’re not creating a tenancy as it causes confusion and may give the occupier more rights than they intend, but you cannot avoid creating a tenancy by falsely describing a rent payment as something else.

Providing a rent book to a non-tenant will not in itself be enough to allow the tenant to assert that they are paying money as rent despite its title.

The requirement for a rent book

It’s compulsory for all landlords in Northern Ireland to provide a rent book for all tenancies and landlords commit a criminal offence if they fail to do so.

The offence is committed every time the rent is demanded and every 14 days during the tenancy in any case, so landlords who don’t provide one can find themselves being prosecuted for multiple counts of failing to provide the document.

Each carries a substantial fine.

In England & Wales and Scotland a rent book is only required:

  1. where the rent is described in the tenancy agreement as being paid weekly; or
  2. where the rent is actually paid weekly by agreement irrespective of the wording of the agreement.

Where rent is being demanded or paid weekly, it’s a criminal offence to fail to provide a rent book.

Keeping it up to date

Where a rent book is required to be provided it’s also an obligation that it’s kept reasonably up to date.

The purpose of one is to provide a receipt for payments for the tenant and a log of rent paid for the landlord.

Therefore it’s useless to have such a book and then allow it to become hopelessly outdated.

Rent in advance or arrears?

Where payment is due it falls due on the morning of the day stated in the agreement, but the tenant has the whole of that day (until midnight) to make payment.

Where it is stated in the tenancy agreement that rent is payable in advance (such as in Lawpack’s agreements), the tenant will be deemed to be in arrears for the whole period that they are obliged to make payment for once that payment is outstanding.

So if a tenant is supposed to make a payment on the first day of each month in advance for the coming month the tenant will be one month in arrears if they don’t make payment on that day.

Where rent is payable in advance there is no requirement in law that the payment be apportioned and this is only required if the tenancy agreement allows for it.

So if a tenant makes advance payment for a full month and then departs the property part way through the month (even if they do so with the landlord’s agreement), then the landlord is under no obligation to refund the money for the unused portion of that month (even if they relet the property) unless they have specifically agreed to do so.

How to witness and sign your Will properly

Lawpack on March 27, 2020

Witnesses to Your Will

To make sure that your Will is legally valid, it’s important to ensure that your will is properly witnessed.

When you’re making a Will you need two witnesses who must be over 18 and preferably neither very old nor hard to trace, in case a question should arise later concerning the validity of your Will. A blind person cannot witness a Will

Making a Will Warning:

If a person is inheriting something in your Will (called a ‘beneficiary’), it’s vital that they are not a witness to the same Will. Also, you shouldn’t use someone as a witness to your Will if they are married to a beneficiary of your Will. If either of these people do witness your Will, they will lose the benefit of their gift, but the Will itself will remain legally valid.

An ‘executor’ (someone you have named in the Will to manage your estate) or their spouse can safely act as a witness to your Will – unless they are also a beneficiary, in which case another witness must be found.

Signing Your Will

You must sign your Will in the presence of two witnesses and they must then both sign in your presence and in the presence of each other as witnesses to your signature. Neither you nor any witness to your Will should leave the room until your Will is both signed and witnessed, and you should all see each other sign the Will .

When signing your Will, use your usual signature, write in ink and date your will. Be sure that the witnesses complete their names, addresses and occupations on the Will.

Write Your Will with Lawpack:

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The role of limited company directors

Lawpack on March 27, 2020

When you form a limited company, your role as company director is to promote the success of the limited company and to manage the limited company on behalf of the shareholders.

Company directors have extensive powers to manage the limited company, which are delegated by the shareholders in the Articles of Association. But shareholders can dismiss limited company directors by passing an ordinary company resolution at a shareholders’ meeting.

Shareholders holding a simple majority (either alone or collectively with other shareholders) of the issued shares of the company will be able to remove a director and control the board. This is providing that 28 days before the shareholders’ meeting, notice has been given to the limited company of the resolution, and the limited company in turn has given the members notice of the resolution 21 days before the shareholders’ meeting.

When managing a limited company, directors are obliged to act in good faith and in the best interests of the limited company.

They must avoid placing themselves in a position where there is, or could be, a conflict between their personal interest and their duty to the limited company. They must exercise skill and care in their role as limited company directors.

Company directors’ duties are now set out in limited company legislation. A company director’s general management duties are to:

  • Act in accordance with the limited company’s constitution and exercise their powers for proper purposes
  • Act in a way to promote the success of the limited company for the benefit of the members as a whole
  • Exercise independent judgment
  • Exercise care, skill and diligence
  • Declare to the other company directors the extent of any interest in a proposed transaction or arrangement with the limited company

In addition, a limited company director must avoid conflicts of interest and must not accept benefits from third parties.

Sometimes the limited company directors and shareholders are the same people, although there is no requirement that they should be.

Shareholders can, with the Court’s consent bring a derivative claim on the limited company’s behalf against a company director who is in breach of his/her duties or is negligent.

Limited company directors and board meetings

Generally, the company directors manage the limited company and decisions will be taken at board meetings.

Limited company management legislation sets out rules on how limited company board meetings should be run:

Board Meeting Rule #1

The Articles of Association are likely to specify that at least two limited company directors must be present at board meetings (unless there is only one director, when that person will form a quorum).

Board Meeting Rule #2

All the limited company directors in the UK must receive reasonable notice of a board meeting. Company resolutions are passed by a majority of the company directors at the board meeting.

Board Meeting Rule #3

A record of board meetings must be kept. The record is known as ‘board minutes’.

Board Meeting Rule #4

If the directors don’t wish to hold a board meeting, they can pass a written company resolution, provided that all the directors sign that company resolution.

The company resolution is dated when the last director signs it and it’s entered in the board minutes book.

In practice, the day-to-day management of the limited company will be delegated by the board of directors to one or more of them, so that it’s unnecessary to hold board meetings on many matters.

But certain company management activities will require the company directors to act collectively in a board meeting (e.g. issuing shares to shareholders).

Appointing limited company directors

The first company directors are named in the limited company formation documents (Form IN01) filed with Companies House. The company directors are appointed on incorporation of the limited company (i.e. the date on the Certificate of Incorporation).

Additional company directors may be appointed by either the board of limited company directors or the shareholders.

Anyone can be a limited company director so long as they have not been disqualified, are not an undischarged bankrupt, and are over 16.

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How to make a property inventory

Lawpack on March 27, 2020

Landlords – protect your property and avoid complications at the end of the tenancy by making sure that your tenant completes a property inventory when the tenancy starts.

One of the most common ‘flashpoints’ between landlord and tenant is arguments about the condition of the property and its contents, and deductions from the damage deposit. Most of these arguments can be prevented by drawing up a detailed property inventory.

Since the introduction of the Tenancy Deposit Scheme too, landlords who want to claim money from their tenants’ deposits now have to prove that damage has been caused. So if you’re a landlord and you don’t keep an accurate inventory, you’ll find it difficult to justify deductions to a tenant’s deposit.

Here is our quick guide to how you can protect your property, your contents and your pocket!

1. Go through the house room by room.

Note on the property inventory all of the contents in each room. Even if you’re letting a property unfurnished, it’s a good idea to have a inventory to record the condition of the walls and carpets, etc., in case of future dispute.

For example, if there is a stain on the carpet or rug before the tenancy starts, include it in the property inventory. Then the tenant cannot be blamed for it at the end of the tenancy and there won’t be a dispute over the tenant’s damage deposit.

2. Check the property inventory form with the tenant.

The property inventory should be prepared in duplicate and then checked with the tenant before they move into the property. The landlord and tenant should each sign of the inventory forms at the foot of every page.

3. Note down any changes to the property inventory.

Any alterations made at that time should be marked on both copies so that they are identical. One of the signed copies of the property inventory should be attached to the tenant’s tenancy agreement and given to the tenant, and the other attached to the landlord’s tenancy agreement and kept safely.

4. Go through the property inventory form at the end of the tenancy.

When the tenant is about to leave, you (or your letting agent) should meet them at the property and go through the inventory with them again, room by room. If some contents are missing or damaged, it’s often possible to sort out how much should be deducted from the damage deposit there and then.

Download and complete an inventory form now, with our Property Inventory eKit. It lists all of the contents of a property, so you don’t have to remember every item, and includes instructions on how to correctly perform a ‘check-in’ and ‘check-out’, as well as guidance on how to calculate damage costs.

Debts aren’t written off when someone dies

Lawpack on March 27, 2020

Many relatives end up in a very difficult situation when a loved one dies leaving debts, especially if the death is unexpected.

At such a painful time, many people are reluctant to think about dealing with the debts of the deceased and how to make repayments.

Many people assume that the deceased’s debts will be written off, but this is generally not the case and the debts continue.

Dealing with a person’s assets and debts when they die

When someone passes away, a person name in the deceased’s Will – called an ‘executor’ – or the next of kin if the deceased didn’t make a Will – called an ‘administrator’ – will have to oversee the collection of the deceased’s assets to form their estate.

Whether a Will is made or not, any outstanding debts are paid out of the estate.

As part of their duties, the executor (or administrator) must collect in any money or property the deceased has left behind and cover and outstanding debts from the estate.

What to do if the debts can’t be covered from the deceased’s estate

If there are not enough assets to cover all the debts, the bills will need to be paid in order of priority, as follows:

  1. Secured debts (e.g. mortgage company) are paid first because they get their money from the security
  2. The costs of administering the estate along with funeral costs are then paid in priority to everything else.
  3. The remainder is divided in proportion to the value of the debts, i.e. if someone is owed 80% of the total they are paid 80% of the remaining assets.

The beneficiaries will only inherit what they have been left in the Will once all the accumulated debts have been repaid.

Who is liable for the debts?

No one else is required to pay for the debts unless they are already liable under the terms of the original agreement; for example, if the debt is in joint names or someone has signed as a guarantor. 

If the money left in the estate isn’t enough to cover the outstanding debt and you jointly owned a house with the deceased person, for example, you may have too sell the property to meet creditors’ demands.

What about money owed to the deceased?

It’s the executor’s (or administrator’s) responsibility to decide in cases when there is money owed to the deceased person, especially when there is a written agreement in place.

But if the borrower and the lender have agreed on the debt on a casual basis, it will likely remain irrecoverable since it could be impossible to prove.

Related articles

Applying for probate: Completing Form IHT205

Lawpack on March 27, 2020

When applying for a grant of probate to administer someone’s estate after they have died, you must complete various probate forms and send them to the Probate Registry. For more information on probate see Lawpack’s DIY Probate Kit.

The main probate form to use to apply for probate is a PA1 Probate Application Form. You will also need to complete Form IHT205 if you don’t expect inheritance tax to be due on the estate.

Do you need Form IHT205?

Form IHT205 is used where:

  • the deceased died on or after 6 April 2011; and
  • the gross value of the estate for inheritance tax is less than the inheritance tax threshold (£325,000) or is less than £1,000,000, and there is no inheritance tax to pay because of spouse, civil partner or charity exemption.

Completing Form IHT205 – Probate Application Form – Short Form of Return of Estate Information

In the IHT205 form, the following information is requested:

Gifts

  • Did the deceased make gifts totalling more than £3,000 per year in the seven years prior to the date of death?
  • Did the deceased make a gift, but continue to benefit from all or part of the gift (e.g. the deceased gifted their home to a child but continued to live in it)?

Assets

  • Did the deceased give up the right to benefit from assets held in trust within seven years of the date of death?
  • Did the deceased benefit from assets held in trust?
  • Did the deceased own or benefit from assets held abroad?
  • Did the deceased hold any life assurance policies?
  • Did the deceased’s have any pension policies?
  • What is the gross value of the deceased’s assets including, cash and money held in bank accounts and savings accounts?
  • Did the deceased have any stocks and shares?
  • Did the deceased have any partnership or business interests?
  • Did the deceased have any outstanding debts?

Sending Form IHT205 to the Probate Registry

Once you have completed Form IHT205, along with Form PA1, make copies of all of the probate forms and send them to the Probate Registry. Send the original Will and the deceased’s death certificate along with them. You should also make copies of the deceased’s Will and death certificate for your own records. If you cannot deliver these documents in person at the Probate Registry, you can send them by registered post.

Other information

Issuing shares and share certificates

Lawpack on March 27, 2020

Once you receive a Certificate of Incorporation from Companies House your limited company is incorporated and you, as limited company directors, are free to start issuing shares and share certificates.

To discuss and agree on how you are going to issue shares and share certificates you will need to hold a meeting of all the limited company directors (called a ‘board meeting’). All board meeting decisions must be recorded in writing (called ‘board minutes’). Or, alternatively, all the limited company directors can sign a written resolution.

Issuing shares

The limited company directors should allot and issue one share of £1 each to each of the subscribers to the Memorandum of Association. If you have more than one company director, a majority of the limited company directors must agree to issue shares at the board meeting.

When you’re issuing shares, you don’t need to notify the allotment of the subscriber shares to Companies House. Companies House must be notified within one month of the allotment of any further shares.

Notification of the issue of shares is given by completing and filing Form SH01. You should complete yours according to your own requirements.

A Register of Members should be completed by the company secretary or a company director (if you have no company secretary) to show the one or two subscribers as members of the company.

If the limited company is a single-member company, the Companies Act requires that a statement to this effect be made in the Register of Members.

This statement normally reads as follows: ‘In accordance with company legislation the company has become a one-member private limited company with effect from [insert date] with the sole member being [insert name and address of member].’

Article: Issuing shares: Q&As

Issuing share certificates

To provide the shareholders with a title document to their shares, you will need to issue share certificates at the first board meeting. Each share certificate must include the following:

  • A share certificate number
  • The number of limited company shares
  • The name of the limited company
  • The name of the holder
  • The address of the holder
  • The number and type of limited company shares issued to the holder
  • The nominal value of the limited company shares
  • A statement of the extent to which the limited company shares are paid up

If your limited company has a company seal, this can be stamped on the share certificate in the presence of either:

  • Two limited company directors; or
  • One director and the company secretary; or
  • One company director, if you have just one company director and no company secretary.

If you don’t have a limited company seal, the share certificate can merely be signed by:

  • Two limited company directors; or
  • One director and the company secretary; or
  • One company director, if you have just one company director and no company secretary.

The share certificate should be dated on issue.

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The pros and cons of forming a limited company

Lawpack on March 27, 2020

Limited companies are among the two most popular types of company chosen by UK business people, with the sole trader route the other main avenue.

The first step for anyone setting up a limited company is to register it with Companies House, which oversees the registry of companies.

Company registration matters are enshrined in the Companies Act 2006, with Companies House an executive agency of the Department for Business, Innovation and Skills.

Currently, there are more than two million limited companies registered in Great Britain, with over 300,000 new firms incorporated every year.

Under the Companies Act 2006, each limited company must have at least one director. However, having a company secretary is no longer mandatory.

Business owners are often unsure about which entity to trade as – sole trade, partnership or limited company.

There is no legal obligation for companies to trade using a particular entity, but there are differences between them. Here we outline the pros and cons of limited company incorporation.

What are the advantages of forming a limited company?

Status

The term ‘limited’ gives the company a bit more weight so it appears to hold more esteem and seems bigger, both for potential investors and consumers.

Investors

Investors are more inclined to take a chance on limited companies as their investment has more protection than a sole trader or partnership.

Under a limited company, the investor’s liabilities are also limited to their shareholding, thus giving them more security than other companies offer.

Security

As such, banks also tend to favour limited companies and they are given the chance to take out extra security by lodging a ‘floating charge’ over the company’s assets.

That means that if the terms and conditions of the loan are breached, the bank has the first claim on the assets.

Shares

Provided there are no unusual clauses in the shareholder’s agreement or company’s articles, transferring shares in a limited company is generally easier and more straight-forward than it would be in a partnership or sole trader.

Dividends

The dividends of a limited company are not subject to national insurance and are at a lower rate of tax than self-employment income.

Effective tax rates

If you intend retaining some of the profits within the business, then it might be best to go limited as this reduces the tax rate.

Despite these positives, there a number of cons to keep in mind.

What are the disadvantages of forming a limited company?

Liability

Banks will still require personal guarantees from the directors, which means that the directors can still be liable for the company’s debt.

Administration

Directors are also expected to deliver statutory documents to Companies House, so anyone failing to do this is subject to late filing penalties and could be deemed to have carried out a criminal offence.

Less privacy

Becoming a limited company means accounts and other details are held on public records so anyone, including competitors, can access company information, although it can be restricted.

Withdrawals

Making withdrawals from the company can also pose a problem in terms of tax as it is difficult for shareholders and directors to separate their finances from those of the business.

Accountancy fees

One expense bound to be higher for limited companies is the accountancy fee as reporting requirements tend to be bigger.

With all this in mind, it is worth remembering that limited company incorporation can be a profitable prospect, so why not read Lawpack’s practical guide on How to Run a Limited Company?

Written by HM Williams Chartered Accountants, this detailed guide is packed full of information and expert advice on the legal duties and formalities that must be followed when incorporating a company.ADNFCR-1645-ID-801387379-ADNFCR

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How to use a General Power of Attorney

Lawpack on March 27, 2020

A General Power of Attorney (GPA) is a document which authorises someone to act on your behalf and in your name.

It’s a relatively straightforward authorisation and can be used for a wide range of circumstances or for specific periods and events.

It doesn’t have the added complications of a Lasting Power of Attorney (LPA); as such it is a simple form to fill out.

A GPA can only be used with regard to your property and financial affairs. It cannot be used to authorise someone to make decisions concerning your personal welfare (unlike a Lasting Power).

When will I need a GPA?

You may need to create a General Power for specific events; for example, if you go abroad and wish to entrust the management of your business interests to a family member.

You can use it for a specific period or event, when your age and health make it unlikely that you could lose capacity during the duration of the Power.

When does it end?

A General Power of Attorney automatically ceases to have effect if you should become incapable of making the decisions conferred by the Power.

This is in contrast to a Lasting Power, which remains in force provided that it has been registered.

Who can make a GPA?

You must be over 18, have capacity to grant it and not be an undischarged or interim bankrupt.

What happens once it’s been granted?

In legal terms, the person giving the power is called the “Donor” in England & Wales or the “Granter” in Scotland. The person who is receiving the power is called an “Attorney”.

Once you have granted a General Power, you have given authority for the Attorney to take decisions and act on your behalf regarding your property and affairs, as if you were taking them yourself.

The exception is that the Attorney cannot make gifts.

What powers does the Attorney have?

A General Power of Attorney is very wide-ranging and as a result, an Attorney can do anything they think fit in relation to your property and affairs.

But the Power doesn’t cover functions which relate to certain special personal responsibilities. For example, an Attorney cannot normally perform in your role as a trustee or as a personal representative (i.e. administrator) of someone’s estate.

An Attorney cannot sign a Will on your behalf, take action concerning your marriage or delegate their Power to someone else.

Am I liable for the Attorney’s actions?

Yes, so you must only give the power to somebody you trust implicitly.

How long does a GPA last for?

If you become incapable of making the decisions conferred by the Power, the General Power is automatically annulled. Otherwise, a General Power remains valid until it’s revoked.

Can it be revoked?

Powers can be revoked orally, but to avoid misunderstanding it’s wise to write ‘cancelled’ on the original General Power of Attorney form or simply tear it up.

The General Power would also be revoked if you or the Attorney died or become bankrupt.

Other information

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