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A guide on HMO licences

by | Nov 5, 2022

Introduction

As you may be aware, the law around who needs an HMO licence can differ depending on where you are in the UK and the borough you are in London. This can be extremely confusing for landlords as they seek to find out how to keep their properties within legislation and not end up with a tenant taking them to court.

There are multiple types of licences as well as multiple types of licensing schemes. So read on to find out all about them and wrap your head around the topic of HMO licences.

A tree outside of a licensed HMO property

What does an HMO licence mean?

In October 2018, the government announced new legislation that set out to affect a lot of property owners who realised they need to gain approval for an HMO licence. This was due to the government trying to protect tenants from dangerous living conditions.

Overall, the law says that only properties that have sufficient licensing to be called HMOs are able to let tenants under HMO regulations.

These regulations state that a house can have tenants in the property all sharing common facilities in the building such as a kitchen and bathroom or the tenants living under the same roof without being in the same household (closely related to each other).

Depending on the licence, this can mean making sure there are safety regulations, the heights of the rooms in the building are of the right height and also making sure that everyone living in the property is on the right type of tenancy agreement that type of HMO licence allows.

How do HMO licences work?

How licences work in the UK is if the property houses three or fewer tenants, then you would have to check if you need an HMO licence in order to operate your property correctly. This can be done by heading over to the government website here and searching for the postcode of the area of the HMO in question.

Alternatively, if the HMO houses five or more tenants, then it is mandatory a licence is granted to the HMO because this will ensure it complies with government regulations. The failure to do so may result in the landlord being issued a fine. The amount of the fine depends on the borough but typically, fines can be £5,000 for every offence not adhered to if they have a licence but don’t comply with regulations.

Alternatively, fines can get up to £20,000 if a landlord is seen to be operating a property and collecting rent from tenants when they need an HMO licence in place.

Are there any exemptions from HMO licencing?

There are a few exemptions where people who are living in different households can legally share the facilities of a property and pay separate rents despite the property not being licenced as an HMO.

This includes lodging agreements where a tenant lives in the same house as the lodgers and they pay the tenant an agreed rent outside of an assured tenancy. This type of agreement does not protect a tenant very much but it is appealing for those who wish to rent somewhere stress-free where they can leave with little notice period.

In addition, freeholders and leaseholders do not need to have an HMO licence in place. Neither do public bodies such as housing authorities, cooperative societies or social landlords.

Furthermore, educational facilities that manage student accommodation do not need an HMO licence. For example, a university renting out property they own to students.

Other more obvious examples include religious buildings, care homes and hotels and holiday lets.

Do HMO licences have to be renewed?

HMO licence is valid for a maximum of 5 years after which it is the landlord’s responsibility to renew the licence by applying directly to the borough or council that the HMO is located in. The website to do this can be found here.

A bedroom in a licensed HMO

How do temporary exemptions work with HMOs?

Sometimes, you can add to a property so you no longer need to apply for an HMO licence. While you are making these changes to the property you will need to apply for a temporary exemption notice which is a notice used by the landlord to show they are carrying out sufficient work on a property.

Typically, after this notice expires, they would have finished the works and also be exempt from needing an HMO licence again as well. The landlord can then move forward with their plans for the property whether that be to market it as a single let or sell it. The choice is up to them.

How much do HMO licences cost?

The process of getting a licence requires a landlord to contact their local council with an application for an HMO licence. This can cost anywhere from £300 – £1,500. There is such a big price difference because councils have their own regulations you have to follow and their own checks they have to conduct.

Some councils also charge per room whereas others charge for the whole house. As an example, the Enfield borough council charges £140 per room. 

This can impact a property’s profitability. Something like a 15-bed HMO will have to have a large start-up cost in this case just to get licensing. For a landlord without the cash up front, this could impact their ability to start investing in HMO properties.

Are HMO licence costs fair?

You may be thinking that HMO licensing is terribly expensive in which case you would be right. Some people accuse councils of using licensing schemes to raise money. Also, the way the payment structure is set out also is often talked about as put in place to raise the most money possible.

For example, landlords have to pay a fee on the application in addition to a fee if there was a grant of a licence. To make things worse, each borough can have a different definition of what an HMO is. 

Recently in 2021, Lambeth borough council increased their costs for licensing by 75%! This increase affected 5,000 homes in the London borough. For more on this story click here.

To get around these fees, do your research on the exact HMO licence fees within a borough before you start looking for houses as the failure to factor this cost in can impact your finances quite a bit.  

What are the types of HMO licences?

There are three main types of HMO licences a landlord has to be aware of, these include mandatory, additional and selective licences. Read on for the details of what these licences entail.

Mandatory licencing

This type of licence is required for housing that has five or more people living in the building or buildings that have two separate households or more. For more on the exact specification see Section 254 of the Housing Act 2004 click here.

A woman applying for HMO licensing

Additional licencing

Additional HMO licences are made up of councils who feel like certain types of HMOs aren’t being regulated effectively. Therefore they introduce new regulations on top of the mandatory licence. Hence the name additional licence.

However, a council cannot just throw in another licence whenever they want. They have to conduct tests and come to a reasonable conclusion that there is no other way they could effectively get rid of the issues they are facing as a borough.

To find out if the council or councils you’re interested in have implemented additional licensing there is no way to search for it other than going to the relevant council website and searching for any additional licensing schemes they have implemented.

Selective licencing

Selective licensing is used in a similar way to additional licensing. Being implemented when there are specific problems for particular types of HMOs. The difference is you can have a selective licence without a mandatory licence and still have a compliant HMO.

A common type of selective licence is for HMOs that only have two or fewer people living on the property. An example of Enfield Councils’ regulations for this activity can be found here.

However, whenever there are two or fewer people in the property, a landlord can always convert their house into a lodging agreement however this may also attract fewer tenants which is why you may want to list your building as an HMO.

This may not be necessary because there are relaxed rules for safety regulations in a selective licence such as fewer fire alarm systems.

Understanding mandatory HMO licensing

Most HMOs will fall into the mandatory licensing category. This is because most of the time as long as there is more than one household in the property who aren’t related and or there are more than 5 people in the property.

Does the mandatory HMO licensing scheme apply to your property?

The only reason for a mandatory HMO licence not applying to your property is if you have a selective HMO licence in place. 

In this case, you can forgo getting a mandatory licence because you have special terms that you have to adhere to for your property such as letting the property out to only two people from separate households.

Make sure you check over the law in this area to see what ways you can get around this as you may be able to sign up for a lodger agreement instead which would take tenants out of an assured tenancy but still allow you to rent a property out and even claim up to £7,500 tax-free.

There are additional exemptions to Mandatory HMO licensing too which includes a ‘Temporary exemption’ Where a landlord is changing the occupation details of their property and is temporarily allowed to not comply with regulations.

What do you need to do before applying for an HMO licence?

Before you apply for an HMO licence, there is a need to get the property in good working order and prepare. You must make sure:

  • The house is suitable especially for the number and type of tenants
  • The manager of the house is “fit and proper” to manage the HMO
  • You have sent the council a credible gas safety certificate
  • You have Installed working smoke alarms
  • You have relevant electrical safety certificates for all relevant areas of the property
        A woman getting prepared before applying for a HMO licence

        What if you don’t have the right type of HMO licence?

        Perhaps you were confused about the exact regulations of an HMO licence and have realised you don’t have the relevant licence you need as a landlord. Or perhaps you are just curious as to what would happen if you disobeyed the rules.

        Either way, not complying with HMO requirements is never recommended as it can be dangerous for tenants and damaging for landlords. Here is what you need to know.

        Is section 21 valid without an HMO licence?

        The same is true if you have a licence without complying with safety standards or maintenance checks. For example, the failure to produce a valid Energy Performance Certificate (EPC) can also be a good reason for a landlord to lose their right to section 21.

        Do you have to repay rent to tenants without an HMO licence?

        Under the legislation of the housing act of 2004, if the landlord is found to be renting out a property unlicenced. Not only will they pay a fine to the local authority but tenants can also reclaim rent under a ‘Rent repayment order’

        In conclusion

        To conclude, HMO licences are always very specific to each borough. This is due to each borough facing different problems and having to implement new rules through things like additional licensing.

        However, the main thing to take away is that a landlord will always need an HMO licence no matter how small the property or how large if they want to let a house to more than one household in an assured tenancy.

        When going to do your next property investment or think about getting involved with an HMO, plan as much as you can in advance as unexpected fees from a licence or realising you should have a different type of licence when you don’t is vital. Failure to have the right licence could result in a fine.

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