Letting agents and landlords need to be aware of their licensing obligations for rental properties operating as houses in multiple occupation (HMOs).
While a recent survey shows that tenant demand for high-end HMOs is soaring, reports highlight the cost of non-compliance with HMO licensing - from a fine of £12,000 for failure to have a licence to a fine of £31,250 for breaching licensing conditions. This demonstrates how important it is for letting agents and their landlords to understand their HMO licensing obligations.
This guide answers the following questions on HMO licensing:
- What is a house in multiple occupation (HMO)?
- How is a large HMO defined?
- Does a small HMO still need a licence?
- What criteria must a property and its landlord or agent meet to receive a licence?
- What are the obligations on the agent or landlord with an HMO property?
- What are the penalties for not having a licence?
- Does licensing only apply to HMOs?
- What has been the impact of the HMO licensing laws?
What is a house in multiple occupation (HMO)?
Landlord licensing applies to large HMOs in England or Wales. A house in multiple occupation (HMO) is a property rented out by at least three people who are not from one household and share facilities in the property, like the bathroom and kitchen.
A family or couple would be considered a household, while friends in a house share would not.
How is a large HMO defined?
A property is defined as a large HMO if all of the following apply:
- It is rented to five or more people who form more than one household
- Some or all tenants share toilet, bathroom or kitchen facilities
- At least one tenant pays rent (or their employer pays it for them)
Does a small HMO still need a licence?
Landlords of smaller HMOs may still need a licence, depending on the area the property is in. This can be checked with the property’s local council.
What criteria must a property and its landlord or agent meet to receive a licence?
For a property to be licensed, it must be suitable for the number of occupants, which depends on its size and facilities. The manager of the property - either the landlord or the agent - must be considered to be "fit and proper". This means that they shouldn't have a criminal record or previous breach of landlord laws or code of practice, for example.
What are the obligations on the agent or landlord with an HMO property?
The landlord or letting agent managing an HMO is also required to:
- send the council an updated gas safety certificate every year,
- install and maintain smoke alarms,
- provide safety certificates for all electrical appliances when requested.
The council could also add other conditions to the HMO licence, for example, improving the standard of the property’s facilities.
What are the penalties for not having a licence?
Letting agents must ensure their landlords properties are properly licensed or they could risk prosecution and an unlimited fine or a civil penalty of up to £30,000, while their landlords could be ordered to repay tenants up to 12 months’ rent.
Does licensing only apply to HMOs?
A rental property might still be subject to additional licensing requirements, even if it isn’t an HMO.
Under the Housing Act 2004, local authorities have powers to introduce selective licensing of privately rented homes to address problems in their area caused by low housing demand and/or anti-social behaviour.
You will need to check with the relevant local authority to find out if a rental property needs to be licensed.
What has been the impact of the HMO licensing laws?
Figures from Octane Capital in April showed that the average value of HMOs in Britain is £364,508 - 32% more than the wider property market.
However, its data also shows that the number of HMOs in the market is declining, dropping by 3% - from 511,278 in 2019/2020 to 497,884 in 2020/21 - with the largest dips seen in London.
"The changes to HMO licensing have certainly looked to ensure [the safety and wellbeing of the nation’s tenants and that everyone is afforded the right to a basic standard of living], but as a result, we have seen a decline in the level of operational HMOs across the rental market, particularly within London," says Jonathan Samuels, CEO of Octane Capital.
It remains to be seen whether this will be a long-term trend or is a merely a dip following changes to tenant movement during the pandemic.
This blog is intended as a guide only and does not constitute legal advice. For more information, visit gov.uk.
