Renting out a house in multiple occupation (HMO) can be very lucrative and more so than a standard buy-to-let investment. HMOs are more complicated to set up and manage, though, being both time-consuming and costly compared with normal rental investments. There are also various additional legal responsibilities to adhere to as an HMO landlord. One of these, which is another factor that can increase your costs, is the possibility of needing an HMO licence for your property. There are different types of landlord licences and it’s essential to check whether having one for your property is a requirement. If an HMO licence is required and you rent your property without one, there can be serious consequences.
At Trinity Finance, we are experts at dealing with HMO properties and can help you with all aspects of being an HMO landlord. Whether you’re a first-time landlord or have a portfolio of properties, we can arrange your specialist mortgage and insurance, recommend property management companies and guide you on the regulations that apply to HMO landlords, including landlord licences. Having a licence for your property confirms that it is good-quality residential accommodation that meets certain health and safety standards and is well-managed.
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In this guide, we’ll explain the different types of licences available, when you need one and the consequences of not having one should it be required. We’ll also cover how to apply for a licence, what to do if your application isn’t approved and how lenders view HMO licences when considering mortgage applications. Different requirements apply to HMOs and landlord licences for Scotland, Wales and Northern Ireland so this guide applies to HMOs in England.
What is an HMO property?
A house in multiple occupation (HMO) is a type of shared residential property. It has three or more occupants who are from more than one household and share common facilities, such as the kitchen, bathroom or toilet. A ‘household’ can be defined as a single person, a couple, relatives or half-relatives of the couple, step-parents and step-children, foster parents and foster children, a live-in carer or a live-in domestic worker. Properties classed as HMOs can include, among others:
- Student accommodation
- Accommodation for professionals
- Houses converted into flats that aren’t entirely self-contained
- Bedsits
- Hostels
- Bed and breakfast establishments
- Guesthouses
- Section 257 HMOs, which are properties converted into self-contained flats that don’t comply with the 1991 Building Regulations where less than two-thirds of the flats are owner-occupied.
What is an HMO licence?
An HMO licence is a landlord licence that is specific to a property classed as a house in multiple occupation. Not all HMOs require a licence, which we’ll explain below. Specific conditions have to be met before a licence is granted, both for you as the landlord or the managing agent and the property. Having this licence in place shows that your property is of good quality, is well-managed and meets the required health and safety regulations. This type of licence is granted per property rather than per landlord. This means that if you have multiple HMOs, you’ll need licences for each property, where applicable. An HMO licence usually lasts for up to 5 years.
There are three types of landlord licensing, two of which specifically relate to HMOs. These are mandatory licensing for HMOs, additional licensing for HMOs and selective licensing. The requirements for licences vary between the types of residential rental properties, the local councils and the areas that rental properties are located in. Landlord licensing differs within the UK and the details in this guide refer to licensing requirements in England.
Mandatory licensing
This applies to large HMOs, which are defined as those with five or more occupants from more than one household who share facilities, such as a kitchen, bathroom or toilet. At least one tenant must pay rent or have their rent paid by an employer. This mandatory licensing applies throughout the country. Large HMOs pose more of a risk than other rental properties, such as having a higher likelihood of fires. Therefore, additional safeguards are needed and mandatory licensing ensures that these are adhered to. Mandatory licensing doesn’t apply if your property is a Section 257 HMO or a purpose-built flat located in a block that has three or more self-contained flats.
Additional licensing
For smaller HMOs, some councils apply additional licensing. A smaller HMO is classed as having three or more occupants from more than one household who share facilities, such as a bathroom, toilet or kitchen. If the council does operate additional licensing, it may only apply to certain areas within their boundaries. Depending on the council, additional licensing may apply to Section 257 HMOs or purpose-built flats located in blocks that have three or more self-contained flats.
It’s important to check the licensing requirements for the relevant council and keep up to date with them as the council can change them at any time. The onus is on you as the landlord to ensure that you have complied with any regulations in force.
Selective licensing
Selective licensing isn’t specific to HMOs and can apply to all residential rental properties. A council may decide to apply selective licensing to an entire borough, a ward or a particular street. This is usually done to increase standards where housing is of poor quality or is poorly managed.
The need for HMO licences
HMO licences were introduced under the Housing Act 2004 to ensure that certain conditions and safety standards were met for this type of property. HMOs can often be in poor condition and lack proper management but where licensing schemes are in operation, specific health and safety levels must be adhered to, ensuring the well-being of the tenants who live there. For example, minimum bedroom sizes must be met, fire safety systems must be in place, gas appliances must have a safety certificate and landlords must not have breached any aspect of landlord law. Some landlords may have to carry out additional upgrades as specified by the council to be granted a licence.
As well as that, HMOs can be more prevalent in some areas, such as near universities where there is a lot of student accommodation. Too many HMOs can have a negative impact on a neighbourhood. For example, there can be an increase in noise disturbances, a lack of parking spaces and less rental accommodation available for families. Under the licensing schemes, councils can choose to restrict the number of HMO licences that are granted in a particular area to counteract this.
Do you need an HMO licence for your property?
As mentioned at the start of this guide, different rules apply to HMO properties and landlord licensing across the UK. For example, if your HMO property is in Scotland or Northern Ireland, it’s mandatory to have a licence. In England and Wales, however, it depends on the size of your property and the local council’s licensing requirements. A large HMO is subject to mandatory licensing throughout England but smaller HMOs only need a licence if additional or selective licensing is in place by the local council. Remember that, when applicable, you need a licence for each HMO property rather than one licence for you as a landlord.
Large HMOs
Your property falls under this category if:
- It’s rented to five or more occupants who comprise more than one household.
- Some or all of the occupants share the kitchen, bathroom or toilet facilities.
Previously, properties had to have three storeys or more to be included in this category but that stipulation changed in October 2018. As this factor was removed, a considerable number of rental properties then fell under this HMO category. This increased the need for HMO mortgages instead of standard buy-to-let ones and the need for mandatory HMO licences.
Smaller HMOs
Your property falls under this category if:
- It’s rented out to three or more occupants who form more than one household.
- Some or all of the occupants share communal facilities, such as a kitchen, bathroom or toilet.
As mentioned, smaller HMO properties don’t automatically need licences. This depends on the local council so it’s important to check their requirements before either purchasing a small HMO property or converting an existing property to be used as a small HMO.
If you’re not sure whether or not you need an HMO licence, get in touch with the local council to check. You can often find this information on their website. It’s your responsibility to apply for the right licence when applicable and failure to do so can have severe consequences. Even if you don’t currently need an HMO licence, be sure to stay up to date with the council’s requirements because they can change at the council’s discretion.
Are there any exemptions?
Some properties that are defined as HMOs under the Housing Act 2004 qualify for an exemption. A property falls under this exemption if it:
- Has two occupants who form two households
- Is managed/controlled by a registered social landlord, a local housing authority or a public sector body, such as the police, fire service or NHS
- Already falls under other legislation, such as a care home, boarding school or prison
- Is occupied by a religious community. The exemption doesn’t apply if the property is a Section 257 HMO.
- Is a hall of residence, which is managed/controlled by the educational body
- Has been granted a temporary exemption notice
- Is occupied by a resident landlord, members of their family and no more than two tenants or lodgers. This exemption doesn’t apply if the property is a Section 257 HMO.
Speak with one of our HMO experts
At Trinity Finance, we have considerable experience with HMO properties. We can guide you on your responsibilities as a landlord and the legal regulations for this type of property. We can advise you on the licensing requirements in the local areas and ascertain whether you need a licence for the property in question. We work closely with lenders specialising in HMO mortgages and our expert mortgage brokers are ready to assist you with your mortgage application and to find a competitive deal for you. As well as that, we can arrange your HMO insurance.
When you’re ready to proceed with your HMO investment, just give us a call on 01322 907 000 or send us an email at info@trinityfinance.co.uk and we’ll be happy to help you. If you prefer, use our contact form to send us your details and one of our specialist brokers will reply to you as quickly as possible.
Validity and costs of HMO licences
HMO licences are issued per property rather than one licence per landlord. This means that if you have multiple HMO properties that are subject to the licensing requirements, you have to apply for a licence for each of them. An HMO licence is valid for a maximum of 5 years and must be renewed before it expires. As mentioned earlier, this applies to licences in England as there are different rules in other parts of the UK. For example, in Scotland, a licence is valid for up to 3 years.
Councils can issue licences with a shorter validity period if they feel there is an issue. For example, they may be concerned about:
- Delays with the application paperwork being returned
- Whether the relevant person is considered to be ‘fit and proper’
- Works required to bring the property up to standard
- Inadequacies in the property management
HMO licence costs depend on the type of licence you are applying for and the relevant local council. Each council sets the licence fees at their discretion. Some have fixed rates while other councils may charge according to different criteria, such as the number of bedrooms the property has. The fees for HMO licences can vary from hundreds of pounds to £2,500 in some areas so it’s essential to consider this when working on your calculations for an HMO investment. Read our guide for more details on landlord licensing costs.
Additional fees
You may be subject to additional fees in some cases. For example, if you make a paper application instead of an online one or if you fail to attend an appointment that has been arranged. Another example is if more than one visit to the property has to be made to check on its compliance with the conditions. If you make a change to your HMO licence once it’s been granted, you may also have to pay an additional fee.
Can you get a discount on the HMO licence fee?
There are various instances that allow you to benefit from a discounted rate for your HMO licence. One of these is ensuring that you submit your application within a certain time frame. For example, within 12 weeks of buying an HMO property or converting a property to an HMO. Some councils may offer the option for you to instruct an independent HMO surveyor rather than the council arranging the property inspection. This helps to lower the cost for you.
Some councils may reward you with a discounted rate if your property meets a certain EPC rating, such as C or above. You can usually get a discounted rate on your licence fee if you’re an accredited landlord. If you have more than one flat in a block, you may be eligible for a discount.
What are the penalties for not having an HMO licence?
If your property requires a licence and you have rented it out without one, it’s a criminal offence. The same applies to someone who’s managing the property. You may be subject to an unlimited fine if you’re found to have rented out an unlicensed HMO. There are other severe penalties for not having an HMO licence when one is required, as detailed below.
- A fine of up to £30,000 may be payable. If you fail to comply with the licensing conditions, a civil penalty of up to £30,000 may be imposed by the council per offence.
- You may be subject to a rent repayment order (RRO). Tenants can check whether HMO licences are held for properties that require them. If you have rented out your property without a licence, your tenants can claim back up to 12 months of the rent they’ve paid via a rent repayment order (RRO). This penalty is on top of having to pay a fine. This also applies to housing benefit payments, which can be reclaimed by the council. The council may also undertake a management order, giving them the authority to take over the management of your property.
- A Section 21 notice is invalid. This notice is usually served to formally end a tenancy so that you can gain possession of your property. However, without an application for the correct licence, a Section 21 notice is invalid.
- You may be banned from renting out property. The council can impose a banning order meaning you’ll be unable to rent out properties in the future.
- You risk being imprisoned. If your HMO property is unlicensed and you’re in breach of safety regulations, you even face the possibility of being imprisoned.
Other actions imposed by the council
It’s also an offence to rent out your property to more tenants than its size permits or to breach any of the licence conditions. The council can amend the terms of your licence or revoke your HMO licence if they see fit to do so.
Opportunity to apply for an HMO licence before legal action is taken
If you are found to be operating an HMO without a licence, you’ll usually be given the opportunity to apply for one before any legal action is taken. The time allowed for this depends on any other issues. For example, if your tenants have requested a rent repayment order (RRO), you’ll have a much shorter time frame within which to apply for a licence. The notice period also depends on the seriousness of any infraction that has come to light. If, for example, the standards of property management are so bad that the tenants’ health and safety have been put at risk, immediate legal action may be taken against you. In such a case, ignorance of the law is no excuse as landlord licensing requirements are well-publicised.
How to apply for an HMO licence
You need to apply for an HMO licence as soon as your rental property is occupied. You can also apply beforehand provided that you can give the council copies of the tenancy agreements. This confirms the date that your property will be occupied. An application for a new licence or a licence renewal can be made online via the relevant council’s website. You’ll need various bits of information to hand, which can vary between councils, such as:
- ID for the licence holder
- The property address
- A copy of the tenancy agreement
- Property details, such as the facilities and the number of bedrooms and their sizes
- A gas safety certificate
- An Electrical Installation Condition Report (EICR)
- A portable appliance testing (PAT) certificate
- A Certificate of Compliance, if applicable
- An Energy Performance Certificate (EPC)
- Details of the property management arrangements
- Details of the mortgage lender
- A fire risk assessment
- A floor plan for the property
- Your payment card details
It’s important to know that not every licence application is approved. This is because local councils check both a property’s suitability for use as an HMO as well as the appropriateness of a landlord or their managing agent. Whoever manages the property – whether you or an agent on your behalf – must be found to be ‘fit and proper’ to do so. Therefore, you mustn’t have any criminal convictions or have breached the code of practice or laws that apply to landlords. Regarding the property, it must be suitable for the number of tenants in both its size and facilities. Some councils set additional licensing requirements too. For example, you may need to upgrade the facilities to be granted a licence. If you disagree with any additional requirements, you have the right to appeal via the First-Tier Tribunal.
Safety requirements
There are various safety measures to fulfil for an HMO property. These include installing an adequate number of smoke alarms and maintaining them. You also need to have each electrical appliance in the property tested and be able to provide the safety certificates upon request. An up-to-date gas certificate must also be given to the local council each year.
What happens next?
Your application will be assessed and it’s essential to provide everything that’s requested on the form to avoid rejection. As long as you have submitted your application, you can use your property as an HMO while the council continues with its assessment. Part of this will include a property inspection. This is to check that adequate health and safety conditions have been met and your property complies with building regulations.
If the necessary criteria have been met, a draft licence will be issued detailing the terms and conditions with a given time frame to respond, such as 28 days. If you don’t respond within the time frame after the draft licence has been released, a full licence will automatically be issued. Once the licence has been granted, you need to display the name, address and contact details of whoever manages the property – whether that’s you or a managing agent – in a prominent position in the property.
A licence is usually issued for 5 years although shorter ones can be issued in some circumstances. For example, you may be granted a licence that’s only valid for a year if the council believes there are issues that cause concern, such as:
- The new licence application or renewal application wasn’t made at the correct time
- There were various inaccuracies and omissions in the application
- Relevant consents haven’t been obtained, such as planning permission or relating to building regulations
- HMO management regulations haven’t been met
- Obligations to tenants haven’t been met
You cannot transfer your HMO licence to another person. If someone takes over your role as landlord or you sell the property and the new owner continues renting it out as an HMO, they need to apply for a new licence.
What to do if your application is refused
As mentioned above, not all applications are accepted. One reason for this may be that the property needs to be brought up to a certain standard, such as the types of shared facilities available or the quality of those facilities. If your application is rejected, you’ll receive notification of this including the reasons why. You’ll have a certain time frame, such as 28 days, to respond. If, for example, your property needs improvements, you can reapply for a licence once these improvements have been made. You also have the right to appeal against the decision via the Residential Property Tribunal. If you don’t respond at all within the time frame, though, your licence request will be refused altogether.
Another reason that you may be refused is for an incomplete application. Again, the council will give you an adequate time frame within which to provide them with the missing information. If you don’t respond, your application will become invalid. If you do respond but continue to fail to provide the requested information, it can be deemed as failing to apply for a licence. The council has the right to take legal action in this instance.
If the council doesn’t find you to be a ‘fit and proper’ person, they can refuse to grant you a licence. In this case, they will need to take over the management of your property via an Interim Management Order (IMO). This order lasts for up to 12 months, during which time a solution for longer-term management is sought and a licence can then be granted. If a solution isn’t found, the IMO is followed by a Final Management Order (FMO). This allows the local council to take over the management of your property for up to 5 years.
Your responsibilities as an HMO landlord
As well as having the normal responsibilities that come with being a landlord, such as carrying out an annual gas safety check and providing deposit protection, there are additional responsibilities for an HMO landlord. These include providing:
- An adequate number of bedrooms and shared facilities for the occupants that meet the correct size requirements
- Sufficient amenities, such as laundry and cooking facilities
- Adequate lighting and ventilation
- Sufficient door locks
- Maintenance and repairs of facilities and communal areas
- A suitable number of waste bins for the number of occupants
- Safety checks for electrical systems and appliances every 5 years
- Adherence to fire safety regulations
- Emergency lighting, if applicable
- Payment of council tax and utility bills if you have let the property as individual rooms rather than to a complete group
A breach of licence conditions
As well as carrying out a property inspection when you apply for your HMO licence, the council can carry out inspections during the licence term. This is to ensure that the property remains up to standard without any infringements of the health and safety requirements.
If you are found to be in breach of any of the licence conditions, it is a criminal offence unless you can provide a reasonable excuse for failing to comply with them. As such, an unlimited fine may be imposed on you. If you continue to breach the licence conditions or the breach is serious, your licence may be revoked. Legal proceedings will also be considered.
If you knowingly rent out your property to more than the maximum number of occupants stipulated in your HMO licence, it is a criminal offence. You may be subject to an unlimited fine as a result. If, however, you were unaware of this – for example, your tenants allowed more people to move in without your knowledge – the council will notify you. You’ll be given a time frame, such as 28 days, within which to ensure those people move out.
Change of use for a licensed HMO
You may decide to change the use of your HMO property. For example, to let it to a family, to convert it into self-contained flats or to sell it. Whatever change of use you’re planning, you need to notify the council. They may issue a temporary exemption notice (TEN), which exempts you from having to licence your property for 3 months. At the end of the 3 months, your property should no longer be used as an HMO. If it is and it falls under licensing requirements, you need to ensure that a licence is in place. Only in exceptional circumstances will a second TEN be granted.
You also need to notify the council of any other changes relating to your HMO property. This includes any changes that the tenants make to your property or a change in their circumstances, such as having a child. This is to ensure that you’re still operating within the conditions of your HMO licence and are not at risk of being penalised.
Renewing your HMO licence
An HMO licence must be renewed before the original one expires. The renewal is done in the same way as the application process for the first licence although the renewal fee is usually lower than the initial fee. If your renewal application is late, you will be charged a higher fee. Not only that but you’ll be operating an HMO property without having a licence in place, which is a criminal offence. Whilst councils usually send out reminders when renewals are due, they are not obliged to do so. It is your responsibility to apply for a renewal before the expiration date.
When making your renewal application, you’ll need to provide:
- Your payment card details
- Gas, electrical and fire safety certificates
- Proof that any works conditions detailed on your previous licence have been dealt with
You’ll also need to notify the council of any material changes that have been made. For example, the number of occupants or households living in the property, details relating to the fire escape routes or fire precautions equipment or the number of bedrooms or shared facilities in the property.
Lenders and HMO licences
When you apply for an HMO mortgage or remortgage, the lender will need to know whether the property requires a licence. Due to the risk involved with this type of investment, some lenders only offer loans for licensed HMO properties. Should you need a licence for your property and don’t have one, the lender may give you a specified time frame to apply for it while processing your mortgage application. This will be on the understanding that you are considered ‘fit and proper’ to handle the management of an HMO property. On the other hand, if you’ve already got a licence, this may help to make the underwriting process slightly quicker.
We can guide you on the licensing requirements for your HMO property
Whether you’re looking to purchase a property as an HMO investment or want to convert the use of an existing property to that of an HMO, we can assist you with the licensing requirements. At Trinity Finance, we can advise you on the HMO criteria set by the local council and help determine whether your property needs a licence. Our specialist mortgage brokers in Kent, London and Edinburgh are well versed in dealing with HMO properties and can ensure that you’re fully aware of your obligations as an HMO landlord as well as the legal requirements you must adhere to.
We work closely with lenders offering HMO mortgages and, as some of these only offer HMO products through brokers, you can rest assured we have access to the latest and most competitive deals. The criteria for HMO mortgages are stricter and the rates are usually higher than for standard buy-to-let mortgages due to the greater risk involved. However, our mortgage experts will ensure that your application meets the necessary requirements and strive to find the best HMO mortgage for your circumstances.
Give us a call on 01322 907 000 to get started with your HMO investment. We can also recommend managing agents for your property and ensure that you have the correct landlord insurance cover in place. If it’s out of office hours, email us at info@trinityfinance.co.uk or send an enquiry to us via our contact form. One of our mortgage specialists will reply to you as quickly as possible. Whilst being an HMO landlord may seem daunting at first, it can feel a lot easier with the right help — and that’s what we’re here for.
FAQs
When should you apply for an HMO licence?
As soon as your HMO property is occupied, you need to apply for a licence. You can submit your application before it becomes occupied as long as you can provide the council with copies of the tenancy agreements. This is so that you can prove the date of occupation.
The Housing Act 2004 doesn’t allow for any grace period and it’s an offence to rent out an HMO that falls under the licensing requirements without having applied for your licence. As such, councils often offer an incentive to encourage landlords to apply for licences as early as possible. For example, you may benefit from a discounted fee if you apply within a certain time frame after buying an HMO property or converting a property to an HMO.
Who can apply for an HMO licence?
Either you as the landlord or someone who is managing the property on your behalf, such as a managing agent, can hold a licence. Some councils accept a family member as the licence holder provided that they confirm how they manage the property or they receive the rent. A licence holder can be an individual or a registered company. Someone other than the licence holder can apply for the licence but must make it clear on the application that they are the applicant and specify who is the licence holder. Both the applicant and the licence holder must then sign the application declaration.
Do you have to notify your mortgage lender if applying for an HMO licence?
Yes, the conditions imposed by the council for your HMO licence may stipulate that you have to make changes to your property. Your mortgage lender has a statutory right to know the details of the licence and whether those details affect them. Due to the perceived higher risks associated with HMOs, some lenders only approve HMO mortgage loans for properties that are licensed.
Is it a legal requirement to have a PAT certificate for your HMO?
No, portable appliance testing (PAT) isn’t a legal requirement for HMOs. If you have left portable electrical appliances in the property for your tenants to use, however, it’s recommended to have them tested. That way, electrical accidents can be prevented and you’re fulfilling your landlord safety obligations.
Although having a PAT certificate isn’t a legal requirement, it may be required by the local council as part of their licensing conditions so be sure to check this.
Do you need planning permission for an HMO?
Planning permission may be required if you want to change the use of your property. For example, if you decide to rent it out to multiple households inside of a single one, such as a family. Or if you wish to convert the property to an HMO. It’s essential to check the planning permission requirements.
If you apply for an HMO licence without planning permission when it is needed, the council may grant you a short-term licence, such as one that’s valid for a year. You’ll then need to rectify the planning control breach within that time frame. You can either apply for retrospective planning permission and obtain the necessary consent or return the HMO property to its original use.
What happens if you don’t meet the ‘fit and proper’ criteria as a landlord?
In this case, you will need to instruct a managing agent to look after the property on your behalf. The agent will need to meet the council’s ‘fit and proper’ requirements.
Is an EPC required for an HMO property?
All rental properties must meet a minimum energy efficiency rating. Therefore, as an HMO landlord, you need a valid Energy Performance Certificate (EPC) for your property. Some councils may request a copy of the EPC when you submit your HMO licence application.
Can the HMO licence fee be paid in instalments?
No, the licence fee must be paid in full before your licence is issued. The fee is paid in two parts, the first of which is when you make the application. This covers the administration costs for processing your application. The second payment is due once your application has been approved. It covers the running and enforcement costs for the council’s licensing scheme.
How often do local councils inspect HMO properties?
Once you have submitted your licence application, the local council will inspect your property to ensure that it meets the required health and safety standards and is in line with building regulations. After your licence has been granted, further inspections will be carried out by the local council to check that you are complying with the licence conditions. The frequency of these checks varies between councils. Some, for example, may carry out an inspection every quarter while others may insist on monthly checks.
Can you transfer an HMO licence to another person?
No, this isn’t possible under the legislation. Therefore, the new owner or agent will need to apply for a new HMO licence. This also applies to renewals as the licence holder cannot be changed when a licence is renewed. A new application has to be made instead.