Houses in Multiple Occupations

By March 2, 2017Uncategorized

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Houses in Multiple Occupations (HMO)

共享式住宅

Raising Investors’ Awareness

給投資者的提示

Investing in Houses in Multiple Occupations (HMO) forms an essential part of a buy-to-let strategy that all investors should consider. This note outlines the typical features of HMO and highlights any pitfalls that every investor should be aware of. Once a property is acquired, the investor becomes the landlord generating rental incomes from tenants. This note gives an insight to the subject from a landlord and tenant’s perspective.

共享式住宅是以出租為目的的房產投資的基本策略,所有投資者都應該對此給予關注。本文陳述了共享式住宅的一般特征,也突出了每位投資人應該清楚的問題和隱患。當投資者獲得物業所有權,他便成為業主,可以從租客處獲取租金回報。本文從業主和租客的角度出發,對該主題進行深入剖析。

Investing in Houses in Multiple Occupations (HMO) forms an essential part of a buy-to-let strategy that all investors should consider. This note outlines the typical features of HMO and highlights any pitfalls that every investor should be aware of. Once a property is acquired, the investor becomes the landlord generating rental incomes from tenants. This note gives an insight to the subject from a landlord and tenant’s perspective.

What is a House in Multiple Occupation?

A HMO is in essence a property occupied by three or more unrelated people, forming at least two separate “households”, who share the basic amenities such as a kitchen and bathroom1. A “household” is considered to be an individual person and/or members of the same family who live together.

What’s the appeal?

HMOs can take many forms including house shares, student houses (not halls) and many more. The perceived benefit of a HMO is that by renting out each room individually the landlord is able to generate a far greater rental yield from the property. Equally from a tenant’s perspective, there is the real possibility of a more cost effective rental opportunity by house sharing as opposed to renting the whole house.
Despite the apparent appeal of HMOs, fraudulent transactions are unfortunately becoming more and more prominent in today’s society. It should be noted that in the recent case concerning the use of HMO generating investment returns [Ashokkumar Somabhai Patel v Freddy’s Limited and others2] Judge Cooke stated that “…the neglect of the property by the Claimant…and their disregard for the planning legislation and need for the licensing of the multiple occupation left the property open to fraud.”3. It is therefore pivotal for any person(s) whom is looking to acquire and/or dispose of a HMO to consider the below discussed issues.

What happens if the property is a HMO?

In the event that the property falls within the definition of a HMO the landlord is liable for a number of extra legal responsibilities4. For instance, some of the key responsibilities, which one must undertake, are as follows:

1. Fire safety;
2. Annual gas safety checks;
3. Electrical checks every 5 years;
4. Adequate amenities to be provided;
5. Waste disposal;
6. Water supply and drainage; and
7. Many more.
With the above in mind, although the landlord seeks to reap the rewards of having a HMO, there are clear rules and guidelines afforded to protect the tenant.

Do landlords need a licence to rent a HMO?

In circumstances where a property is considered to be what is known as a large HMO the landlord will be required to obtain a licence from the local council5. A property is considered to be a large HMO if the following applies:
1. The property is at least three storeys high;
2. There are five or more unrelated people occupying the property; and
3. There are two or more separate households occupying the property.
Upon being granted a licence, the landlord will usually be awarded a five-year licence. However, this is wholly at the discretion of the local council.

Consequences of not having a licence

In the event that a licence has not bene obtained for a large HMO, there are a number of consequences6. By way of example, running a non-licensed large HMO may render the landlord liable for any of the following:
1. Penalty of up to £20,000;
2. Repayment of 12 months rent to the tenant; and/or
3. Service of a s.21 Notice i.e. an eviction notice being invalidated and unenforceable.
It is therefore clear that there are financial/non -financial consequences of failure to obtain and/or renew the necessary licences required for running a large HMO.

Please note that the above information has been provided on an informative basis and is not to be considered and/or construed as legal advice. Should you wish to discuss any of the above-mentioned issues further, please feel free to contact us at london@maxwellalves.com
Maxwell Alves Solicitors
February 2017

1 s.254 Housing Act 2004
2 [2017] EWHC 73 (CH)
3 Ashokkumar Somabhai Patel v Freddy’s Limited & Others [2017] EQHC 73 (CH) 67.
4 Schedule 4 Housing Act 2004
5 s.55 Housing Act 2004
6 s.72 Housing Act 2004

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