What is an HMO?
A House of Multiple Occupancy or HMO is defined by the UK government as a property rented out to three or more people, who are not members of the same household (for example a family), and who share a bathroom and a kitchen. As of March 2018, there were estimated to be 497,000 HMOs in the UK. They are popular among landlords as they tend to produce higher rental yields and weather economic change and uncertainty better than traditional buy-to-lets.
HMOs are split into two categories: larger HMOs with five or more occupants, and smaller HMOs of three or four tenants. Large HMOs require a mandatory licence to operate, while smaller HMOs may need an additional licence depending on their local council.
Renting Out A Large HMO
The first thing you need to do is check that you are allowed to rent an HMO at all. Normally this is permitted but sometimes there is an ‘Article 4 Direction’, which removes these rights, and planning permission will be needed before you can operate an HMO. Be aware that if you are renting a property to seven or more tenants, you will always require planning permission, whether an Article 4 Direction is in place or not.
"The most important piece of advice is to know your legal responsibilities," says James Wood, Senior Policy Officer of the National Residential Landlords Association. "HMO properties are attractive options for landlords as they generally tend to have higher yields, however, HMOs also come with a lot of extra responsibilities and things to keep track of."
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If you are free to go ahead and rent out a large HMO, you will be required to get a mandatory HMO licence every five years. You must make sure the property is suitable for the number of tenants it houses (this is dependant on the size and the number of facilities) and that whoever manages the property, whether you or an agent, is considered ‘a fit and proper’ person, so they shouldn’t have a criminal record or be in breach of landlord laws.
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In addition, you must provide your local council with an updated gas safety certificate every year, install and maintain smoke and carbon monoxide alarms (if you are renting a property, you should have these already), undertake Right to Rent immigration checks on any adults and provide safety certificates for all electrical appliances when requested. The council may request a visit to your property before granting a licence and is at liberty to add other conditions, like improving your facilities, as they see fit.
Failure to comply with the above regulations is extremely costly and not having a licence or breaching the HMO management regulations can come with fines of up to £30,000 ($39,000).
Renting Out A Small HMO
Additional licensing applies to smaller HMOs that fall outside the scope of the mandatory HMO licensing scheme. Confusingly, whether a property requires an additional licence – and what getting one entails – is dependant on your local council’s policy. Even in London, councils have very different procedures when it comes to small HMOs; Newham requires all HMOs to have an additional licence, while Ealing excludes HMOs occupied by three people unless in a mixed-use building. To add to the complication, if your property has been converted into self-contained flats and a large proportion are not owner-occupied, you may also need an additional licence. It’s best to contact the HMO officer at your local council directly to check what is required.
As HMO landlords need to make sure they stay on top of changing legislation, it’s worth joining a professional organisation, such as the National Residential Landlords Association, to stay abreast of developments. As well as downloadable guides, many of these organisations offer training courses on HMOs that cover what you need to be aware of.