Renting a single property out to multiple tenants can seem like an attractive option for landlords as a way of creating more stability with rental income. After all, having one room empty across seasonal changes in demand is better than having a whole house empty.
While house-sharing may bring back memories of being in university, the appeal to cohabitate is there for a growing number of people aged over 35. Despite government incentives, it seems that generation rent is here to stay.
Rising house prices are being blamed for the middle-aged property lockout. Way back in 2015, the flat-sharing website Spareroom reported that, between 2009 and 2014, there was a 186% increase in flat-sharers aged 35 and 44 and a 300% increase in flat-sharers aged 45 to 55. This was seen as stark evidence that choosing to live in a House of Multiple Occupancy (HMO) is still an option for many, long after their university days.
The Growth of the HMO and HMO Landlords
There’s been significant growth in the private rented sector regarding HMOs. It’s estimated that around 4.5 million households live in HMOs, with approximately 497,000 across England and Wales.
That means an estimated 1.9% of properties are in multiple occupancy across England. Kingston Upon Hull’s number of HMO properties is slightly higher than the national average (3.2%). Still, HMO properties in the East Riding of Yorkshire are lower than the national average (0.86%).
What is a House of Multiple Occupation (HMO)?
A house of multiple occupation generally has three or more people living there, not part of the same household (such as different families). They share some common spaces and amenities.
Of course, nothing’s that easy to understand regarding government legislation. Part two of the 2004 Housing Act saw the introduction of a two-tier system for HMOs. Larger properties required mandatory licensing, with tenant safety being the priority. Smaller properties have a more discretionary licensing approach, where conditions are subject to local council regulations.
So not all HMOs will require a licence, but there are generally two conditions where a licence will be required. The first is that HMOs meet the “prescribed definition” set out in The Licensing of Houses in Multiple Occupation Order 2018. They must obtain a licence from their local authority under the Mandatory Licensing scheme. This prescribed definition is as follows:
- is occupied by five or more persons;
- is occupied by persons living in two or more separate households; and
- meets —
- the standard test under section 254(2) of the Act;
- the self-contained flat test under section 254(3) of the Act but is not a purpose-built flat situated in a block comprising three or more self-contained flats; or
- the converted building test under section 254(4) of the Act.
The second instance in which an HMO will require a licence is if the property’s in a specified licensing zone determined by the local authority.
In East Riding, for example, even smaller HMOs in the southeast of Goole require a licence. The council has set its own requirements for when an HMO needs to be registered within that zone. These requirements are that the property has:
- Four or more people, forming two or more households, who are sharing facilities such as toilets, bathrooms and kitchens
- Two or more floors, including cellars, basements and loft conversions
Things get a little murkier when it comes to student accommodation. As the law currently stands, universities don’t require a licence for student halls. Private landlords do, though, and most student accommodation outside of the first year of study is a privately owned HMO. So if you’re considering renting to multiple households as a student landlord or a general HMO landlord, things like knowing the value of your property and whether you need a licence are going to be essential.
For HMO landlords with a property with three or more storeys and over five unrelated tenants required to share certain facilities, that’s considered a large HMO. So you’re going to need a licence granted by your local council. You’ll need to prove that certain standards have been met to get that licence. Those requirements cover fire safety, a fire risk assessment, emergency lighting, and an electrical installation condition report.
It’s important to note that some local councils require small HMOs to have a licence. You’ll need to check with your local council, and you’ll have to get your application in before you start welcoming new residents into your property.
It is not always immediately apparent when a licence may be required, which is why it is crucial that you check with the local authority where any of your rental properties are located to see if you need to get one. Licences are not transferable, so you will need to reapply if you purchase an investment property that requires a mandatory HMO licence.
In most instances, the local authority will be the local council. You can find information about the process for obtaining a licence on the local authority website where the HMO is located.
Landlord obligations for licensed HMOs
As a landlord, you have many obligations to your tenants to provide a safe and habitable space for them to live in. As a part of those basic conditions, your HMO licence will set out specific conditions to help ensure the property is fit for purpose for the number of people living there.
Examples of the conditions HMOs must meet include:
- Minimum room sizes to prevent overcrowding and ensure a habitable space
- Adequate levels of natural lighting, artificial lighting in all rooms and common areas, and staircase lighting that you can switch on and off from both up and downstairs
- Adequate ventilation, including appropriate floor-to-ceiling ratios to allow air to circulate and having windows, for natural ventilation where possible, or enough vents
- Space heating with a controllable temperature (portable heating cannot be used in place of this requirement)
- Security measures in place, such as a stairwell, entrance, and emergency lighting, as well as appropriate locking devices
- Water supply that is drinkable and of an adequate pressure
- Bathroom and sanitary conveniences, including baths, showers and sinks, must be reasonably sized and suitably located.
- Suitable and sufficient self-catering kitchen facilities, which includes cooking appliances, utensils, a food preparation area, a sink with hot/cold water, and a refrigerator/freezer (can be combined)
- Sufficient refuse facilities for the number of people in the property
- Appropriate fire safety measures, including smoke alarms, fire doors and fire blankets or extinguishers.
In 2018, the government made further changes to HMO licensing. From requiring the landlord to comply with the domestic refuse schemes of their local authority to regulating the size of rooms used for sleeping in, those changes caused many headaches for HMO landlords.
Penalties for not complying
Failing to have a required HMO licence is a criminal offence. If you start renting to people not from the same family without an HMO licence, you could get hit with a criminal penalty or a fine as high as £30,000.
Not only that, but HMO tenants may have the right to reclaim past rental payments made to their landlord if the property is an illegal unlicensed HMO. So if you’ve been renting to the same people for a few years without an HMO licence, that reclaimed rent you have to pay back could be very costly.
Most buy-to-let mortgage lenders now require licences to be in place or obtainable before lending funds on HMO properties. Therefore, you must check you have the necessary licences and renew them when necessary to avoid breaching any terms of a mortgage.
It may also be necessary to apply for planning permission to create an HMO, depending on the size/circumstances in the local area. For example, any HMOs with more than six residents will require special planning permission. There are different HMO use classes to consider, which will factor into your licensing application.
LET US HELP
If you are buying or selling a property there are many factors to consider in this specialised area of law. Our team have a wealth of experience in property law, particularly within the authority areas of Hull City Council and East Riding of Yorkshire Council.
If you have any questions about property, you can contact the office team at Lockings today. Alternatively, you can call us now on 01482 300 200 for a free, no-obligation chat with a friendly team member.