Houses in multiple occupation (HMO) are popular across the UK, especially among students and graduates in large cities where there is a demand for affordable housing. While such properties may provide fantastic investment opportunities for landlords, with generally higher rental yields than standard buy-to-lets, they are more complicated, costly to run and subject to more regulation.
In addition, one of the most bothersome sides to life as an HMO landlord is the contentious subject of licensing. This is largely due to the lack of consistency in how local authorities treat HMO licensing across different locations, resulting in enormous variations in the fees and standards imposed. Furthermore, fines for failing to licence an HMO can run into thousands of pounds, leaving landlords out of pocket if they fail to conform to this complex and ever-evolving legislation.
What is an HMO?
As explained, HMO stands for Houses in Multiple Occupation. These are rental properties that have at least three tenants from more than one household and share bathroom, toilet or kitchen facilities. Where you have five or more tenants in the same situation, your property will be deemed a large HMO under the law.
Privately owned student accommodation can be HMO, although accommodation owned by a university or another education provider cannot.
A household is defined as either a single person or a family who live together. This will include married or living together couples, relatives such as grandparents, cousins, aunts and uncles as well as step-parents and step-children. For example, a property rented by three friends together with a shared kitchen will be an HMO. However, a property rented out by a couple together with a family relative will not.
The Additional Legal Responsibilities for HMO Rentals
As a landlord of an HMO rental, you will be subject to the usual responsibilities. However, additional laws and regulations specific to HMOs that are more complicated than the ones for standard buy-to-lets will also apply on top of these. For example, HMOs are regarded as having a higher risk than single-let properties, so there are more comprehensive fire safety requirements are in place to protect tenants. The measures you will need to take will depend on how many people live in the property and whether any of them are vulnerable tenants. There are also rules that an HMO landlord must follow on the size requirements of rooms and the amount of communal space available to tenants so that overcrowding does not take place.
The reasoning behind this is that HMOs are occupied by the most vulnerable people in society who live in properties that were not built for multiple occupations, meaning that risks associated with this type of property may be greater than usual.
HMO Licenses – Do I need one?
The Housing Act 2004 introduced two types of specific licences for HMOs - mandatory and additional HMO licences. Not all HMO properties require a licence; it will depend on the number of unrelated people staying at the property and what local council your property falls under. Certain types of buildings are also exempt from HMO licences, for example, buildings mainly used for prayer, education or helping people in need.
Generally, a licence will be valid for a maximum of five years so it is necessary to renew it before it expires. In some cases, a licence may be valid for less than five years and therefore it is crucial to keep track of the expiration dates for your property.
It is important to note that an HMO licence cannot be transferred so when purchasing an HMO property, an investor will be required to submit a new application to the appropriate local authority.
Mandatory Licences
You only need a mandatory HMO licence when renting out a large HMO with shared facilities to five or more unrelated persons, from more than one household. Children of any age form part of the number of occupants. In such circumstances, at least one of the tenants must be paying rent. HMOs with three or four tenants do not require a mandatory license but may need a different type of license (see below).
This applies to all properties in the UK. Before 30 September 2018, only HMOs comprising three or more stories were subject to mandatory licensing; however, as the demand for HMOs has grown, the government extended the scope of mandatory HMO licensing so that all HMOs housing five or more people will require a licence, even if they are less than 3 stories high.
To qualify for a mandatory licence for each large HMO you manage, you must meet the safety requirements and have no criminal record or breaches of landlord law. There are certain standards, such as minimum size bedroom requirements, that also need to be met. Furthermore, you will need to send an updated gas safety certificate to the council every year, install and maintain smoke alarms and provide safety certificates for all electrical appliances on request. In addition, the council may impose additional conditions on your licence, such as requiring you to upgrade your facilities to meet a higher standard.
Additional Licensing
Smaller HMOs do not need a mandatory HMO licence but they might require additional HMO licensing, depending on which local authority they fall under. This is because local authorities can, since 2006, expand the licensing of HMOs to include smaller HMOs with three or four occupiers. This type of licence can apply to any HMO that falls outside the mandatory licensing scheme but ultimately, each council will decide what type of HMO needs a licence within a designated area.
Landlords in areas with additional licences in place would have to apply for a license before they can rent out a property and this gives the local council the powers to check if the property is up to scratch and that the landlord is appropriately managing the property.
It was expected that the number of local authorities with additional licensing schemes would be limited but in recent years, the number of councils opting to have a licensing scheme has grown substantially. For example, both Birmingham and Coventry City Councils currently have additional licensing in place.
There is no national directory of local councils operating additional licensing schemes so you will need to contact your local council to find out. You would also need to check with them if additional HMO licensing applies to the entire borough or just in specific areas within it where they see a need for it.
Applying for an HMO Licence
To apply for an HMO licence, you must contact your local council and fill out an application form, either online or in person. Information that you will need to provide includes:
- Facilities available on the property, including location and size of bedrooms, bathrooms and kitchens
- Information about the structure of the property
- Safety equipment and certificates in place
- Criminal background check
- Names of any organisation or person with an interest in the property, such as a mortgage provider.
The council has to be satisfied that you are of sufficient integrity and good character to be involved in the management of an HMO and that as such, you do not present a risk to the safety or welfare of persons inhabiting the property.
After you have submitted your application, the council may request additional information or ask to inspect the property.
Fees for HMO licences are set by the relevant local council and therefore can vary from around £300 to over £2,000. Depending on your local council, you may be eligible for certain discounts on HMO licences. A renewal fee will usually be lower than the initial application fee and must be paid every five years or when the licence expires.
What Happens If I Rent My HMO Property Out Unlicensed?
Failure to have an HMO licence is a criminal offence and the financial penalties associated with renting out an HMO without a licence can be crippling. There is no limit on the fine and some councils, such as Barnet, have imposed hefty fines totalling close to £49,000. Alternatively, the council can issue a civil penalty of up to £30,000. You may also be barred from registering HMOs in the future and your business’s reputation may suffer.
Furthermore, your tenants have the right to request a rent repayment order for up to 12 months’ rent. This would require you to reimburse a portion of the rent you received while the property was unlicensed.
Finally, failure to obtain a correct license means that a Section 21 notice may not be valid, making it difficult to evict tenants.
How Can We Help?
It is worth noting that in the majority of cases, being unaware of the need for a licence or that the current use of the property would necessitate licensing will not be a sufficient defence. As a result, landlords need to tread carefully regarding HMO licensing, given the strict penalties involved with failure to obtain a relevant licence. It is important to keep informed of any developments with the relevant local authority and to obtain early advice if there is a change in circumstances. If you would like to discuss HMO licensing or you are facing an HMO prosecution, our team of expert solicitors and litigation experts can help. We have all the necessary expertise to break down your HMO issues and protect your interests so that you can continue renting your property. Contact us today via email us.
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