Five things you should know about HMOs in the Student Accommodation sector

The HMO licensing regime was introduced by the Housing Act 2004 as part of the Government’s commitment to raising standards in houses in multiple occupation (“HMOs”) and cracking down on rogue landlords. In our experience, HMO licensing remains one of the more complicated – and least well understood – requirements affecting the student accommodation sector.

So as a student accommodation provider what do you need to know?

What is an HMO?

While HMOs have a lengthy legal definition, in general terms, they are properties that are rented out to three or more people who do not form a single household and who share facilities such as a kitchen or bathroom.

PBSA often does not require mandatory licensing…but be aware of additional and selective licensing regimes

HMO licensing falls in to three categories:

• (A) Mandatory licensing; 
• (B) Additional licensing; and
• (C) Selective licensing.

In many cases, purpose built student accommodation (“PBSA”) will not require an HMO licence on the basis that it is either exempt or is not an HMO that is subject to mandatory licensing.

Any student accommodation scheme which is occupied by full time students and managed by an educational establishment that is subject to an approved code of practice will be exempt from HMO licensing. This exemption does not apply to private providers of student accommodation even if the provider complies with an approved code such as ANUK.

(A) Mandatory licensing currently applies to all HMOs that are three or more storeys and are occupied by five or more persons who do not form a single household. An HMO can be part of a building. It is the HMO itself which must be three or more storeys rather than the building in which it is located so this rules out single storey flats within a PBSA scheme. Similarly, where a PBSA scheme comprises only studios or 1-2 bed flats, mandatory licensing will not apply as the threshold of five occupants sharing facilities will not be met. This means that mandatory HMO licensing is typically only a consideration for PBSA that has been developed as halls of residence or which includes larger cluster flats.

(B/C) Be aware that local authorities can introduce additional licensing and /or selective licensing regimes. For additional licensing to apply the property must be an HMO which is not subject to mandatory licensing. Selective licensing applies to properties which are not HMOs and covers all privately rented properties within a specified area. In our experience, student accommodation is more likely to be subject to additional or selective licensing requirements than to mandatory licensing. It is becoming increasingly common to see additional licensing for HMOs that are occupied by three or more people (rather than five) or that are only one storey (rather than three). These additional licensing regimes often capture cluster flat type properties. If you wish to find out if the property you are purchasing is within an area where additional or selective licensing applies you should check with your solicitor if the search of the local authority reveals whether the property is an HMO or is in an area where additional and /or selective licensing regimes apply.

HMO licences are non-transferable

HMO licences are personal and cannot be transferred to a new owner upon the sale of a property. If you are purchasing student accommodation you should be aware that you may need to apply for a new licence if the property you are purchasing is subject to HMO licensing. The licence should be obtained by the entity that will manage, or have control of, the HMO and a separate licence must be obtained for each property that is an HMO. An HMO is granted for the period specified in the licence for a maximum period of 5 years. Failure to apply for a licence when required is an offence for which you can be prosecuted and fined.

HMO licences can be subject to conditions

HMO licences are usually subject to standard conditions covering matters such as fire precautions, gas and electrical safety checks, and property maintenance. Caution should be exercised when purchasing a property which is a licensable HMO that does not have a licence as you may be required to carry out improvement works in order to satisfy these requirements. The HMO licence may be granted subject to conditions which impact on rental yield, for instance, limiting occupation to 10 months per year, restricting occupation to a specified class of occupier, prohibiting occupation of rooms that are considered too small or limiting the number of occupants. You could consider making the sale contract conditional upon the local authority granting to the purchaser an HMO licence that is not subject to onerous conditions.

Reform is on the horizon

The Government’s latest consultation paper on HMO reforms, ‘Housing in multiple occupation and residential property licensing reforms’ , was published in October 2016 with the consultation period closing two months later. While the Government has not yet published its response, the clear trend is towards further regulation of the HMO sector. The measures proposed by the paper include:

• Extending the scope of mandatory licensing – for instance by removing the three storey rule – with an estimated 174,000 additional properties expected to require a licence;
• Setting a minimum room size of 6.52 sq. m for one person or 10.23 sq. m for two people;
• Imposing new requirements for refuse disposal facilities through mandatory licence conditions; and
• Requiring criminal record checks for all HMO licence applicants.

Of particular relevance to student accommodation providers, the paper also contemplates a new statutory code of practice that is specific to the PBSA sector. While the paper rules out extending the exemption that currently applies to educational institutions to private providers of student accommodation, it does suggest that private providers who comply with such an approved code should benefit from “significant discounts” in HMO licensing fees. This recognises that providers who comply with a code of practice are unlikely to be the type of problem landlord that requires local authority intervention.