Guide to our licence to occupy residential property

Posted by David Cammack on 22nd October 2015

Our Licence to Occupy Residential Property template is for use by an owner of residential property when taking in a lodger (but not one that will be living in the owner’s home). It is a licence to occupy a room in the premises on a short-term and non-exclusive basis.

You can use our Licence to Occupy Residential Property template:

1. whether you own the property as freehold or leasehold;

2. if you or other members of your family do not live in the property; and

3. whether the term of lodging is to be open-ended or a fixed term.

Generally this template will be suitable only for use in the following situations:

1. hotel;

2. hostel;

3. boarding house; or

4. other lodging (not in the owner’s home) on a short-term or night-by-night basis.

It is not suitable for residence in a rented property that the person or family will be treating as their home (i.e. for medium or long-term accommodation) where this does not involve their lodging in the owner’s home, for example if the person and his family will be the only occupiers of the property or if the property is an HMO (see below). For this situation, you should use our template Assured Shorthold Tenancy Agreement, which would more accurately reflect the actual arrangement, be valid and comply with the Housing Acts. You should not use this Licence template to try and circumvent the protections given to tenants.

If you or a member of your family do occupy the property where the lodger will live as your main or only home, then you may prefer our template Lodger Agreement instead.

A licence to occupy residential property may also be known by other names but be essentially very similar things, e.g.:

  • a lodger agreement;
  • a rent-a-room agreement;
  • a room rental agreement; and
  • an agreement to let a room to a lodger on a serviced basis.

This Licence to Occupy Residential Property template presumes:

  • the accommodation is let on a furnished basis;
  • the lodger will have use of his or her room and also some shared facilities in the property, such as living room, bathroom and kitchen;
  • the owner or a member of his or her family do not occupy this property as their main or only home; and
  • the lodger can be asked to move rooms by the owner.

If (a) the owner or a member of his or her family is not resident and (b) in practice the lodger cannot or would not be asked to change rooms, then you may in fact have a “tenancy” situation – this gives the lodger or tenant extra rights, and this Licence template would no longer be suitable for you to use (and some of its terms would be invalid, as they would clash with the rights given to the tenant under the Housing Acts). Instead you should use our template Assured Shorthold Tenancy Agreement, as mentioned above.

Excluded licences

If the licence is an “excluded” one, then you can evict the lodger without a court order, if it is possible to do so peaceably (i.e. without force or the threat of violence – which would be a criminal offence in any case), for example by changing the locks, but if not you will need a court order for eviction. To qualify as an excluded licence you need the lodging to be one where:

1. you or a member of your family live at the property; and

2. you or a member of your family share your living room, bathroom or kitchen with the lodger.

If, as the owner, you do not live in the property, then the licence is not an “excluded licence” and, as a result, it is harder to evict a lodger who has overstayed (including because the term has expired or for non-payment of rent). In the case of (a) any tenancy or (b) a non-excluded licence, the owner/landlord will always need a court order for eviction, and evicting without such a court order is in itself illegal (even without force or threats) and can lead to significant damages being payable to the tenant/lodger.

Obtaining such a court order can take several months and incurs some court costs even if you are not using a lawyer to assist you.

Unfair terms

If the owner does carry on a business of letting rooms to lodgers, then a Licence to Occupy Residential Property will then be between a business and a consumer and, as such, will be subject to the Unfair Contract Terms Act 1977 and the Unfair Terms in Consumer Contracts Regulations 1999. This would mean that any unfair terms that have not been individually negotiated might not be valid.

Avoiding creating a tenancy

It is deliberately intended to avoid this Licence being classed as an “assured shorthold tenancy” or other tenancy agreement, but this will only work if the situation is genuine and this Licence is not being misused for a situation that is in reality a tenancy. As noted briefly above, tenancies create various additional rights for tenants and impose various extra obligations on landlords, so are best avoided in this context, but only if it is genuinely possible to do so. For example (a) terminating and evicting is much more difficult or regulated once a tenancy has been created and (b) any deposit would also need to be held by a proper third party. Therefore you should avoid references to the following, as this template seeks to:

  • rent (called instead a “licence fee”);
  • tenant (called instead the “lodger”);
  • landlord (called instead the “owner”);
  • the lodger having “exclusive possession” rights over any part of the property; and
  • a fixed term.

You could provide for it to be for a fixed term without this of itself necessarily meaning it becomes a tenancy. However, since the court would look at all of the facts and not just the terms of the agreement when deciding whether the arrangement is or is not a tenancy, you are better off having it as an open-ended arrangement that either party can terminate on notice – see the note on clause 9.1 below. However, if a fixed term is what you want, you can use the optional clauses in the template to do this.

Houses in Multiple Occupation (‘HMO’)

If a landlord lets a house in multiple occupation that falls within a category under either the national scheme or a local scheme then he or she must obtain a licence from the local authority under Part 2 of the Housing Act 2004. If the landlord fails to obtain a licence where one is required:
1. he commits a criminal offence and can be fined up to £20,000;
2. he cannot rely on the notice-only procedure to get possession from any shorthold tenant; and
3. the current or former occupiers can apply to a Residential Property Tribunal for repayment of up to 12 months’ rent.

Unless it falls within one of the exemptions set out below, the landlord will require a licence for an HMO from the local authority if:

1. it is three or more storeys and is occupied by five or more people forming more than one household (this is the national scheme); or

2. it is in an area designated by the local authority as subject to HMO licensing (this would be a local scheme).

Generally this template Licence to Occupy Residential Property should not be used for people living in an HMO – you should use our template Assured Shorthold Tenancy Agreement, which would more accurately reflect the actual arrangement, be valid and comply with the Housing Acts.

Immigration status of lodger

A trial is being conducted in the West Midlands of the implementation of new laws passed in 2014 that will require all private landlords to check that any prospective lodger or tenant has the right to live in Britain and also to check when such a right has been lost or lapsed. Elsewhere it is yet not in force as at the time of writing this guide (September 2015). Comments have been made that these new rules seem unfeasible and onerous. For the latest news on this and to see if it is in force in your area, search on the Internet for “Immigration Act 2014”.

Clauses in this Licence to Occupy Residential Property

Date – Insert just the year at this stage. Handwrite the rest of the date in the agreement once both the parties have signed it.

Party clauses – You will need to insert the names and addresses of party 1 (the lodger) and party 2 (the owner). If the lodger is more than one person, put both their names and address here and add the word ‘together’ before it says ‘ “the Lodger” ’.

Numbered clauses

1. Interpretation – This clause defines the main terms used in the agreement.

  • Contents – You should list any contents of the room that the lodger is to have (e.g. furniture) in an inventory – see the reference to “Inventory” below. An inventory template is available separately from Legalo.
  • Deposit – Here fill in the amount of the deposit that you are to take from the lodger.
  • First Payment Date – Fill in the date the first payment is due from the lodger. This would normally be the same date the lodger is to start living at the premises.
  • Insured Risks – The owner should insure the building and the owner’s contents on the inventory against the usual risks, such as flooding. In addition to the risks listed, you may wish to insure against malicious or accidental damage by the lodger to the building and the contents.
  • Inventory – This refers to the list of contents of the lodger’s room that you should draw up. This inventory should then be attached to this agreement.
  • Licence Fee – Insert the level of the charges. You should set this at a sufficient level that it includes a proportion of the following:

1. electricity, gas, water rates and other utilities charges (unless you are to charge separately for this – see clause 4.1 below); and

2. buildings and contents insurance.

NB It is probably difficult for you to have utilities costs charged separately to the licensee based on use (unless you have installed separate meters), but, if this were feasible, then you could amend clause 4.1 to permit this.

  • Payment Date – Fill in the day of the week or the date in each month when payment is due.
  • Property – Insert the full address of the property.
  • Room – Here you should identify which room the lodger is to have.
  • Term – If this is not a licence for a fixed term, delete this definition. If for a fixed term, fill in the end date.

Clause 1.10 is optional – keep it if the lodger comprises more than one person, e.g. a couple. Otherwise delete it.

2. Lodging – Clause 2.1 provides that the lodger can lodge in the room from the first payment date. If this is not a licence for a fixed term, delete the words “until the end of the Term”. Clause 2.2 refers to the common areas of the property that the lodger is permitted to use – fill in the details. Clause 2.3 refers to this being a licence that is not a protected tenancy for the reasons noted above. Clauses 2.4 and 2.5 are aimed at avoiding the lodger having exclusive possession rights over the room, which might tend to imply this is a tenancy (as noted above). In clause 2.5 fill in the number of days or weeks notice.

3. Licence fee – Clause 3.1 deals with what is effectively the rent (but we are avoiding using that term for the reasons explained above). Select whether is it is payable weekly or monthly. In clause 3.2 if the room or the property becomes unfit for habitation (for example due to water damage), payment of the licence fee is suspended until the room/property has been reinstated.

4. Utilities – If the licence fee includes a charge for utilities, then delete option 1 and keep option 2 in clause 4.1. If not, delete option 2 and keep option 1. In clause 4.2 check which utilities are included – delete any listed that do not apply.

5. Deposit – Clause 5.1 notes that you have received the deposit from the lodger. Clause 5.2 permits you to retain proper amounts out of the deposit for the reasons listed here if all is not as it should be when the agreement comes to an end. If you are not charging for utilities costs separately from the licence fee under clause 4.1, then delete reference to them in clause 5.2.2. Please note that if this licence became classified as a “tenancy”, then the holding of a deposit would be come subject to the rules that applies to residential tenancies – the deposit would have to be lodged with one of the approved deposit protection schemes (under section 212-215 of the Housing Act 2004, as amended by the Localism Act 2011).

6. Lodger’s obligations – This clause provides a list of dos and don’ts for the licensee, including a ban on keeping pets (clause 6.3). In clause 6.4.2 amend the times if you wish to regulate differently when loud music or musical instruments can be played by the lodger in his room. Clause 6.9 states the property has a policy of no smoking indoors – delete this clause if it does not apply. Clause 6.10 provides that the lodger shall not have overnight guests without specific permission from the owner – delete this clause if it does not apply. In clause 6.11 fill in the percentage interest that would be charged on late payments, e.g. 4% to 8% over the base rate is normal. Clause 6.12 is only needed if the property is held under a lease by the owner – if not, then delete the clause. If there is such a lease, then:

(1) the owner should notify the lodger from the outset of any relevant covenants that the lodger ought to comply with; and

(2) the owner should check he is not banned from taking in lodgers under the terms of the lease.

7. Owner’s obligations – Clause 7.1 states that the owner will insure the room’s contents that are owned by the owner (i.e. those on the inventory). Clause 7.3 refers to the owner’s obligations to ensure the property and room are safe. If clause 7.4 (which requires the owner to stock the bathroom with soap and toilet paper for the lodger’s use) does not apply, please delete it.

8. Limitation of liability – This clause seeks to limit the owner’s liability as far as is permitted.

9. Termination – Under clause 9.1, the licence can be terminated by notice by either party: fill in the number of weeks notice you require. If this is not a licence for a fixed term, delete the last sentence of clause 9.1. Clause 9.2 allows the owner to terminate on one week’s notice if the lodger is in breach. The clause then deals with various issues that arise on termination, such as the lodger leaving the room in a decent condition and providing a forwarding address. Clause 9.5 states that the owner may dispose of any property of the lodger that is left when the licence terminates, but in reality, to avoid being liable for loss, the owner must firstly allow the lodger to collect them and if not collected he must sell them for a reasonable price and account to the lodger for the money made (retaining it in case the lodger gets in touch if the lodger has not left any contact details). Clause 9.6 only applies if the agreement is on a fixed-term basis – if not, delete the whole clause.

10. Assignment and sub-letting – A licence is essentially a contract personal to the parties, so it is not transferable to anyone else by either party. There is also a ban on the lodger sub-letting the room to someone else.

11. VAT – If VAT applies, then this clause allows you to add it to the licence fee, etc.