Houses in multiple occupation (HMOs) are properties in which at least three people live while not being of the same household – that is to say, not of the same family unit or in a couple. A common example of an HMO is student accommodation.

HMOs can be complex. They are equal to the work of several properties, despite being merged into one, since landlords (or their property managers) are dealing with three or more households each with their own individual circumstances, paperwork, and issues. It’s for this reason an HMO licence is required by law.

What does HMO licence mean?

An HMO licence is a legal permit that allows you, as a landlord, to own a property that operates as an HMO. Each licence is valid for a maximum of five years, and one is needed for each individual HMO; you cannot obtain a single licence as a catch-all for any and all HMOs in your portfolio.

The licence is subject to certain criteria, including:

• The house must be suitable for the number of occupants, dependent upon its size and the facilities included
• The manager of the house must be ‘fit and proper’, with no breaches of relevant codes of practice and no criminal record
• Smoke alarms are properly fitted and maintained
• Electrical appliances are safety tested with certification where requested
• An annual gas safety certificate is sought and sent to the council

There may be other conditions on your licence decided by the council you apply to, and these will be communicated in response to your application. Failure to seek an HMO licence for a property that needs one can result in fines of up to £30,000 under the Housing Act 2004, or unlimited fines if prosecution is pursued.

Decisions can be appealed to the First-Tier Tribunal (Property Chamber – Residential Property).

When did HMO licencing start?

HMO licencing came into practice in 2006, replacing previous regulations and aiming to raise the quality and standards of HMO management.

The regulations are now outlined in both the Management of Houses in Multiple Occupation (England) Regulations 2006 and the Licensing and Management of Houses in Multiple Occupation and Other Houses (Miscellaneous Provisions) (England) Regulations 2006.

Before this, the Housing Act 2004 introduced a new way to define what constituted an HMO, as well as affirming what kinds of situations are exempt from the definition of an HMO and therefore requiring no licence.

Do I need an HMO licence?

It is always ideal to check with the local council to understand whether or not a licence is required. However, some properties require an HMO licence as a blanket rule. The following must all apply:

• Five or more tenants who do not form a single household between themselves, such as all being members of the same family
• Certain facilities are shared between some or all of the tenants, like a kitchen, shower, or toilet
• At least one tenant pays rent or has rent paid on their behalf by an employer

A property in England and Wales meeting all of the above constitutes a large HMO.

This was set out in the Licensing of Houses in Multiple Occupation (Prescribed Descriptions) (England) Order 2018, which expanded the then-licencing rules to cover all properties meeting these descriptions. Extra conditions were introduced at the same time, such as the minimum sleeping requirements for each tenant and the refuse disposal facilities made available at the property.

HMOs that do not meet all of the descriptions above may still be liable for a licence, which is why it’s always the best course of action to check with your local authority. Certain HMOs may come with additional licencing and others can need licences on specific bases, set at the discretion of the council. These could stipulate extra requirements for the landlord, where reasonable, such as the need to curb antisocial behaviour in the local area.

For the landlord themselves, this may mean undertaking pre-tenancy checks to get a better feel for prospective tenants, introducing terms into contracts that specify what behaviour needs to be minded, or upgrading the property itself to better accommodate a noisier house.

Solving these challenges and remaining compliant with the local council is what makes opportunities such as armchair investment such an attractive prospect for many investors, taking the stress out of management and streamlining the processes.

Certain properties are not defined at HMOs and therefore do not require a licence. Under the Housing Act 2004, these include:

• Situations such as two-person flat shares, wherein no more than two households comprised of a single person are living together
• Student halls of residence where the universities are specified as exempt
• Properties owned or managed by public bodies such as the NHS or the police
• Residential accommodation that is supportive of a building’s main function or purpose, such as religious establishments
• Certain buildings specified as exempt within the regulations, like care homes

Government guidelines and advice can give you further information for your specific situation, but generally speaking you do not need an HMO licence if the property in question doesn’t represent an investment towards which other people pay you in return for tenancy.

For instance, if you live in a large house with lots of other family members, you do not need a licence.

What licence do you need for an HMO?

The main licence for an HMO will be applicable for most situations, but it pays to be aware of the different kinds of HMO licences to better understand your obligations as a landlord or individual managing on a landlord’s behalf.

Mandatory

The mandatory licence covers the aforementioned HMOs that must have a licence attached, i.e. comprising five or more people making up at least two households with shared facilities and rent coming from at least one source within the occupancy.

It must be noted that mandatory licences do not apply to purpose-built flats in a block of three or more self-contained flats, such as (but not limited to) those commonly seen in university student accommodation.

Mandatory licences are exactly as the name suggests, and there are heavy penalties for operating a liable HMO without one.

Additional

These licences are purely at the discretion of the relevant local council, and some areas will have licencing rules that other boroughs and regions do not. Additional licences can apply to properties where mandatory licencing does not, and can be a means to ensure that properties are maintained better in areas where they have historically been neglected.

In the past, tenants of properties that were not large enough to satisfy mandatory licencing faced neglect of their living conditions because of this gap in regulation. Additional licencing helps to smooth these gaps over.

Due to the case-by-case nature of additional licencing, there’s not guaranteed source other than your relevant local authority as to which property needs one and which doesn’t. At the risk of being repetitive, always check!

Selective

Selective licencing can apply to essentially any rental property and is again under the discretion of local authorities. These licences are nevertheless compulsory in the areas in which they’re enforced. Nottingham, for example, has a selective licensing scheme that applies to an area covering roughly 30,000 privately rented properties in a designated area, but not the entire city.

Selective licencing allows a council to specifically target areas in which standards are low or management has historically been poor. If your local council has a selective licencing scheme in action, it should have both the area, and the criteria the property must meet, as ready information for all landlords.

The subjective and changeable nature of these licences can make the process of getting the correct information for your HMO labour-intensive. The specifications of additional licencing can also mean more capital required than originally planned, such as in the case of extra repairs or modifications needed to a property.

In certain cases, where landlords fail to bring a property up to the standard sought by the council, an interim management order (IMO) can be issued to take over the management of an HMO. This does not take the property away from the landlord, but it does give the local authority a maximum of 12 months under the order, during which time it will seek to remedy problems that are threatening the health and wellbeing of occupants or nearby neighbours.

Management can also be transferred to another body on behalf of the council, and rent payments for the property may be used to meet the relevant expenditure and administrative costs.

Considering investment options like a joint venture with a property management company like Mistoria Estate Agents may help to ease the financial burden on landlords to meet requirements and ensure their HMO can get off the ground comfortably, giving them a fair chance at investment.

How much will an HMO licence cost?

HMO licence cost varies between areas and their councils, and the difference can be rather considerable. East Cambridgeshire District Council asks for an application fee of £330, whereas Bristol City Council requires a fee of £1,420. These do not represent the lowest and highest fees, and different councils have distinct structures.

Some councils charge at a rate per year or per room, and do not necessarily require that higher fees are paid in one upfront sum.

As these fees are set independently by each respective council, it is always best to check directly with yours as second-hand information can easily become outdated or inaccurate. The fee that a landlord paid five years ago may not the same now, and understanding exactly how much a licence will cost means you can make exact deductions to your capital.

Who is responsible for applying for an HMO licence?

The owner or property manager of the HMO in question is responsible for the application of the licence. There is some open interpretation due to wording of legislation as to whether or not property agents are responsible for the HMO licence. However, liability will typically fall onto the landlord ultimately.

Unlicenced HMOs can yield more than a fine, hefty though that fine can be. It is not uncommon for councils to seek legal proceedings against landlords who try to operate without the necessary licence(s), and tenants in some circumstances can apply to have their rent refunded through a tribunal if they’ve been living in your unlicenced property.

How to renew your HMO license

To renew your licence, contact the local council with whom the current one is held. Unless otherwise specified, renewal should only be necessary every five years. However, your licence must be renewed before it runs out, and bear in mind that a licence is needed for each individual property.

Some councils have moved their services for HMO licencing online, making it easy to keep track of your property and renew your licences.

Before renewing your licence, ensure that your data is up to date and correctly represents the property.

HMO Compliance

Running an HMO can be a complex matter, and there are many responsibilities a landlord has.

The GOV.UK website has some handy information on the obligations of landlords, and local councils can give you an exhaustive list of everything they need for an HMO licence application. This information must be prepared carefully, as a failed application does not always mean a return of your fee.

Property management companies like the Mistoria Estate Agents, as well as providing buy to let properties in the North West to get you on the property investment ladder, can even help you to secure your HMO licence so that your HMO is established, compliant, and profitable even faster.

To learn more about our HMO properties available in Bolton and North West England with Mistoria Estate Agents, please contact us today.