Update | Landlord and tenant: Houses of multiple occupation

If I were to make any prediction for the future of the private rented sector, it would be that we will have a lot more houses of multiple occupation (HMO) properties.

With the changes in the benefit rules coming in, many single people can no longer afford to rent on their own, and will be looking to share a property with others. It can be a good option - not all HMOs are tatty run down properties. Some can be rather posh.

For landlords, renting HMOs can be lucrative (albeit time consuming), if done properly. However there have traditionally been health and safety issues with HMOs, and they are therefore heavily regulated.

So if you are advising a client who is considering renting out property as an HMO - what advice should you give?

First maybe we should take a look at what an HMO is. Many properties are inadvertent HMOs, often without either the landlord or the tenants being aware of it.

Traditional HMOs

HMOs are defined in section 254 the Housing Act 2004 at some length, but a working definition could be a property:

occupied by three or more people;

who form more than one household;

share basic amenities;

pay rent; and

at least one of whom occupies the property as their principal home.

Needless to say, this begs various questions - such as the precise meaning of household, rent and amenities. But you get the general idea. The other HMO type under the Housing Act 2004 is considerably less well known. It applies where a building has been converted to flats and:

the building does not comply with the building regulations as at June 1992; and

less than two thirds of the self contained flats are owner occupied.

This type of HMO (when it happens) is subject to the same management and licensing rules as a traditional HMO. So freeholders need to be careful about giving permission for long leaseholders to rent out their flats to tenants, if it would bring the property within this definition.

The Finance Act definition is used for Council Tax purposes and is found in the regulation 2 Council Tax (Liability for Owners) Regulations 1992.

The HMO part is class c ie: a dwelling inhabited by persons who do not constitute a single household, each of whom either:

(a) is a tenant of, or has a licence to occupy, part only of the dwelling; or

(b) has a licence to occupy but is not liable (whether alone or jointly with other persons) to pay rent or a licence fee in respect of the dwelling as a whole.

So (for council tax purposes only):

where friends share the whole of a property - it is NOT an HMO but

where a landlord retains a room for his own use - it IS an HMO.

Anyone wanting further information on this should take a look at the 2010 case of Goremsandu v LB of Harrow [2010] EWHC 1873.

Planning purposes

This article is not about planning law, so all I will say here is that the starting point is now the definition of an HMO in section 254 of the Housing Act 2004.

The rest of this article will just look at the first type of HMO, as this is the main one which concerns landlords.

However, before going any further, I want to pick up on some of those definitions.

HMO glossary

1. Household

This is key and underlies the whole reason for the HMO legislation. In essence household means family and the HMO regulations were set up to deal with the problems which often occur when people who are not one family share living space.

Households are defined in section 258 of the act, but in essence they comprise couples (married or otherwise) and relatives (of the whole or half blood) plus step children.

Household will also include a carer, where the occupier requires care, along with (amusingly) live in staff such as nannies, chauffeurs and governesses - rather rare in HMO land.

But in essence you will have one household when a couple or two brothers share a property, and two households if two friends share a property.

2. Basic amenities

These are defined in section 254(8) as:

a toilet;

personal washing facilities; or

cooking facilities.

3. Occupying the property as a main home

The regulations provide that the following will qualify:

a student;

someone living in a refuge (eg because they have left their home due to violence or abuse);

an asylum seeker; or

a migrant worker receiving accommodation as part of the payment for their work.

The consequences of being an HMO are basically twofold and comprise:

1. compliance with the management regulations (in all cases); and

2. licensing - in just some ases

Many people only consider of the licensing aspects and lose sight of the fact that just because your property doesn't need to be licensed, doesn't mean it's unregulated.

Even if you only rent a small flat to three nurses - unless they are related, this will be an HMO and the management regulations will apply. In some places the landlord may even need to get a license.

Compliance

The Management Regulations are set out in The Management of Houses in Multiple Occupation (England) Regulations 2006, with similar regulations for Wales.

They are basically concerned with health and safety issues and cover such things as fire safety, water supply, drainage and utilities, and keeping the common parts in good order - for example, banisters and handrails, ventilation, light fittings, stair coverings and the like.

Landlords will also be expected to comply with the gas regulations and have electrical installations inspected every five years. Basically the management regulations are about ensuring that the property is a safe place to live in.

If you are advising a client, here are a few points to make.

1. There needs to be a notice giving the name, address and contact telephone number of the landlord or person managing the HMO, clearly displayed in a prominent position in the property.

2. Landlords need to ensure tenants are not blocking hallways and stairwells by bicycles and prams for example, as this is a fire hazard. Local authorities will expect landlords to keep on top of this, which means regular visits to the property and written warnings to offending tenants.

3. Record keeping generally. If a local authority bring a prosecution, landlords will need evidence to prove that they have complied with the regulations - this means copies of letters to tenants, receipts for repair and other works, attendance notes of telephone calls and meetings (preferably followed up by a letter) and so on.

Remember that in most cases, if there is no written record, evidentially it might just as well not have happened.

Local authorities are clamping down more and more on landlords, so they need to take steps to protect their position. Landlords in breach will be prosecuted in the magistrate's courts and if guilty will be fined. As prosecutions are normally brought for a large number of charges and as each item can attract a fine of up to 5,000, this can quickly prove to be an expensive exercise.

However when talking about HMOs most attention is given to the issues of HMO licensing so let us now take a look at this.

Fit and proper

As mentioned above, not all HMOs will require a license. The rules are set out in part 2 of the Housing Act 2004.

Mandatory licensing will only apply where a property consists of three or more storeys and is occupied by five or more tenants in two or more households.

This begs the question, what is a storey, for the purposes of the act? The definition includes:

all storeys with residential occupiers, including attics and basements converted for residential use (even if they are not part of your HMO);

any business premises above or below the HMO; and

any mezzanine which has living accommodation and is not just a landing

If a property comes within this definition, it is an offence to rent it out unless a license has been obtained from the local authority.

A few points about applying for a license:

the license holder and manager must be fit and proper people. So landlords who have been successfully prosecuted under the management regulations will not qualify;

the property must be suitable for the intended number of occupiers; and

comply with all the relevant management and other regulations.

The application form can be obtained from the local authority and a fee will need to be paid - which will vary from Local Authority to local authority.

A landlord found to be managing an HMO without a license will be prosecuted and fined (with fines of up to 20,000). While the property is unlicensed the landlord will be unable to serve a valid section 21 notice.

However he will be able to serve it if an application has gone in, even if that application is not granted. Also, once a landlord has been convicted, the local authority and also in some circumstances, tenants, can apply to the Residential Property Tribunal for a rent repayment order. This can sometimes prove to be considerably more expensive than the fine for the offence.

If your client finds that his property is an HMO but does not want this, he can apply for a temporary exemption notice (TEN). For example to give him time to get rid of the occupiers and take the property outside the definition. However be aware that a TEN only lasts three months and only one extension will be given.

Additional and selective licensing is where landlords of properties outside the definition of mandatory HMO licensing are required to be licensed.

Additional licensing will require landlords of smaller HMO properties to obtain a license and

Selective licensing will require all landlords (i.e. also of non HMO properties) to be licensed.

It is beyond the scope of this article to look at this in any detail. Suffice it to say that individual local authorities are able to make additional and selective licensing designations provided they have carried out a suitable consultation exercise and are able to show that there are serious management problems in the area concerned.

Element of sharing

So if you find yourself in the position of advising a client whose property is an HMO, what advice should you give? If the client does not want to rent out an HMOs at all, then immediate steps should be taken to reduce tenant numbers to bring the letting outside the definition. Bearing in mind that this could be difficult if there is any element of sharing by more than two non-family members.
Advice should be given about the provisions of the management regulations as these will always apply, whether or not the property requires licensing. The client should be advised to speak to the relevant local authority department, to discuss what standards are required and what the landlord needs to be about licensing. Even if the property is a small one, there may be additional or selective licensing in place so it is always a good idea to check.

Finally the clients should be advised to familiarise themselves with the law and practice relating to HMO properties, maybe by doing some training. As always, ignorance of the rules will be no defence if they get things wrong.