Whether they like their Martinis shaken or stirred, there is one thing that all residential landlords can agree on: getting licensing requirements wrong can be a costly mistake. Most of those working in the residential rental industry would have heard of the term 'HMO', but what is an HMO, what makes a HMO an HMO and are these the only types of residential properties that require a licence to be let?
What is a HMO?
A HMO is a house in multiple occupation. Whether a property is an HMO, depends on a number of factors.
The tests
The first is the 'standard test'. This says that where a property (not consisting of self-contained flats) is let to individuals who occupy the property as their only or main residence, forming more than one household, with two or more households sharing amenities, the property is a HMO.
A household means members of the same family and also includes a co-habiting couple. A brother, sister and cousin sharing a property would be one household, for example, but an unmarried couple sharing with their friend would be two households.
Whether a property is a tenant's only or main residents is usually obvious, but sometimes it's not. For instance, tenants are treated as occupying as their only or main residence where they are occupying for the purpose of undertaking a full‐time course of further or higher education. So, most homes rented privately to a group of university students would be a HMO.
The other tests include the 'self-contained flat test', the 'converted buildings test' and the 'converted block of flats test'. If you require any specific advice on these tests, please contact a member of the property litigation team.
The exclusions
Some properties are excluded from being a HMO, even if they meet one of tests referred to above. These are:
- buildings controlled by public authorities,
- buildings controlled by and occupied by students of educational establishments – for example, halls of residents controlled by a university,
- buildings occupied by owners, their household and no more than two other people (so, a homeowner with a maximum of two lodgers),
- buildings occupied by only two people who form two households.
What if a property is a HMO?
Where a property is classified as a HMO, the HMO Management Regulations 2006 ("the Regulations") apply. This places a number of obligations on a manager of a HMO, including ensuring enhanced fire safety precautions are in place and maintaining common parts. Failure to comply with these regulations is a criminal offence.
As well as having the Regulations apply, the HMO may also require a licence before anyone can occupy it.
What properties require a licence?
If an HMO is occupied by 5 or more persons then it will automatically require a licence under the nationwide mandatory licensing scheme.
However, it is possible for a local authority to require other, additional, properties to be licenced. These requirements would be under either an additional licensing scheme, or a selective licensing scheme.
Additional licensing can require smaller HMO to be licensed (i.e. those occupied by less than 5 people).
If a selective licencing scheme is imposed, every property let by a private landlord in the designated area requires a licence. Therefore, if you are currently renting out a property, even one that is not a HMO, you should still check your local authority website to see whether a licence is required. Given that these schemes can be introduced without warning, it is suggested that you regularly check that the information is still up to date.
What if my property requires a licence?
If your property requires a licence, you will need to apply for one from your local authority (a fee is payable). The local authority may inspect the property before the local authority serves a notice of intention to grant plus a draft licence, or notice of intention to refuse. The landlord and any interested parties can then make representations, before a final decision is made as to whether the licence should be granted or denied. Decisions can be appealed to the First Tier Tribunal.
The licence is intended to regulate the management, use and occupation of the property and so the licence will only be granted if certain conditions are met, and will have conditions attached to it (e.g. the maximum number of occupiers).
What if I do not have a licence, but I am required to have one?
Where your property is required to be licenced, failing to have one is a criminal offence. It can also result in a financial penalty (payable to the local authority) or a rent repayment order (repayment of up to 12 months' rent to the tenant, or local authority if housing benefits received).
You are also unable to serve a section 21 notice requiring possession of your property where your property requires a licence, and there is no licence (or no pending application).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.