The Curse of the Unlicensed HMO Property

The Curse of the Unlicensed HMO Property

Posted by Nello Team

Renting rooms as bedsits in a large property is a recognised way for landlords to maximise rental potential. Advantages include the very little possibility of the house having zero occupants (with the benefit of no break in rental income) and the fact that a room rental is far cheaper than renting a house (with the benefit that landlords have access to a wider market).

The economics also provide for higher potential rental income from an HMO property (house in multiple occupation). However, landlords who don’t ensure their HMO property is fit-for-purpose or fail to properly licence it, face fines of up to £20,000.

HMO property regulations designed to safeguard tenants

Government commissioned research discovered that tenants in HMO properties are six times more likely to die than those in single occupancy homes. Unsurprisingly, much of HMO property regulation forces landlords to ensure their properties are safe. When a local authority finds an HMO property falls below its required standards, severe penalties may be applied.

Earlier this year an Oxfordshire landlord was prosecuted in court and fined £6500 , plus costs, for having an unlicensed HMO property in a state of disrepair. Faults included fire protection, damaged flooring, and no electrical test certificates.

Unprepared landlords may have to repay rent

Cheshire West and Chester Council joined forces last year in what is considered to set a precedent for HMO property regulation. Having amassed evidence of nine offences under housing law – including illegal eviction, almost no property maintenance, and having an unlicensed HMO property – the council took the unusual step of setting up a private sector housing team (Chester First) with the remit to take rogue landlords to tribunal and court.

In this ground breaking case, fines and penalties handed out to the landlord included:

  • A fine of £9590 for illegal eviction
  • A fine of £10,000 for putting tenants in danger
  • The order to repay £5251.84 in housing benefit rent received

Get it right, and HMO property landlords become empire builders

Despite these headline judgements, local authorities are generally pro-HMO landlords. They reduce housing waiting lists, and housing benefits payments, too. However, there are a lot of legal requirements to adhere to, and a property that is:

  • rented out to 5 or more people from more than one household,
  • share a bathroom, toilet, or kitchen,
  • in a property of three or more floors.

must be licensed as an HMO property (and local authorities are allowed even stricter rules than this, so landlords must check with their relevant authority).

If you stay within the rules and invest wisely, you could build an HMO property portfolio like that of Jim Haliburton. He buys what he calls “…properties that are cheap, and which owner occupiers wouldn’t buy… crappy properties without gardens and parking.” He has around 150 properties, more than 800 tenants, and claims yields of up to 35% .