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Regulation & Law

How HMOs are getting trickier

Buying HMOs – Houses in Multiple Occupation – is an attractive option for investors, but, says Jeremy Leaf FRICS, – is it worth the cost and effort?

Jeremy Leaf

Jeremy Leaf imageWith the government continuing to increase taxation and other obligations on private sector landlords, letting whole properties by the room as Homes in Multiple Occupation (HMOs) to maintain or enhance income is under closer scrutiny. The financial details may stack up, but there are many hurdles to clear.

AN HMO IS DEFINED AS:

a) a house or flat in which 3 or more people from at least two households share facilities such as a bathroom, toilet and/or kitchen with each household enjoying exclusive use of a room or rooms. ‘Household’ could be a single person or family living together. ‘Family’ can include married couples, couples living as married (including same sex couples) and immediate relatives (parents, grandparents, children, step children, foster children, aunts, uncles, cousins, nephews, nieces). “Separate households” usually have separate tenancy agreements;
b) A property where the landlord also lives as the owner-occupier and has more than two tenants (lodgers), all sharing at least some facilities;
c) Accommodation owned by a private landlord and shared by students who have exclusive use of the property with each student treated as a separate household;
d) A building or part of a building e.g. a flat which is converted but not solely made up of self-contained flats, whether or not the facilities are shared. ‘Self-contained’ means all facilities are contained within the flat for exclusive use of the household; and
e) A building or part of a building entirely made up of converted self-contained flats which do not meet conversion requirements of the Building Regulations 1991 and in which more than one third of the flats are occupied under short tenancies- known as a Section 257 HMO.

HMO RULES

Jumping hurdles imagea) A building is not an HMO if only two individuals live there and share facilities, irrespective of whether the landlord is resident. Rent must be paid by the tenants and the property should be the main residence of the occupiers. If the property is not listed as the occupiers’ main residence but the local authority decides that some of the occupiers are living there on that basis, an HMO Order imposing HMO status on the property, can be issued.
b) Council Tax is usually paid by the landlord, not the occupiers.
c) Under the Housing Act 2004, HMO responsibilities for landlords and/or property managers may include obtaining a licence but vary depending on the type of property and its location.
d) Local councils are responsible for regulating and enforcing HMOs and have powers to introduce licensing.

LANDLORD RESPONSIBILITIES

HMO landlords have legal responsibilities under The Management of Houses in Multiple Occupation (England) Regulations 2006 and 2007 whether requiring a licence or not. Failure to comply is a criminal offence punishable by a fine of up to £5,000.

HMO landlords who fail to comply with the rules face criminal charges.

Obligations include:
a) Providing the name, address and telephone number of the property manager (which can be the landlord) to each household in the HMO;
b) Ensuring tenants are not injured because of the property’s structure or condition eg a health and safety inspection must be made of the property, any recommended work curried out and records kept;
c) Taking specific fire-safety measures after consulting the local environmental health officer including keeping escape routes clear and fire-safety alarms, extinguishers etc. in working order;

NB Failure to produce a fire risk assessment under the Regulatory Reform (Fire Safety) Order 2005 and carry out recommendations can result in landlords being convicted and imprisoned.

d) Keeping water supply and drainage clean and in working order e.g. water tanks covered and pipes protected from frost;
e) Inspecting electrical equipment at least once every five years and obtain a report;
f) Supplying a gas or electrical safety record within seven days of occupation, if requested by the local authority;
g) Ensuring all shared areas are kept clean, in good repair and safe including entrances, corridors, stairways, gardens as well as kitchens and/or bathrooms and any structures which are part of the HMO including sheds;
h) Maintaining all parts of the exterior and interior (including windows, fixtures and fittings, and ventilation) in good and safe working order
i) Making sure the number and location of any shared bathrooms and kitchens complies with local minimum standards;
j) Ensuring refuse and litter are regularly disposed of; and
k) Obtaining a special HMO insurance policy;

NB The Housing Health and Safety Rating System (HHSRS), which defines 29 reasonable steps to reduce health and safety risks, applies to all rented properties, including HMOs. HMOs requiring a licence will have the maximum number of occupants determined by the licence, whereas non-licensable HMOs have no such ‘official’ maximum. Landlords have responsibility to prevent overcrowding, although local authorities can issue notices specifying maximum occupation, taking age and sex into account, and dictating which rooms can and cannot be used as sleeping accommodation. Better-matched tenants reduce the chances of displacement, stress, void periods, re-letting costs, etc.

HMO TENANTS’ OBLIGATIONS

Tenants of HMOs have legal obligations under these regulations punishable by a fine of up to £5,000 but must:-

a) Allow landlords or managing agents reasonable access to the property and inform them of works required in writing;
b) Not damage any part of the property or contents which the landlord (or managing agent) is obliged to provide; and
c) Adhere to the landlords’ fire-safety guidelines

NB The local council’s Environmental Health Department have to ensure HMO responsibilities are met, can issue fines if in breach but usually only after giving landlords and/or their agents the opportunity to rectify a problem.

MANAGEMENT ORDERS

Where the health and safety of the occupiers is deemed to be at serious risk and the HMO fails to reach the requisite standard, the local council can issue an Interim Management Order whereby:-

a) Management of the property is transferred to the local council or an approved council partner;
b) Rent becomes payable to the council not the landlord or agent;

Interim Management Orders are usually issued for a maximum 12 months but can be revoked earlier if the Council believe issues have been resolved, otherwise an appeal to a Residential Property Tribunal can be made. The Order has to be approved by a Residential Property Tribunal to whom the landlord can present their case.

The Order will remain in force until the local authority revokes it although, if circumstances change, the Order can be revoked or changed but failure to comply could result in a fine of up to £2,500. The Order can be appealed by reference to a Residential Property Tribunal. The Council will then decide whether to return control of the property to the landlord or impose a Final Management Order, which can last for up to 5 years. As with an Interim Order, revocation may be sought and, if unsuccessful, an appeal to a Residential Property Tribunal can be made.

Initial costs may be higher to bring an HMO property up to suitable standards, acquire the licence /planning consent, and will require more time and effort but can be more profitable for landlords than other private rentals. However, the property should be located in an appropriate area, with rooms not just large enough but which can suitably furnished and equipped.

A good local agent will have a working knowledge of the legislation and regulations controlling the conversion, maintenance, safety and security of HMOs such as emergency lighting, fire-risk assessments, fire doors, smoke and heat detectors, etc

There’s plenty to take into account when letting HMO property although longer-term rewards can certainly be worthwhile!

Jeremy Leaf FRICS, former RICS Residential Chairman & North London Estate Agent. 

July 14, 2017

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