Considerations When Letting a Property to a Friend or Relative
Landlords with a rental property portfolio often find that letting a residence to a family member or friend is mutually beneficial, offering assistance when somebody they know is finding it difficult to source great quality housing–with the assurance of a reliable tenant.
However, there are pros and cons involved, and working through a few factors beforehand is an excellent way to craft a secure tenancy agreement and ensure all parties are satisfied with the arrangements.
Renting to a Family Member Tenant
The first tasks to work through are largely administrative and protect your rights as a landlord and those of your tenant. While you may be very likely to remain on good terms, this process safeguards each party and avoids any potential for misunderstandings.
You may need to:
Agree on the terms of the tenancy agreement, including the notice period required if your tenant chooses to leave, the rental cost, and the frequency of payments
Discuss the insurance coverage in place, including the landlord's buildings coverage, and explain the tenant insurance information your new tenant may require
Notify a mortgage lender and any other financial institution involved of the change in tenancy
Consulting a financial adviser can also be worthwhile if you intend to rent the property for lower than the market value, mainly because the Canada Revenue Agency may not permit rental loss claims submitted due to a family tenancy.
Buy-to-Let Mortgage Lenders and Family Tenancies
Most mortgage providers will be comfortable with a landlord renting to a friend or relative. However, you are normally expected to let them know since some lenders have specific products that remain regulated but are designed for landlords renting to immediate family members. Still, lending criteria are less likely to change if the tenant is an indirect relative, such as a niece, nephew, cousin, aunt, or uncle.
A different position applies if your tenant will be living in a room within your home or a separate but attached part of your property because this agreement is usually treated as a lodger, and lenders will not normally expect you to make any changes. If you have an existing tenant who would like a partner or shared tenant to join them in the rented property, and the new tenant is a relative, creating a new rental agreement is still sensible.
Having the individual names on the documentation and with a signed agreement is important for record-keeping and reporting obligations, and it protects the interests of the second tenant by providing proof of a permanent residential address.
Landlord Responsibilities and Obligations
All the standard legal duties relevant to your province will apply, irrespective of whether you know your tenant. For example, the Residential Tenancies Act in Toronto sets out regulations limiting the deposit to one month's rent and stipulates rules for increasing rental charges.
Landlords are free to increase rent according to Ontario Government guidelines, which are published annually, but can apply for approval to introduce a greater increase in certain circumstances. It is important to verify the appropriate statutes in your province to ensure you comply with the requirements throughout the tenancy.
