What qualifies as an HMO?

AnHMO is a property where multiple tenants live as their only or main residence, often with shared access to facilities. According to the Housing Act 2004, a property qualifies as an HMO if it houses at least three tenants who form more than one household and share living accommodation, such as a kitchen or bathroom. The term “household” here applies to people who do not live as part of the same family, meaning tenants can be unrelated individuals, each renting their own room within the same property.

HMOs are often popular with students, young professionals, or individuals looking for more affordable housing options. The arrangements can vary widely, from small houses shared by a few tenants to larger buildings converted into multiple self-contained flats with shared spaces.

Types of HMOs

Landlords managing HMOs must understand the specific classifications to comply with local council requirements, as licensing varies based on property characteristics and occupancy. HMOs fall into three primary categories:

• Mandatory licensing HMOs: Required for properties housing five or more tenants from at least two households. Compliance standards include minimum room sizes, fire safety protocols, and sufficient shared facilities like kitchens and bathrooms.
• Additional licensing HMOs: Some councils apply additional licensing to smaller HMOs with three to four occupants from two or more households. These properties typically face specific quality standards and safety requirements based on council regulations.
• Selective licensing: In designated areas, councils may require licensing for all rental properties, regardless of size, to improve local housing standards.

Legal requirements and licensing

Landlords must understand their legal responsibilities associated with HMOs to manage the property within the parameters of the law and enable tenant safety. Legal requirements for HMOs include obtaining the correct licence, meeting safety standards, and adhering to specific living standards, especially when properties are in a converted building or shared arrangement.

• HMO licensing: a licence for a large HMO is generally obtained through the local council. This process requires detailed information about the property layout, tenant arrangements, and compliance with safety standards. Properties housed within a converted building, where multiple tenants share communal areas, often fall under these licensing requirements, particularly if they have five or more tenants. Licences are valid for up to five years and must be renewed to ensure ongoing compliance with regulatory standards.Safety standards: HMOs must comply with a range of safety standards to provide a safe environment for all occupants:
  • Fire safety: fire alarms, extinguishers, and designated escape routes are mandatory. Regular inspections are required to ensure that all fire safety equipment remains functional and accessible.
  • Electrical and gas safety: these systems must be inspected annually, with records maintained and available for council inspections. This requirement is particularly relevant in converted buildings, where installations may need additional maintenance due to their layout and shared usage.
  • Minimum room sizes and living standards: government regulations stipulate minimum room sizes for HMO properties, with single occupancy rooms requiring at least 6.51 square metres. In addition, shared spaces, like kitchens and bathrooms, must meet specific cleanliness and accessibility standards, ensuring a comfortable and safe environment for all tenants.

Non-compliance with these regulations can lead to fines, restrictions, or enforcement actions from the local authority, which can require adjustments or even closure of the property if it does not meet safety and living standards. For landlords, adhering to these guidelines is fundamental to managing a compliant HMO, especially in a converted building where space and facilities are shared by multiple households.

Benefits of letting a property as an HMO

While HMOs require attentive management, they can offer a range of benefits for landlords:

• Higher rental yields: letting rooms individually often results in higher rental returns than a single tenancy. By renting to multiple tenants under separate agreements, landlords can optimise income, as each room generates its own rental income stream. This approach can also create a more consistent revenue, as the combined income from multiple tenants often exceeds the rent that a single household might pay.
• Reduced void periods: letting an HMO can reduce the financial impact of tenant turnover. With multiple tenants in the property, if one moves out, the remaining tenants continue to generate income, helping to cover ongoing costs. This setup creates a more stable cash flow, as income is less affected by the departure of a single tenant compared to a fully vacant property.
• Suitability for specific markets: HMOs attract certain tenant groups, such as students, young professionals, and individuals seeking affordable, flexible housing. In university towns or urban centres, demand for shared accommodation tends to be high, making HMOs an appealing option. This demand provides landlords with a relatively steady pool of prospective tenants, helping to keep occupancy rates consistent.
• Flexibility in tenant selection: HMOs allow landlords to select tenants individually, which can make it easier to find suitable tenants who meet referencing and affordability criteria. With each tenant having their own agreement, landlords can replace a tenant when needed without affecting the tenancy as a whole.
• Lower risk of rent arrears: when multiple tenants occupy an HMO, the risk of total rent arrears is generally reduced. If one tenant experiences financial difficulties, the rent from other tenants can help offset any shortfall, allowing landlords to maintain regular income.

Challenges of operating an HMO

HMOs come with specific challenges that require landlords to stay organised, attentive, and well-prepared:

• Management complexity: with multiple tenants holding separate agreements, the management of an HMO demands more time and effort than a single-tenancy property. This includes handling individual maintenance requests, tenant inquiries, and addressing any issues that arise within shared areas. Additionally, tenant turnover can introduce new dynamics within the property, and conflicts between tenants may require mediation to maintain a harmonious living environment. Effective communication and clear guidelines for shared spaces are often necessary to keep operations smooth.
• Increased wear and tear: in HMOs, communal areas such as kitchens, bathrooms, and living rooms are used more intensively than in single-tenant properties, which can lead to a faster rate of wear and tear. Items like kitchen appliances, flooring, and bathroom fixtures may require repair or replacement more frequently. Budgeting for regular upkeep and setting aside funds for unplanned repairs is advisable, as these costs can accumulate over time.
• Compliance with HMO standards: operating an HMO involves adherence to specific legal and safety requirements that can be time-consuming to manage. Regular fire safety inspections, electrical and gas checks, and compliance with room size regulations are just a few of the standard requirements. Landlords may also need to keep records up-to-date and conduct routine compliance checks to adhere to regulations. Properties with multiple tenants may require additional facilities or modifications to meet the standards set by local authorities, which involves both time and resources to maintain.
• Higher risk of tenant turnover: shared living arrangements may not suit all tenants, and the shorter-term nature of HMO agreements can lead to a higher turnover rate. This can require additional time for tenant sourcing, referencing, and onboarding. Landlords may need to prepare for the administrative and logistical demands of filling rooms more frequently, as well as the costs associated with marketing the property and conducting tenant checks.

Steps for setting up and managing an HMO

For landlords who choose to operate an HMO, following a structured approach helps in maintaining the property to a high standard and meeting all legal obligations. Here’s a step-by-step guide to setting up and managing an HMO:

• Preparing the property: before letting the property, it must meet specific safety standards to ensure a secure living environment for tenants. This often includes installing fire doors to protect escape routes, adding locks on bedroom doors for tenant privacy and equipping communal areas with adequate amenities, such as a suitably sized kitchen with necessary appliances. Depending on local regulations, additional safety features like smoke detectors and emergency lighting may be required in certain areas of the property. Preparing the property thoroughly from the outset sets a foundation for compliance and safety.
• Applying for an HMO licence: many HMOs, particularly those with five or more tenants, require a licence from the local council. The licensing process involves submitting detailed information about the property’s layout, tenant arrangements, and the safety measures in place. This can include details on fire safety equipment, waste disposal facilities, and the maintenance schedule for shared spaces. Councils typically conduct an inspection before granting the licence to ensure all requirements are met. Once issued, licences usually last up to five years, but landlords must stay informed of any renewal deadlines to keep their property legally compliant.
• Tenant selection and management: in HMOs, where tenants share communal areas, selecting the right tenants is especially relevant. Conduct background and reference checks to verify that prospective tenants meet the standards for shared living. Once tenants are chosen, clear tenancy agreements that outline shared responsibilities - such as cleaning schedules for shared areas and guidelines for communal space usage - can help to prevent misunderstandings and promote a harmonious living environment. Establish a structured approach to tenant communication from the start to encourage a respectful and cooperative atmosphere within the property.
• Maintenance and safety checks: regular maintenance is necessary to keep an HMO in good condition and compliant with health and safety standards. Scheduled inspections allow landlords to address wear and tear before it escalates into larger issues. In addition to general upkeep, HMOs require specific safety checks, including annual gas safety inspections, routine testing of fire alarms, and periodic assessments of electrical installations. Keeping thorough records of these inspections can help during council checks and demonstrate that the property meets safety regulations. Proactive maintenance also supports tenant satisfaction, as it keeps the property in a suitable condition for shared occupancy.
• Ongoing compliance and record-keeping: Managing an HMO involves maintaining detailed records for inspections, tenant agreements, and any updates to the property’s safety features. Councils may request proof of compliance during periodic inspections, so keeping all documentation organised and accessible is helpful. Additionally, landlords may need to renew their HMO licence periodically, making it necessary to stay updated on any changes in licensing regulations or local council requirements. This approach helps ensure that the property remains compliant and that the landlord meets all regulatory expectations.

Is an HMO right for you as a landlord?

At AST Assistance, we understand the unique challenges that HMO landlords face. Our team of landlord advice specialists is here to support you in making informed decisions that align with both your goals and regulatory requirements. From determining if the HMO model fits your circumstances to navigating the licensing process and managing tenant relationships, AST Assistance provides tailored guidance every step of the way.

If you’re weighing up your options or need support in setting up or managing an HMO, reach out to us. Call AST Assistance today on 01706 619954 or visit our contact page to schedule a callback.