When we think of limited companies, it’s usually in the context of business activities. But companies can also be involved in the rental of residential property – either as landlords or tenants. This arrangement is more common than many people realise, especially among landlords who manage buy-to-let portfolios through companies, or businesses providing accommodation for directors and employees.
While it is legally possible for a company to rent a residential property, the process is different from standard lettings. There are specific agreements, tax considerations and legal obligations that both landlords and companies need to understand.
Is it legally permissible?
Yes, a limited company can rent a residential property in the UK. This can happen in two main ways:
- The company can act as the landlord renting property out
- Or they can be a tenant renting accommodation for use by its staff or directors
If the company is the tenant, the tenancy must be formalised through a company-let agreement. A standard assured shorthold tenancy (AST) cannot be used, because AST protections under the Housing Act only apply to individuals, not corporate entities. Instead, the tenancy is governed by common law principles.
This distinction matters. A company-let agreement has different notice requirements and does not provide the same statutory protections available to individual tenants. For landlords, this can sometimes be an advantage, as possession proceedings may be more straightforward if the company defaults.
Why might a limited company rent residential property?
There are several practical reasons why a limited company may choose to rent residential property. One is to provide accommodation for a director or employee who needs housing as part of their role. For example, a company relocating an overseas employee might rent a flat for the duration of their contract.
Another common reason is for investment purposes. Some landlords prefer to run their property portfolios through limited companies to separate their rental business from personal finances. This approach can also have tax advantages, as profits are subject to corporation tax rather than personal income tax.
Limited liability is another factor. Renting through a company can shield directors and shareholders from personal financial exposure if the rental business faces difficulties. It also provides a clearer structure for managing multiple properties under one legal entity.
Key legal and formal requirements
When a limited company rents a residential property, the tenancy agreement must be structured differently to a standard letting. Because companies cannot hold assured shorthold tenancies, the arrangement is set up as a company-let agreement governed by common law. This means that many of the statutory protections and procedures familiar in residential lettings do not apply.
For landlords, it is important to ensure the tenancy is clearly documented, with terms covering rent, responsibilities for maintenance, notice provisions and any conditions of use. Rent must be charged at a fair market rate, and both sides should understand that enforcement mechanisms differ from those under an AST.
The intended use of the property must remain residential. If the company plans to use it for business purposes – such as offices, serviced accommodation or short-term lets – it could breach planning or lease restrictions and trigger very different legal obligations.
Tax and financial implications
Using a company structure to rent property can have financial benefits, but it also adds complexity. Rental income received by a limited company is taxed at corporation tax rates, which are generally lower than higher rates of personal income tax. This can make company structures attractive for landlords with large portfolios.
However, directors or shareholders withdrawing profits will still need to consider dividend tax or income tax, which can reduce the overall benefit. Companies also face stricter reporting requirements, annual filing obligations and potentially higher mortgage rates, as lenders often charge more for company-let arrangements.
For companies renting accommodation for staff or directors, there may also be employment-related tax consequences. Providing housing can be classed as a benefit in kind, meaning it must be reported to HMRC and may attract additional tax charges.
Should your company rent a residential property?
A limited company can rent a residential property, but the process is very different from private lettings. Landlords must use a company-let agreement rather than an assured shorthold tenancy, and both sides need to be aware of the legal and tax implications.
For landlords, company lets can offer simpler possession processes and opportunities to work with business tenants, but they also come with added due diligence. For companies, the arrangement can provide valuable housing solutions or efficient portfolio management, provided the agreements are structured correctly.
At Osbourne Pinner Solicitors, we advise both landlords and businesses on company-let agreements and the wider implications of renting through a limited company.
You can book a free 30-minute consultation with our commercial property solicitors to help you understand your options. Reach us by video call or come to Harrow, Canary Wharf, Piccadilly Circus or Manchester. Start by booking your consultation using the form below. Alternatively, you can call 0203 983 5080 or email [email protected].
