This Ultimate Guide to HMO's answers a range of questions related to running an HMO.
HMO stands for House in Multiple Occupation. It is also known as a ‘house share’.
An HMO is defined as a property that is let to 3 or more people from 2 or more households. Two people living in a property who are not related would not be given HMO status.
It should be proportionate to the number of rooms available, the shared facilities available and any occupancy restrictions placed by your local council. You must avoid overcrowding your HMO, which could negatively affect the living conditions of those that live there.
You can rent your property on a room only basis or as a whole property which is shared by a group. The choice is really dependent on the type of tenant you are looking for, professional sharers may move often and prefer the flexibility or a room let, whilst students generally rent as a group of 4 or more people.
Most tenants in an HMO will have a lease, otherwise known as an Assured Shorthold Tenancy (AST). You can draw up a single AST for a group who will all sign it and be recognised as one tenant, or individual room AST’s. A license gives a tenant less rights in the event of eviction, and would usually only apply if you are a live-in landlord and they are a lodger.
You can provide services such as cleaning or gardening as part of your agreement with the tenants. Be wary that if you have an AST agreement in place, this means the tenants have exclusive possession of either their room or the whole property, and you must give 24 hours notice before carrying out services.
If you are a live-in landlord then it’s likely you have an Excluded Tenancy Agreement, otherwise known as a Lodger’s Agreement. This means you need to give reasonable notice of 4 weeks to evict a tenant, but would not require a court order.
An HMO license is issued by a local council, in order for them to have details of who is managing the HMO, how it will be run how many people live there. There is mandatory and selective licensing for HMO’s, or you may not need a license at all.
If you meet the mandatory licensing criteria below, you will need to apply for a license.
Some local authorities have selective licensing in place; usually to tackle anti social behaviour in a given area, so make sure you speak to them to see if you will need a license.
An unlicensed HMO is an HMO that meets the minimum criteria, but does not meet the mandatory licensing criteria and selective licensing is not enforced. An unlicensed HMO is still an HMO, and the additional responsibilities must be followed.
HMO regulations state that for a person to obtain an HMO license, they must be ‘fit and proper’. Which means they cannot have broken any criminal laws, housing law or landlord and tenant law (i.e fraud, illegal eviction). The council must be satisfied with the managing person’s plans to run an HMO.
HMO license costs vary from council to council and depend on the number of HMO’s you run. Starting prices for 1 HMO are from around £300 and can go up to over a £1000 for a new application. Renewal fees are lower, from around £150 and discounts can often be made if you renew the license for more than 1-year period or have multiple HMO’s.
You cannot buy an HMO license without first submitting an application the your local council to apply. You must be deemed a ‘fit and proper’ person and the property must satisfy the HMO regulations.
An HMO license can be revoked if the local council believes there are safety issues for the tenants, the HMO is not being run correctly or any laws and regulations are not being followed. If you’re not sure if you are adhering to an HMO license, you should contact your local council to clarify and make changes where necessary.
An HMO license cannot be transferred from property to property. A license is only valid for a single property, not a person. So if you own multiple HMO’s, you must ensure you have correctly licensed each one.
If you rent out an HMO property that isn’t licensed when it should be, the fine is up to £20,000. If you fail to comply with license conditions on your HMO, you can be fined up to £5000 per offence.
Technically there isn’t a room size requirement for HMO’s but under Part 10 of the Housing Act 1985, overcrowding standards are enforced. This sets a minimum room size of 6.5 square metres for adults. A local authority may make exceptions dependent on the number of rooms available and the size of shared facilities.
From October 2010, planning permission is not needed if a residence changes from C3 use (family dwelling) to C4 use (HMO), provided there are less than 6 occupants. If there are more than 6 occupants, you will require planning permission under Sui Generis. Local authorities can enforce a directive for a certain area, so always check.
There are a few exemptions to a property being classed as an HMO
You will need to consider these costs of running an HMO:
You will most likely use an AST, Assured Shorthold Tenancy agreement, for an HMO. You can use an AST for individuals or a group. If you have a lodger, you may use a lodger’s agreement instead of an AST.
HMO rental yields are generally much higher than residential properties: HMO landlords have reported to achieve from 9% rental yield up to as much as 20%. Whilst HMO’s have a higher rental yield, it’s important to remember that costs will be higher.
HMO’s can be very profitable because you can charger a rent per room that totals more than if you let the property to one household. For example, you could rent a 3 bed property for £1000 per month to a family, or as 3 rooms for £400 each giving a total of £1200.
It’s reported that a big advantage of HMO’s is that they are more profitable than residential lets. Renting a 4 bed house by room can achieve a higher rent than if you were to let the property as a whole to a single household.
One disadvantage to running an HMO is the amount of time you’ll need to put in to ensure it meets regulations and your tenants are happy and safe. You can hire a property manager to run your HMO but ultimately, the buck stops with you and you must ensure it is being run correctly.
HMO insurance is type of specialist insurance for those that have an HMO and require, and have obtained, an HMO license from their local authority. It’s advisable that a landlord of any type of let has insurance cover, particularly for buildings, contents and public liability.
Costs will vary between providers and are dependent on the number of tenants, the location of the property and the level of cover you require (additional cover for emergency call out and rent protection) among other factors.
The HMO regulations are listed below, and apply to all HMO’s regardless of whether they are subject to mandatory or selective licensing:
If you let your HMO by the room you will not need an EPC. If you let the house as a whole on one tenancy agreement, you will need to provide a copy of the EPC to the tenants before they move in.
You don’t necessarily need to carry out a Fire Risk Assessment but it is strongly advised that you do. As the landlord, you are responsible for the safety of your tenants and must ensure the property is adequately protected against the risk of fire.
There is no legal requirement to provide fire extinguishers or fire blankets in an HMO, but the assessor who carries out a FRA on the property may advise you to. It’s important that if you do provide them, you give the occupiers detailed instructions on when and how to use them.
Yes, if you have an unlicensed HMO then you will need to provide smoke alarms on every habitable floor and ensure they’re working before tenants move in. Licensed HMO’s may have stricter rules imposed as part of the license.
You must carry out a gas safety check every year in your HMO and provide copies of the certificate to your tenants.
There is no legal requirement to install fire doors in your HMO, but if your HMO requires a license then the local authority may require this dependent on the circumstances. Fire safety is very important in an HMO due to the higher occupation levels and it’s advisable to make the property as safe as possible from risk of fire.
If you are renting an HMO by room or to a group, you will need to protect any deposits given. If you have a lodger, you would not need to protect a deposit. You must provide the certificate and prescribed information to your tenants once the deposit is registered.
HHSRS stands for Housing Health and Safety Rating System. It rates the hazard rating of a property based on 4 key areas: psychological, physiological, protection from falls and protection from infection.
If you are renting each room out, it may be easier for you to keep the utilities in your name and include the cost in the tenants’ rent. If there is a group living in the property on one contract, they would most often pay the utility bills separately to the rent.
If you let the property by room, you will be responsible for council tax payments and you can recoup the cost through the rent. If you rent the property as a whole to a group, they will be responsible for council tax payments unless exempt- such as students.
If a tenant is still in a fixed term contract, you can enforce that they stay or pay you the rent for the rest of the term. In actuality, many landlords will allow a tenant to leave with due notice and a mitigation of losses incurred.
The key is to keep communication open. Try not to get overly involved but explain that for a happy tenancy, they need to sort their differences. If they cannot reach an agreement, it may be best to offer the option of leaving if your losses are mitigated.
You can serve notice on tenants in your HMO just as you would in a residential tenancy by serving a Section 8 or Section 21 notice: this only applies if they have an Assured Shorthold Tenancy. If they are a lodger, you can serve a minimum of 4 weeks’ notice.
Subletting is when a person rents from a landlord as a tenant and subsequently rents the room or property to another person.
A landlord can try to prevent subletting by including a clause in their contract. However, you cannot directly forbid subletting, as tenants may find themselves in a position through no fault of their own whereby they must leave- in this situation you should try to reach a solution of replacing the tenant.
Technically, your tenant who is subletting has become the landlord to the subsequent tenant (if they believed this to be the true owner). You are still the owner and landlord to the original tenant.
Rent to rent is a scheme whereby a person will rent a property directly from a landlord, and then rent out each room individually. The room rates will be at a higher rate to the rent for the whole property and so the person will keep the difference between what they receive for all the rooms and the rent they give to you.