Landlords and tenants beware – the real impact of the licensing changes to HMOs
From 1 October 2018 the legislation in respect of a house in multiple occupation (HMOs) has been amended by the Licensing of HMOs (Prescribed Description) (England) Order 2018 (the Order). This legislation brought smaller rented properties into the HMO licensing regime and is part of the government’s stance on getting tough with landlords who rent out unsuitable accommodation to large numbers of people.
These new measures are intended to compliment the Housing and Planning Act 2016, brought in to tackle rogue landlords. This new Order operates within the additions brought by that Act to the enforcement regime, including the financial penalty procedures and banning orders.
Since 2006, large HMOs of three stories or more, housing five or more persons, in two or more separate households, were subject to mandatory licencing. The government believes this licencing improved the management and safety standards of those HMOs. Since that time there has been a significant increase in the use of smaller properties, notably two storey houses, as HMO accommodation. Although some of these are licenced under local HMO licensing schemes, many are not. The concern the government had was that some of these HMOs are operated by rogue landlords exploiting vulnerable tenants and as a result the new Order was made.
The key changes which landlords, investors and lettings agents should be aware of are:
1. Minimal room size being imposed, based on a person’s age as follow
- 6.51 square metres for rooms used to sleep one person over 10 years
- 10.22 square metres for rooms used to sleep two persons over 10 years
- 4.64 square metres for rooms used to sleep a child of 10 years and under.
Local authorities will have the power to increase the sizes if they wish. Any room with a floor area of less than 4.64 metres cannot be used as sleeping accommodation.
2. Any HMO, regardless of how many stories the property has, which is occupied by five or more unrelated people, sharing facilities, will now require a HMO licence.
3. Waste disposal provision requirements.
Properties already covered by a HMO licence will continue to be covered as before. Any that do not already have a licence and meet the requirements as mentioned above, need to ensure that they now have the licence to avoid criminal prosecution or a civil penalty, which can be up to £30,000. In addition to the requirements of the licence, if you have a mortgage and insurance which currently excludes HMOs, these will need to be dealt with.
This is a huge strain to landlords, especially those holding a significant amount of one storey and two storey HMOs. Indeed, the annual direct net cost to businesses has been estimated at £23.5 million. We anticipate that not all landlords have their licences, which were needed from 1 October 2018. This will be in part because of the need to meet the licence requirements but equally there has been little noise about these changes and so some may simply be unaware. If you are one of these, our advice is to act immediately and get your licence in place. As mentioned, the penalties are significant and there is an impetuous to crack down on this and so examples will be made.
This is going to drastically alter the HMO sector. Not only is it bringing new properties under the regime, but also business models that have been working will need to be carefully considered to ensure that those smaller HMOs are still viable options. The potential negative impacts, as shown below, could squeeze some landlords out of the market.
|Impact to landlords||Impacts to tenants|
|Cost of changes needed to be compliant to obtain a licence as well as the cost of the licence.||Less accommodation options available – This is likely to impact city centres, especially London and Manchester, where space is a premium and luxury that few can afford.|
|Loss of income from rooms, now determined too small.||Rent rises to the rooms that can be let which could make tenants want to buy rather than rent.|
|Could slow business growth.||
Pushing tenants further away from their workplace which impacts on ability to find work and/or increased travel costs.
The Order has been designed to protect occupiers and ensure landlords are providing homes to acceptable standards. Whilst we welcome any upgrade to the standards, we are concerned that some of the measures, in particular the inclusion of minimum room sizes, will do more harm than good. It will significantly impact landlords with small HMOs, to the extent that they may need to reconsider their business model and projected growth and it will also lead to a rise in rent impacting the choice of where a tenant can live. We are also not entirely convinced that this will curb the rogue landlords who will no doubt move out of HMOs into single occupancy properties, or worse still operate premises without a licence putting their tenants at risk. There is some hope however, for amendments, as the Order is to be reviewed by October 2021.