Things HMO landlords need to know

HMOs, houses in multiple occupation, are a common type of rental property.

The UK government states that a rental property is considered to be a house in multiple occupation if a minimum of three tenants live there, forming two or more households, and toilet, bathroom or kitchen facilities are shared with other tenants.

Examples of HMO properties include houses split into separate bedsits, shared houses or flats where occupants aren’t from the same family, hostels, and bed-and-breakfast hotels.

Being a HMO landlord may give you a heightened earning power compared to traditional single lets. However, they also have potential drawbacks such as greater maintenance costs and a high tenant turnover rate.

What defines a HMO?

While at least three tenants are required to live at a property for it to be regarded as an HMO, a home is considered a large-size HMO if it has five or more tenants. Again, for this definition, these tenants must form more than one household within the property, with toilet, bathroom, or kitchen facilities being shared between the households.

For this definition, a ‘household’ is either a single person or members of the same family living together. A ‘family’ can include people who are married or living together, including people in same-sex relationships. It can also include relatives or half-relatives such as grandparents, uncles, aunts, and siblings, as well as step-parents and step-children.

What are HMO landlord responsibilities?

The distinction between a traditional single let and a HMO is significant because if your property is defined as the latter, you will face additional legal responsibilities as a landlord.

Those additional responsibilities include

• Taking care of repairs and maintenance so the property is liveable for all tenants
• Ensuring the property is not overcrowded
• Providing sufficient cooking and bathroom facilities for the number of tenants living there
• Ensuring communal areas and shared facilities are clean and in good repair

This is not an exhaustive list of the legal obligations that landlords of HMOs have. Note that you will also need to ensure your landlord insurance is valid, as a specific policy is required for a HMO property.

What tenancy agreements are used for HMOs?

Previously, HMO landlords used to issue Assured Shorthold Tenancy Agreements (AST) to their tenants. However, the new Renters Reform Bill intends to change all this by abolishing Assured Shorthold Tenancies (ASTs) and replacing them with a single system of periodic tenancies. The bill advocates that all rental properties in England and Wales switch to a rolling monthly tenancy, without a fixed end date.

Therefore, future tenancy agreements for HMOs will be period tenancies, a move away from ASTs.

Will you require a HMO licence?

For some HMOs, a licence is legally required to ensure the property is being correctly managed.

You will need a HMO licence from your local council if your property has five or more unrelated people living in it from two or more households. However, the situation can differ from one local authority area to the next, with some councils requiring HMOs outside the above criteria to also be licensed; other councils may even demand that all private landlords obtain a licence.

Unsure about whether or not a licence is required for your HMO property? You can check with your local council. If you will need a HMO license, you can also request a HMO licence application form from them. You will probably be charged a non-refundable fee to apply, although the exact amount differs between local authorities.

What are the minimum bedroom sizes for HMOs?

Ensuring you’re not over-fixated on maximising space as a HMO landlord is important. After all, you don’t want to be penalised for causing overcrowding. What’s more, protecting the safety of tenants living in your property should be your priority. If a box room is better suited to being a study, keep it as a study. Health and safety should always reign over profit.

In October 2018, the government in England set out rules that a room smaller than the specified size must not be used as sleeping accommodation for tenants

• 4.64 square metres for a child under 10 years old
• 6.51 square metres for a person aged 10 or over
• 10.22 square metres for 2 people aged 10 or over

Individual local housing authorities do have the discretion to enforce higher standards within their HMO licence conditions. However, they must not set lower requirements than those minimum bedroom sizes above.

Who pays for Council tax in a HMO?

If each person living in the property has their own tenancy agreement, then the owner of the property must pay the Council tax in a HMO. If the property has only one tenancy agreement with all of the tenants’ names on it, it’s the tenants who have to pay the Council tax.

Are you a student landlord? Remember that full-time students are exempt from paying council tax

Again, make sure you double-check with your local council, as rules and details around council tax can vary between local authorities.

Is life as a HMO landlord right for you?

Being a HMO landlord will mean that you will have at least three tenants. Firstly, let’s take a look at the positive benefits of being an HMO landlord.

Benefits of being a HMO landlord

If you get it right, being a HMO landlord can be a fantastic investment. Nice perks can include

• Higher rental yields
• Market demand for shared accommodation remains consistently high, even during economic downturns
• A consistent stream of tenants
• An ample opportunity to help you further grow your property portfolio
• Fewer periods of the property being unoccupied
• Selling it on at a higher price in the future and making a profit if local house prices go up

The drawbacks

Like with any investment, some risks and issues can arise for HMO landlords, it won’t always be plain sailing.

Renting out a property as an HMO is not for everyone, and it can be stressful due to things like

• Heavy legal responsibility
• Having a long list of management tasks to take care of
• The stress of potentially having disputes with multiple tenants
• Maintenance and running costs of an HMO property (particularly if you include energy bills in the rent)
• Chasing up rent payments from multiple individuals from different households
• The financial pressures attached to having a mortgage on a HMO property

On the other hand, if you are able to keep on top of the various legalities and maintenance requirements associated with HMOs, they can also be highly rewarding – not least financially, given the higher yields that they frequently command.

Do you feel prepared for events such as fire, theft or loss of rent? If your answer is no, you may want to consider getting specialist HMO landlord insurance. With CIA Landlords, you can compare HMO landlord insurance to find the best quote for your needs. Just give us a call on 01788 818 670 or get a landlord insurance quote now.