House in Multiple Occupations Licensing

The House in Multiple Occupations (HMO) concept has undergone significant transformations throughout the years, leading to some confusion among landlords regarding its correct interpretation and application. However, recent legislation and regulations, such as the Housing Act 2004, have sought to provide greater clarity on this matter, precisely defining the types of properties that qualify as HMOs. According to these regulations, a property can be considered an HMO if it meets any of the following criteria:

1. It is an entire house or flat rented to three or more tenants forming two or more households, and these tenants share a kitchen, bathroom, or toilet.
2. It is a house wholly converted into bedsits or other non-self-contained accommodation. This property must be rented to three or more tenants, forming two or more households that share kitchen, bathroom, or toilet facilities.
3. It is a converted house containing one or more flats which are not wholly self-contained, i.e., the flat does not contain a kitchen, bathroom, or toilet within its confines. This property must be occupied by three or more tenants from two or more households.
4. It is a building fully converted into self-contained flats, but the conversion did not comply with the 1991 Building Regulations. More than one-third of these flats should be let on short-term tenancies.

To qualify as an HMO, the property should serve as the tenant’s primary residence and be predominantly used to house tenants. Properties rented to students, migrant workers or used as domestic refuges are regarded as their primary residence.

Depending on the type of HMO, landlords may need a license, which can be obtained by applying to their Local Authority. This need is guided by the Licensing of Houses in Multiple Occupation (Mandatory Conditions of Licences) (England) Regulations 2018 and the associated statutory instrument 616/2018. Large HMOs in England and Wales, for example, those rented to five or more people who form more than one household and share some facilities, must be licensed.

The four types of licensing schemes available to landlords are:

1. Mandatory Licensing
2. Discretionary ‘Additional’ Licensing
3. Transitional Licensing Schemes (TLS)
4. Discretionary ‘Selective’ Licensing

Landlords need to provide extensive information about the property, such as its age band, category of HMO, details about safety precautions, and more, to obtain the license. Once the application is submitted, the property may need to be inspected to assess its layout, room sizes, accommodation standards, and fire safety against the Local Authorities HMO standards.

Costs for obtaining a license can vary widely across different local authorities. Moreover, if a property does not meet the standards set, landlords might have to modify the property considerably, leading to additional expenses. Operating an HMO without a required license is considered an offence and can lead to severe penalties, including a maximum fine of £20,000.

Investing in an HMO offers unique challenges and opportunities, so potential investors need to understand this specific segment of the buy-to-let market thoroughly. Lastly, landlords must remember that HMOs require specialist landlord insurance coverage due to the higher associated risks of multiple occupations, such as fire risks and more intensive occupations.

If you need help to plan your taxes, please contact Tax Accountant at 0800 135 7323 or email info@taxaccountant.co.uk for expert advice.