Understanding an HMO and how to make sure your HMO is fully compliant

Posted on January 21, 2014 by Walton & Allen

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Understanding an HMO and how to make sure your HMO is fully compliant

With the boom in the rental market showing no signs of slowing down and the number of new landlords still increasing, owning an HMO has never seemed a more attractive proposition.

An HMO or ‘House in Multiple Occupation’ accommodates a higher number of tenants. Therefore, landlords of HMOs tend to see far higher profit margins than for other types of residential lettings.

But while the growth in the buy-to-let market has seen more and more prospective landlords thinking about letting a HMO, many are completely unaware of the rules and regulations around letting these types of properties.

Understanding exactly what they are and what is required of you is essential if you are considering becoming a landlord of an HMO.

What is an HMO?

The Housing Act 2004 defines an HMO as:

‘A house which is occupied by three or more unrelated persons who do not form a single household.’

In essence, if rented occupation contains at least three tenants forming more than one household who share toilets, bathrooms or kitchen facilities with other tenants, then you are letting an HMO.

What’s different about letting an HMO?

The biggest difference is that you may have to seek a license from your local council. Government legislation states that if an HMO has three or more storeys and is occupied by five or more people, it will be subject to mandatory licensing. Local councils may also introduce additional licensing in certain areas at their discretion and impose a license on properties they deem to be poorly maintained.

Even if your HMO doesn’t require a license from the local council, it’s still vital that landlords manage their property in line with The Management of Houses in Multiple Occupation Regulations 2006.

In fact, HMOs require far more in terms of management time and effort. It’s important that landlords keep essential equipment in a reasonable condition and that the HMO property is free from hazards that could break strict health and safety laws.

What are the penalties for failing to comply?

Failure to adequately manage an HMO property amounts to a criminal offense with a maximum penalty fine of up to £20,000. Properties that do not require a license can still see landlords fined up to £5,000 if they fail to keep their HMO in a reasonable condition.

HMOs are still a great investment that can produce big yields for landlords, but it’s imperative that prospective HMO landlords know what is expected of them before they take on such a property. Make sure you have the necessary time, money and expertise to adequately maintain an HMO before you even consider investing in one.

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