Oct 7, 2020

Everything Landlords Need to Know about HMO Licences

HMO licences were introduced as part of the Housing Act 2004. They came into being as a way to protect people living in shared houses, which were often overcrowded with poor fire safety measures in place.

From 2006 onwards, landlords have needed licences for houses in multiple occupation. Some licences are mandatory. Local authorities have the power to run additional licencing schemes for rental properties that fall outside of the mandatory category.

Read on for a guide to HMO licences, how they work, and other related topics.

Definition of an HMO

HMO is short for houses in multiple occupation.

According to the Housing Act 2004, to be defined as an HMO, a building, or part thereof, must fall within one of the following categories:

a building or flat in which more than one household shares a basic amenity, such as bathrooms, toilets or cooking facilities: this is known as the ‘standard test’ or the ‘self-contained flat test’
a building that has been converted and does not entirely comprise of self-contained flats: this is known as the ‘converted building test’
a building that is declared an HMO by the local authority
a converted block of flats where the standard of the conversion does not meet the relevant building standards and fewer than two-thirds of the flats are owner-occupied: this is known as a section 257 HMO.

To determine which category your property falls into, this link explains the tests in more detail.

The government definition of an HMO “is a property rented out by at least 3 people who are not from 1 ‘household’ (for example a family) but share facilities like the bathroom and kitchen.”

A large HMO is when the following apply:

it is rented to 5 or more people who form more than 1 household
some or all tenants share toilet, bathroom or kitchen facilities
at least 1 tenant pays rent (or their employer pays it for them)

All large HMOs must be licenced. Smaller HMOs don’t always need to be licenced, but it is best to check with your local authority to be certain.

Licencing for Houses That Don’t Meet the HMO Criteria

Councils have the discretion to implement a selective licencing scheme for properties that are not subject to mandatory licencing. This can include properties in certain geographical areas, such as student houses close to universities, and also blocks converted into self-contained flats.

If a selective licencing scheme is introduced by a council, all properties within the prescribed area must be licenced, irrespective of whether they are HMOs. This is usually done to raise standards in the private rental sector, usually where there is a problem with low-quality housing and poorly managed private rentals.

Section 257 of the Housing Act 2004 covers this in more detail – see below.

257HMOs: certain converted blocks of flats (1)For the purposes of this section a “converted block of flats” means a building or part of a building which— (a)has been converted into, and (b)consists of,self-contained flats. (2)This section applies to a converted block of flats if— (a)building work undertaken in connection with the conversion did not comply with the appropriate building standards and still does not comply with them; and (b)less than two-thirds of the self-contained flats are owner-occupied. (3)In subsection (2) “appropriate building standards” means— (a)in the case of a converted block of flats— (i)on which building work was completed before 1st June 1992 or which is dealt with by regulation 20 of the Building Regulations 1991 (S.I. 1991/2768), and (ii)which would not have been exempt under those Regulations,building standards equivalent to those imposed, in relation to a building or part of a building to which those Regulations applied, by those Regulations as they had effect on 1st June 1992; and (b)in the case of any other converted block of flats, the requirements imposed at the time in relation to it by regulations under section 1 of the Building Act 1984 (c. 55). (4)For the purposes of subsection (2) a flat is “owner-occupied” if it is occupied— (a)by a person who has a lease of the flat which has been granted for a term of more than 21 years, (b)by a person who has the freehold estate in the converted block of flats, or (c)by a member of the household of a person within paragraph (a) or (b). (5)The fact that this section applies to a converted block of flats (with the result that it is a house in multiple occupation under section 254(1)(e)), does not affect the status of any flat in the block as a house in multiple occupation. (6)In this section “self-contained flat” has the same meaning as in section 254.

It is worth noting that councils can’t introduce selective licencing schemes on a whim. There has to be a consultation process, which must be publicised.

Selective licences can be costly for landlords. Critics of such schemes argue that selective licencing schemes are also a handy way of generating income for the council, with landlords in some areas complaining they are being used as ‘cash cows’.

How Much do HMO Licences Cost?

Councils are free to decide how much to charge for mandatory HMO licences, so the cost will vary according to where the property is located. HMO licence fees are only meant to cover the cost of running the licencing scheme, so the costs should not be too high.

If your HMO licence application is turned down, your application fee will be refunded.

How long do HMO Licences Last?

HMO licences usually last for five years, but some licences may be granted for a shorter term. Remember, each individual property needs its own HMO licence, and it must be renewed before it expires.

Don’t get an HMO licence and then promptly forget all about it. In five years’ time (or less!), that licence will need to be renewed, which could take time. Put a reminder in your diary to reapply for a new HMO licence before it runs out. If you use landlord software, handy reminders for stuff like this are all part of the package, so you don’t need to worry.

How to Find out if I Need an HMO Licence

The landlord is responsible for determining whether an HMO licence is needed. Carelessness is not an excuse and a failure to apply for an HMO licence because you didn’t know it was necessary won’t stand up in court.

We have already outlined the main requirements for an HMO licence. It should be self-explanatory, but if you are not 100% sure whether your property needs an HMO licence, it is a good idea to speak to the council’s housing department.

Penalties for not Having an HMO Licence

Not surprisingly, there are penalties for running an unlicenced HMO if it meets the requirements for being licenced. Landlords who fail to apply for a licence face fines of up to £20,000 plus costs. Landlords can also be fined separately for failing to comply with licence conditions. All cases are heard in the Magistrate’s Court.

Councils can’t prosecute if you have applied for a licence or exemption and no decision has been made.

Once a landlord has been evicted, current and former tenants living in the property during the period it had no licence can apply for a Rent Repayment Order. This lets them reclaim rent paid, up to a maximum of 12 months. Councils can also claim back up to 12 months of housing benefit payments. This money comes out of your pocket, even if it was paid directly to the tenants.

If you feel you have been unfairly prosecuted or penalised for not having an HMO licence or not meeting HMO requirements, you can appeal against the decision via the Residential Property Tribunal Service.

HMO Licence Exemptions

Landlords can only claim an exemption from HMO licencing if they can prove their property is no longer being used or is about to cease being used as an HMO.

The council will want to see proof you are taking steps to turn the property back into a single dwelling, such as a planning application for necessary works. Selling the property and entering into a contract for sale with a buyer will also satisfy the council you’re no longer in the HMO business.

HMO exemptions typically last three months. This should give you enough time to complete the conveyancing process if you are currently selling the property. You can apply to have the exemption extended for a further three months, but the council is not obliged to agree.

If an HMO landlord dies, the property is subject to a temporary three-month exemption, to allow the deceased’s family or personal representatives to sort their affairs.

What Happens if the Council Refuses to Grant an Exemption?

If the council refuses to issue an exemption notice, they must give you their reasons in writing. You can then appeal the decision by taking your case to a Residential Property Tribunal.

How to Apply for a Licence

Application forms for HMO licences can be downloaded from the gov.uk website. Visit your council’s website to find the correct link.

Before you begin the submission, have a debit or credit card ready, as payment will be required.

Have copies of essential documentation ready to include with the application. These include:

Gas Safety Certificates for the property
Electrical Safety Certificate for the property
A plan of the property

You may also be asked to provide PAT certificates, fire alarm and maintenance records, and a sample tenancy agreement.

If you need to apply for an HMO licence, you must notify the freeholder (if the property is leasehold), the mortgagee (i.e. the lender), and your managing agent. You don’t need to inform your tenants.

An HMO licence is only granted once various checks have been made. The council can carry out checks on the property at any time during the five-year term. These checks are done to ensure there are no health and safety breaches.

What Does a Council Look at When Deciding Whether to Approve an HMO Application?

The following factors are looked at when considering an HMO licence application.

The landlord must be a ‘fit and proper’ person, i.e. with no criminal record and no previous breaches of landlord laws. If, for instance, you are listed on the national rogue landlord’s database, you will likely be refused a licence.
The property must be suitable for use as an HMO. There must be enough bathrooms, toilets, and kitchen facilities for the number of residents.

The property must be well-maintained with adequate fire safety measures. You can find out more about fire safety requirements in HMOs here

An HMO does not have to remain that way permanently. Even if you apply for an HMO licence, it doesn’t mean you can’t switch to a different business model at some point in the future. Councils can’t force you to keep the property as an HMO. They can prosecute you if you illegally evict HMO tenants with a view to converting the property back to a single-use dwelling.

If you have an HMO licence for a rental property, you don’t have to tell the council if you decide to rent it to a single-family. If you need to make structural alterations to change it back to a single-family dwelling, you may need to apply for planning permission first. Verify this before you start converting your HMO into bedsits and self-contained flats.

Speak to the council’s housing department if you decide to discontinue operating your property as an HMO. You might be eligible for a partial refund on your HMO licence. But don’t cancel the licence if there is any chance you’ll decide to revert back to using it as an HMO. Otherwise, you’ll need to go through the licence application process all over again.

What Happens if I Breach the Terms of the HMO Licence?

As already mentioned, councils do check up on HMO landlords, to make sure they are operating their properties correctly. If you break the terms of the licence, you could be fined up to £5,000 plus costs.

Councils can also revoke the licence. If they do this, they must inform you in writing and give you 14 days to respond. They may make an interim management order if the property still needs to be licenced. They can also do this if the landlord is not considered a suitable person to be in charge.

Can Tenants Check if I Have an HMO Licence?

Tenants can check if a landlord has a valid HMO licence. All they have to do is contact the local housing department, as they have a list of licenced HMOs. This is only applicable if the property is covered by mandatory and/or selective licencing schemes.

If a tenant discovered that you don’t have a licence for a property covered by mandatory and/or selective licencing, they can claim up to 12 months’ rent back if the landlord is prosecuted for running an unlicenced HMO, as mentioned above.

HMOs require careful management and are not usually a popular business model with inexperienced landlords. If you are thinking of switching to the HMO model, make sure you understand your responsibilities related to licencing and other areas. If you make a mistake and fail to carry out your statutory duties, it could be an expensive error.

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