3. www.linkedin.com/in/beriraj
HMOs – Some Basics
• Also known as multi-lets, house share, shared house
• Property let to 3 or more unrelated people = HMO!!
• There are different HMO markets
– Workers, students, LHA
• Renting out HMOs: single/joint tenancies
– Single: Workers, LHA
– Joint: Students
4. www.linkedin.com/in/beriraj
Some myths about HMO Legislation
• Myth #1: Article 4 Direction developed for HMOs: NOT TRUE
• Myth #2: Article 4 means no NEW HMOs: NOT TRUE
• Myth #3: All HMOs need a license: NOT TRUE
• Myth #4: Only larger HMOs need a license: NOT TRUE
• Legislation
– Article 4 Direction
– Licence to operate
5. www.linkedin.com/in/beriraj
What is an Article 4 Direction (A4D)
A landlord has the right to convert a family dwelling to an HMO
within their General Permitted Development Rights
• An A4D removes the General Permitted Development Right
Planning permission required from local council: may be refused
Remember: Aim of an A4D is to stop new HMOs
6. www.linkedin.com/in/beriraj
HMO Licencing - overview
Housing Act 2004
Licencing (2006)
Mandatory
(UK-wide)
• 5 or more people AND
• 3 storey's or more AND
• >2 household
Discretionary
(Council-led)
Additional Selective
• All HMOs • All Rental properties
7. www.linkedin.com/in/beriraj
HMOs: Article 4 versus Licensing
Article 4 (planning) & Licensing are entirely different
bits of legislation, dealt by different council
departments
Article 4 = Licencing
10. www.linkedin.com/in/beriraj
Scenarios in Article 4 area
Buy/R2R an existing HMO Rent out as HMO NO
Planning Permission
required ?
Buy/R2R an existing HMO Re-Let as HMO NO
Buy a family home or
standard rental property
Rent out as HMO YES
Buy or have an HMO Re-Let as HMO YESRent to
2 people
or family
empty
Evaluate local planning regulations carefully!!
13. www.linkedin.com/in/beriraj
Case Study 1: Rolleston Drive, Nottingham
(2010)
• Q1: Did I need permission to change use?
• A: NO: permitted development
• Q2: Do I need a licence to run the HMO
• A: It depends!!
• Let to 4 sharer’s…….NO
• Let to 5 sharers over 3 floors…..YES
4-bed family home with 2 reception rooms;
Change to a 5-bed/ 3 storey HMO
14. www.linkedin.com/in/beriraj
Case Study 2: Salford Gdns, Nottingham
(2011)
• Q1: Did I need permission to change use?
• A: NO: permitted development
• Q2: Do I need a licence to run the HMO
• A: It depends!!
• Mandatory Licence…….NO
• Additional Licencing in place…..YES
6-bed family home with 1 reception room;
Change to 6-bed/2 storey HMO
15. www.linkedin.com/in/beriraj
Case Study 3: Gadd Street, Nottingham
(December 2013)
• Q1: Did I need permission to change use?
• A: NO: already an HMO
• Q2: Do I need a licence to run the HMO
• A: YES, Mandatory Licence
Purchased as 6-bed, 3 storey HMO,
let to students
16. www.linkedin.com/in/beriraj
Hypothetical Example: Nottingham
(Article 4 since March 2012)
• Q1: Do I need permission to change use?
• A: YES: Article 4 in place
• Will council allow change in use to HMO?
• Q2: Do I need a Licence to run the HMO
• A: YES – mandatory and additional licencing in place
• BUT irrelevant as Article 4 is in force
3-6 bed family home or single-let house
Change to a 3-6 bed HMO
17. www.linkedin.com/in/beriraj
A world outside of Article 4…..
Implement a different strategy
Salford Gardens: 6-bed student HMO
• Purchase Price PLUS refurbishment & furnishing: £110K
• Gross Annual Rent (no bills): £17,000
• Gross Yield: 15%
Bancroft Street: 3-bed unfurnished property: LHA/HB
• Purchase Price PLUS refurbishment: £60K
• Gross Annual Rent (no bills): £11,000
• Gross Yield: 18%
18. www.linkedin.com/in/beriraj
Investment Decision Tree
Purchase or R2R
Is it already an HMO**
** Seek evidence
Is Article 4 in place?
NO
Speak to
local council
YES
Confirm
Licencing rules
& proceed
NO
YES
Confirm
Licencing rules
& proceed
** Article 4 not relevant
My job today is not to get in the rights and wrongs of article 4 and licencing – just to provide clarity through some facts and examples (my own portfolio)
AIM of talk is not to frighten you away from HMOs _ buying or controlling but to make sure you are fully complaint as the owner or manager
Amendment of HA2004 – introduced licencing of HMOs in 2006 – Scotland introduced it in 2000 (fatal fire in Glasgow flat)
defn of HMOs can be complicated to also encompass certain types of flats – focus on properties upwards of 3 bedrooms
Govt want to licence HMOs: WHY? Larger HMOs are often physically poorer with poor management than other houses in PRS, therefore need better regulation
Why stop new HMOs – myriad of reasons: reduce noise, improve HMO standards, reduce ASB, alleviate parking problems
GPDR: a family house could be converted into an HMO without seeking council permission
If HMO has been used as an HMO continuously for 10y, the use might have become lawful. If there is evidence of use, apply for Lawful Development Certifictae (LDC)
Why do council’s do it:
Sharers have little stake in the community
Sharers are transient
Areas provide low quality accommodation
increase in parking problems
more refuse generated
ASB’s
unbalanced communities
Role of licencing:
LL is fit and proper person or employ managers who are
Each HMO is only occupied by the number of people on the licence (granted by the council)
Management standards are adequate
council will decide the conditions of the licence; fire safety, number of people etc, fit and proper person (checl LL for convictions, previous HMO misdemenours)
max number of people; gas safety; electrical safety, fire safety, ASTs (or licences)
if property does not meet certain conditions…..Interim Management Order (IMO), council takes over for 1y; Final Management order (FMO) – council takes over for upto 5y
Selective Licencing
Tackle ASB
Drive up standards
tackle areas of low housing demand (property in poor condition)
Is there a link between ASB and PRS – no real proof as ASB can apply to property that are privately owned of with HA
Licence Fee revenue may only be used to run the implement the scheme and not used to fund licencing activity – all LLs are being penalised. “Polluter pays” should be policy
Lets look at A4 and Licencing in detail separately then bring it all together with some case studies where I will test that you have been paying attention
The main benefit if you are buying and run it well: more room demand, premium prices when you sell
The main benefit if you are R2Ring and run it well: more room demand – over the long term - MAYBE……more and more student HMOs entering the professional HMO market as demand of LL student HMO goes down
2010: LAs haven been able to introduce licencing schemes without central government approval
Local authorities will have to seek confirmation from the Secretary of State for any selective licensing scheme which, either on its own or when combined with other schemes, would cover more than 20% of their geographical area or would affect more than 20% of privately rented homes in the local authority area. Comes into effect: 1 April 2015
