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Houses in Multiple Occupation (HMO)

What you need to know:

The fundamental performance of any property investment is underpinned by the level of income it produces.

Houses in Multiple Occupation (HMO) are known to produce a good return and are seen by investors as strong cash cows which has led to an increasing number of properties being converted into multiple-income producing units. Given the shortages in the supply of housing options in today's market, HMOs are fast becoming a viable solution from both landlord and tenants' perspectives.

However, before considering any property conversions or purchases, the planning requirement and licensing intricacies must be explored to understand what defines an HMO and the financial implications that ensue.

What constitutes an HMO?

Properties of HMO status and its licensing criteria are governed by the Housing Act 2004 and apply to those dwellings that involve sharing part of the accommodation. They are not dependent on planning applications, rather how the accommodation is occupied.

HMOs can be broadly categorised in to the following scenarios:

• A house split into bedsits where each tenant has exclusive use of their room but with a shared kitchen or bathroom/WC.
• A house/flat share with more than 3 tenants, not related to each other.
• Students living in shared accommodation with exclusive use of the entire house.
• An owner-occupier housing more than 2 lodgers with a licence.

Additionally, a new category was introduced to incorporate a building converted into flats prior to the 1991 Building Regulations, known as Section 257 HMOs; under this directive the defining requirement is that at least one third of the flats are let on Assured Shorthold Tenancies.

HMOs were issued a separate use class (C4) under the Town and Country Planning (Use Classes) Order 2010, identifiable by having a minimum of 3 people sharing.

I own/manage an HMO, what do I have to look out for?

Properties falling within HMO classification must comply with various requirements and failure to do so can result in enforcement action or, in severe cases, prosecution. The following outlines briefly the factors that landlords must take into consideration:

• Facilities - Number/location of shared facilities per person.
• Management - There are basic management practices which are outlined in the Management of Houses in Multiple Occupation (England) Regulations 2006.
• Safety Measures - Fire safety measures including detection and escape provisions.
• Water & Drainage - Water supply to be protected from frost; tanks and cisterns to be covered.
• Gas & Electricity - Supplies to be maintained with gas safety certificates issued every year and electrical safety certificates every 5 years.
• Common Parts - Common areas and utility services/appliances to be kept free of obstruction and in good order.
• Living Accommodation - Each habitable room to be kept in good order and regularly maintained.
• Outbuildings - All outbuildings and gardens to be kept in good order, safe and tidy.
• Waste Disposal - Sufficient provisions to be made for storage of refuse.
• Information to Occupiers - HMO manager's contact details to be readily available to all residents.
• Duties of Occupiers - Comply/assist the HMO manager to carry out his duties and fulfil their obligations and treat premises in a tenant-like manner.

HMO Licensing

Individual Local Authorities will have differing requirements based on the Housing Act 2004 to apply for a licence (normally valid for a period of 5 years). Licences are issued to a person(s) deemed to be fit and proper, be it the landlord or his nominated manager/agent, with adequate management arrangements so that the HMO is in good order.

The necessity of a licence is dependent on the following criteria being fulfilled:

1. The building is 3 storeys or more in height (including basements and any commercial units within the property)

2.The property houses more than four occupiers.

3. Some or all of the occupiers share a facility (kitchen, bathroom or WC)

For full and detailed information it is recommended that you contact your Local Authority to determine the specific regulations that apply in your area.

Prepared By:
Hinesh Varsani BA (Hons) PGDip MSCSurv MRICS
Partner | Belleveue Mortlakes Chartered Surveyors
hvarsani@bmortlakes.com