Owning Student Digs: Freedom with Bureaucracy

12 March, 2011
by: Cripps Pemberton Greenish

Parents considering investing in houses in university towns to house their student offspring and their friends could find themselves landlords of HMOs bringing with it a higher level of responsibility than with standard lettings.

For many the term “House in Multiple Occupation” or “HMO” conjures up impressions of run-down houses occupied by an assortment of individuals living in dingy bedsits who have to share bathroom and kitchen facilities and who are beholden to an unscrupulous landlord who overcharges them for the dubious privilege of occupying such undesirable accommodation.

Some might also have the same impression of typical student housing.   Parents whose offspring have just been offered university places may be so disconcerted at the state of accommodation offered that they have considered purchasing an alternative.  For many parents the purchase of a modest house in a university town filled with their son or daughter and a few of their friends all paying them rent looks an attractive investment.  However they may find that it results in them becoming the landlord of an HMO.

A house that is let to three or more tenants who form two or more households with shared facilities will constitute an HMO.   It does not have to have been previously converted or adapted in any way.  This means that a typical student house consisting of three bedrooms and two reception rooms occupied by four students who share the bathroom and kitchen and one reception room (the other is used as a bedroom) will constitute an HMO.   A single person will amount to a single household thus four single people constitute four separate households.  The house will still constitute the “main residence” for the students even though they may live elsewhere in the holidays.

The general rule is that all HMOs should be licensed with the local authority.  Licensing is essentially about raising management and amenity standards ensuring that the occupants of shared housing have safe and adequate facilities in a building that was structurally stable and free from disrepair. The licence itself lasts for 5 years – so there is no need to renew on every change of occupier.  The cost differs between local authorities.

Each licence holder has an obligation to ensure that their tenants are not causing problems within the boundary of the property through anti-social behaviour.    Typical student pastimes such as playing loud music and hosting wild parties can constitute anti-social behaviour.  Parents will need to ensure their tenants behave.

Failure to apply for an HMO licence is an offence and can result in a very substantial fine.  However only HMOs of three or more storeys which are occupied by five or more people (all representing separate “households”) are subject to mandatory licensing.   Basements and attics do not usually constitute storeys unless they are used wholly or partly as living accommodation, eg loft conversions would be considered as a storey.    However some local authorities will insist on licensing if the house is in a particular district which has been designated as such as there is a proliferation of poorly managed properties – which are also typically areas popular with students as rents and purchase prices are low.

Obviously the higher repairing obligations can come at a cost to landlords – especially those who consider purchasing a house for occupation by students on the basis that they will not be as discerning as a family occupying it.

A new planning class was created for HMOs in April 2010.   HMOs now fall into a different planning class (a “C4”) from ordinary domestic dwellinghouses (“C3”).  This means that if a domestic dwellinghouse now constitutes an HMO then planning consent needs to be applied for that change of use.  However since October 2010 change to C4 use is now a “permitted development” and does not need planning permission save for larger HMOs housing more than six unrelated people.

A further source of financial pain lies in the area of council tax.    Usually tenants are legally liable for payment of council tax.   However with HMOs the landlord is legally liable where council tax is unpaid.   In some parts of the country landlords can claim exemption if the house is unfurnished while elsewhere they cannot.    In some areas buildings that had previously been treated for council tax purposes as single unit such as domestic dwelling house will now been reclassified as multiple units.
Whilst the rules set down by the Housing Act 2004 on HMOs are fairly clear, the regime does vary between local authorities.    Many parents buying houses for their student offspring will be blissfully unaware that their new property investment now constitutes an HMO – whether licensable or not – until someone from the local council comes knocking on the door.    Parents who are concerned that their new investment may constitute an HMO should take legal advice to ascertain their responsibilities.

Those considering purchases and wanting to avoid HMOs would be advised to consider towards smaller properties and avoid the three storey five bedroom houses that will automatically be licensable.