Houses in Multiple Occupation (HMOs)
It has become increasingly popular for property owners of sizeable residential properties to convert their properties into Houses in Multiple Occupation (HMOs).
The reason behind the increase in HMOs is that such properties can meet the needs of specific groups and provide affordable housing to those with limited options. Over the years HMOs have become increasingly popular with students and young professionals, and in turn have become attractive to property investors.
The following provides for some useful tips for property owners when dealing with HMOs.
What is a HMO?
The definition of a HMO is from s.254 of the Housing Act 2004. A property will be deemed a HMO if any one of the following situations apply:
- The property (or part of the property) is occupied by three or more people who form more than one household and at least two of the occupiers share a toilet, bathroom or kitchen facilities
- The property is a self-contained flat which is occupied by three or more people who form more than one household and at least two of the occupiers share a toilet, bathroom or kitchen facilities
- The property is a converted building which is occupied by three or more people who form more than one household and at least two of the occupiers share a toilet, bathroom or kitchen facilities
- The property is a converted block of flats (for example, the property has been converted into and consists of self-contained flats) which does not comply with Building Regulations 1991.
Is a Licence Required?
Some HMOs are licensable, meaning a HMO owner must adhere to licensing requirements prescribed by the relevant local authority.
As of 1 October 2018, the law was changed in England so that mandatory licensing now applies to HMOs occupied by five or more people, regardless of the number of storeys of the property – previously it was three storeys or over.
Local authorities are entitled to introduce additional licensing requirements, so HMO owners must check these from the outset in their particular locality.
Ultimately, it is the HMO owners’ responsibility to ensure that they have a valid HMO Licence.
Lease or Licence?
When intending to grant possession to an occupier, HMO owners must decide whether it is appropriate to use a form of lease (usually an Assured Shorthold Tenancy (AST)) or a licence, when documenting the occupational arrangement. This is an important decision to make and one which should be carefully considered. Both have advantages and disadvantages, but generally speaking an AST gives statutory protections to the tenant and creates an interest or an estate in land. A licence comprises only a personal right of occupation; there is no interest or estate in land.
With regard to an AST, the main points to note are:
- It affords statutory protections under the Housing Act 1988 such as security of tenure
- It offers a secure period of occupation for the tenant – which the landlord may or may not want
- It gives a secure period of rental income for a landlord
- A landlord generally has limited rights of access – but the landlord therefore has to follow prescribed rules to obtain possession of property.
In respect of a licence, the following should be considered:
- It gives flexibility to both the licensee and licensor
- It gives little statutory protection for the licensee, which may be positive for licensor
- There is a risk that if exclusive possession is granted to the occupier, there may be an argument that the arrangement is in fact a tenancy
- It gives the licensee less control over the property
- It offers little statutory protection for the licensee.
A HMO owner must understand that failure to adhere to licensing requirements amounts to a criminal offence and a range of sanctions can be imposed by a local authority.
Further, failure to adequately document the occupational arrangement of a HMO may result in the occupier obtaining unintended statutory protections such as security of tenure, which may cause the HMO owner problems when seeking vacant possession of the property.
While both a lease and licence are feasible options, the risk to both sides in opting for a license arrangement must be noted and taken into account. An AST remains the safest option in terms of the protection it offers and is often the most popular choice by HMO owners, but to properly consider which option is best for you, professional advice should always be sought.
- Sophie Townes is a trainee solicitor in the specialist dispute resolution team at law firm Sintons. The team is highly regarded for acting in property matters and in advising landlords around the UK. To speak to Sophie further on this matter, please contact her on 0191 226 7840 or firstname.lastname@example.org