But while the potential rewards are real, these types of rentals often carry distinct legal, planning, and insurance requirements compared to traditional buy-to-let properties. Here’s a practical guide for landlords looking to get it right from the start.

Planning Permission and Change of Use

Before marketing any small space for rent, it’s essential to confirm that the unit is legally recognised as a habitable dwelling.

In many cases, especially with outbuildings or conversions (such as turning a garden room or garage into a self-contained flat), you’ll likely need planning permission or a change of use approved by your Local Planning Authority (LPA). Even if the structure itself didn’t require permission to build under Permitted Development Rights, renting it out as a separate unit may change its classification.

• You can check your obligations via the official Planning Portal UK, which provides detailed guidance on change of use, building regulations, and how to apply for planning consent.
  
  

Failing to secure planning permission could result in enforcement action or invalidate your insurance.

Licensing and Health Standards

Even small or single-room rentals may require a Selective Licence, depending on the local authority. Many UK councils operate such schemes in designated zones to ensure minimum standards of health, safety, and property condition.

All rental spaces—no matter how compact—must comply with the Housing Health and Safety Rating System (HHSRS), which assesses risks to occupants' health and safety. This includes:

• Fire safety: Smoke detectors, carbon monoxide alarms, and accessible escape routes
  
  
• Ventilation and drainage: To prevent damp, condensation, and foul odours
  
  
• Safe utilities: Certified heating systems and safe, modern electrical wiring
  
  

Also, be aware of the minimum room size requirements set out in the Housing Act 2004. Bedrooms in shared homes (HMOs) must meet specified minimums, often 6.51 m² for a single adult, depending on the setup.

To see if you need a licence, check with your local council’s licensing portal.

Tenancy Agreements and Legal Documents

Even if the space is modest, your agreement must be robust. Use a formal Assured Shorthold Tenancy (AST)—the default for most UK residential rentals. It should outline:

• Rent amount and payment schedule
  
  
• Tenancy duration
  
  
• Deposit amount and protection
  
  
• Tenant responsibilities for maintenance and conduct
  
  

Deposits must be protected in a government-approved scheme such as the Deposit Protection Service (DPS), and tenants must be issued with the latest version of the ‘How to Rent’ guide at the start of the tenancy.

Insurance Considerations: Protect Your Property

Standard homeowner insurance rarely covers rental activity. Renting even a single room or annex could invalidate your policy unless you update it.

Instead, opt for tailored landlord insurance, such as those offered by CIA Landlords, which provide specialist coverage for small-space lettings. Key features often include:

• Buildings and contents cover, including accidental damage
  
  
• Loss of rent cover in case the unit becomes uninhabitable
  
  
• Legal expenses and landlord liability, offering protection from tenant disputes or injury claims
  
  

With the growing popularity of compact rentals, having the right protection in place isn’t just advisable—it’s essential.

Turn Small Spaces Into Big Opportunities—Legally

Small-space rentals are an excellent way to generate passive income, but they’re not exempt from the same legal, safety, and insurance obligations as traditional lettings. From securing planning permission to meeting safety standards and ensuring your rental is covered by an appropriate policy, taking a professional approach will save you time, money, and stress in the long run.

If you're ready to rent out a small space, start with your local planning office, get advice from housing professionals, and secure your property with reliable insurance from CIA Landlords—experts in covering both traditional and unconventional rentals.