HMO explained: rules and regulations for investors

Houses in Multiple Occupation (HMO) investors often find great potential in investing in HMOs due to their lucrative returns and the increasing demand for shared housing. However, navigating the complex web of HMO license requirements and potential planning consents can be challenging. To ensure a smooth and profitable investment journey, professional property investors must be well-versed in the legal requirements governing these properties. 

In this comprehensive guide, we will explore the planning and licensing rules and regulations that property developers need to be aware of when investing in HMOs.

 

What is an HMO?    

Before diving into the intricacies of planning and licensing, let's clarify what HMOs are. There are various different classifications of HMOs with different tests to determine requirements. 

The most common HMO is one that meets the standard test. This is a property that is lived in by at least three people who form more than one household and share common facilities such as a kitchen, bathroom, or living room. These properties come in various shapes and sizes, from small flats to larger houses, and they have specific legal requirements.

 

Planning considerations for HMOs

Use Class

The first step for potential HMO investors is to determine the planning use class of the property. In many cases, HMOs fall under a specific use class. The classification may vary depending on your location, so it's essential to check with your local planning authority. In England, for instance, HMOs often fall under use class C4, which includes small HMOs housing up to six individuals.

Planning Permission

For larger HMOs or properties not falling under the C4 use class, you will typically need to apply for planning permission for change of use to sui generis; one of its own kind. The application process involves submitting plans and documents to your local planning authority, demonstrating how the property will comply with local planning policies, including space standards and amenity provisions.

Article 4 Directions

In some areas, local authorities may implement Article 4 Directions, which remove permitted development rights -that allow dwelling houses under Class C3 to be altered to C4 for certain HMOs without planning permission. This means that you may need planning permission to change a property into an HMO if the property was previously used as a single-family dwelling. It’s crucial to check whether such restrictions apply in your chosen location.

 

HMO licence requirements

Mandatory HMO licensing

In addition to planning permissions, most HMOs in the UK require mandatory licensing. This applies to properties that meet the following criteria:

• House three or more tenants forming two or more households
• Share basic facilities such as a kitchen or bathroom
• Rent is collected

Mandatory licensing ensures that HMOs meet certain safety and amenity standards, protecting the well-being of tenants. The licensing process involves extensive checks, including:

• Fire safety measures
• Gas and electrical safety
• Minimum room size and amenity standards
• Adequate waste disposal facilities
• Suitable and responsible management

Failing to obtain a mandatory licence when required can result in significant fines or even criminal prosecution. 

Additional licensing

Some local authorities may introduce additional licensing schemes that extend licensing requirements beyond mandatory licences. These schemes often apply to specific areas with high concentrations of HMOs and aim to improve the overall quality of housing in the community. Investors must research the local regulations to determine if their property falls within such a scheme.

Certain blocks of flats will be considered “section 257 HMOs”. This is when a building or part of a building has been converted and comprises entirely of self-contained flats, less than two-thirds of which are owner occupied, but the conversion doesn’t meet minimum Building Regulation 1991 requirements. These types of HMOs -may be subject to additional licencing schemes.  

Selective licensing

Selective licensing applies to properties within designated areas and requires all privately rented properties, including single-family dwellings, to be licensed. This is aimed at improving housing conditions and reducing anti-social behaviour. Investors should check whether their property is located in an area with selective licensing requirements.

Meeting safety standards

Ensuring the safety of HMO residents is a top priority. Property investors looking to invest in HMOs must adhere to stringent safety standards, which may include:

• Fire Safety
• Installation of fire doors, alarms, and extinguishers
• Escape routes and fire exit signage
• Regular fire risk assessments
• Compliance with the Regulatory Reform (Fire Safety) Order 2005
• Gas and electrical safety
• Annual gas safety checks by Gas Safe registered engineers
• Regular electrical safety checks by qualified electricians
• Compliance with the Electrical Safety Standards in the Private Rented Sector (England) Regulations 2020
• Minimum room sizes and amenities
• Ensuring bedrooms meet minimum size requirements
• Providing adequate heating and ventilation
• Ensuring access to shared facilities such as kitchens and bathrooms
• Management and tenant safety
• Employing responsible and competent property management
• Addressing tenant complaints and concerns promptly
• Keeping communal areas clean and safe

 

Conclusion

Investing in Houses in Multiple Occupation (HMOs) can be a rewarding venture for property investors, offering attractive returns in a growing rental market. However, it's crucial to navigate the complex planning and licensing rules, as well as developing a deep understanding of the various regulations governing these properties. Understanding the legal requirements, obtaining the necessary permissions, and meeting safety standards are essential steps to ensure a successful and compliant HMO investment. By staying informed and working closely with local authorities and experts, property investors can unlock the full potential of their HMO properties while providing safe and quality housing for tenants.

Shawbrook Bank articles can serve only to alert the reader to recent developments as at the date of the article and provide general information regarding the topic. They are not intended to act as a comprehensive guide and do not constitute legal advice. The information should not be relied upon in place of specific advice. Reasonable skill and care is used in the preparation of article material however, we accept no liability for use of or reliance upon it by any person.