A ‘house in multiple occupation’ (HMO) can earn more in rent than a traditional single-let property, but administering shared tenancies can be tricky. On top of this, there can be additional legal requirements that HMO landlords need to adhere to.
Some private landlords who own and let HMO properties require licenses to be able to do so. If you operate an unlicensed HMO illegally, you could be ordered by a court to pay a fine of up to £20,000 plus court costs.
HMO licensing began in Scotland at the turn of the millennium 1, and was introduced in England and Wales by the Housing Act 2004 2. The Act also gave us the definition of an HMO, which (loosely speaking) is a property occupied by two or more separate households that share at least one basic amenity such as cooking or sanitary facilities.
Licensing is mandatory for properties that exceed two storeys and are inhabited by five or more tenants who form two or more households 3. Some councils also operate ‘additional licensing’ schemes that require smaller HMOs to be licensed, often only in certain areas. You should therefore always contact your council to determine whether you need a license, and what measures you need to take to get one if you do.
Even unlicensed HMOs are subject to additional legal requirements that landlords must observe. They include:
– Ensuring the property complies with fire safety standards
– Ensuring that your tenants are safe from risk of injury
– Maintaining the drainage and water supply
– Maintaining the gas and electricity supply and providing up-to-date gas and electricity safety certificates
– Maintaining appliances, fittings and fixtures in communal areas of the property
– Providing adequate facilities for waste disposal
These requirements are in addition to a landlord’s ordinary repairing obligations as outlined in section 11 of the Landlord and Tenant Act 1985. They are outlined in more detail in The Management of Houses in Multiple Occupation (England) Regulations 2006.
If you hope to convert a property into an HMO, you might require planning permission to do so. Conversions from usage class C3 (single household dwellings housing up to six people) to class C4 (HMOs housing up to six people) are usually permitted without permission 4; however, some local authorities may exercise their right to restrict permitted development, so you should still always check before making a purchase or commencing renovation work.
You will always need permission if you intend to let your HMO to more than six individuals.
Tenancy agreements: joint or separate?
Broadly speaking, there are two ways of implementing tenancy agreements for an HMO property: by using individual contracts for each tenant, or using a single ‘joint and severally liable’ agreement.
Joint contracts usually require less administration, as there is one overall agreement with one single rent payable (and one deposit to protect, should you decide to take a deposit). The tenants are jointly liable for both the rent and the care of the property. These contracts work best if the tenants know one another and are likely to move in and leave at the same time; for this reason, they are most popular for student properties.
Individual contracts require a lot more administration, including protecting each and every deposit individually. Each tenant pays his or her own rent separately, and if one tenant fails to pay, the others are not required to pay on their behalf. These tenancies allow tenants to come and go on their own terms and do not require a new overall agreement to be written up and signed every time a new tenant moves in or an old tenant wishes to leave. As such, they are more popular for inner-city HMOs that are populated by single professionals.
Bear in mind that the latter arrangement will usually render you liable for council tax and utility bills, though you can include this cost in the rent that you charge.
Gaining access for inspections and repairs
The normal rules apply for HMOs; if you wish to access the property for any reason other than an emergency, you must give 24 hours’ written notice and obtain your tenants’ permission. Access to carry out your repairing obligations also requires 24 hours’ notice 5.
Non-exclusive communal areas, which you need to be able to enter to carry out your repairing obligations (see ‘HMO management’, above), remain under your control. Nevertheless, it is good practice to restrict your access to reasonable times of day, and if possible to still give 24 hours’ notice.