The Different Types of HMO Licences Explained – Made Simple

Since the 2018 legislative overhaul, many unsuspecting landlords have found themselves caught out—what was once a standard rental property may now legally qualify as an HMO. Misunderstanding terms like "Mandatory," "Additional," and "Selective" licensing can lead to severe penalties, even for well-meaning property owners.

The key to staying ahead? Proactive knowledge. By identifying which licence your property needs and acting swiftly, you ensure compliance, elevate your professionalism, and safeguard your investment.

Understanding HMO Made Simple

An HMO (House in Multiple Occupation) is a property, often a converted block of flats, rented by three or more people from different households who share facilities like a kitchen or bathroom. A "household" means individuals related by family, marriage, or cohabitation.

For example, five friends sharing a house would be five households, including potential foster children, making it an HMO. They may be under the same tenancy agreement, reflecting their shared living situation. The definition of an HMO is essential because different licences may apply depending on the property and location, so understanding these requirements is essential to avoid legal and financial pitfalls.

Different Types of HMO Licensing

Acquiring an appropriate licence is a legal necessity for operating an HMO, and these properties may be subject to three main types of licences: the Mandatory Licence, the additional HMO license, and the Selective Licence. Each licence type applies to different conditions and scenarios, making it crucial for landlords to recognise which applies to their property.

Mandatory Licensing

Mandatory licensing applies to Houses in Multiple Occupation (HMOs) with five or more occupants, forming at least two separate households, as the Housing Act requires. Exceptions exist for some instances, like large flats in larger blocks or student accommodations. These properties must meet specific standards, including adequate room size standards, no smaller than 6.51 square metres, sufficient shared facilities, and fire safety compliance. Landlords must also demonstrate they are 'fit and proper' individuals, free from criminal convictions. Regular inspections ensure adherence to these regulations.

Criteria for Mandatory Licensing

To qualify for a Mandatory Licence, an HMO must meet specific requirements:

• The HMO must be occupied by five or more people who comprise at least two households.
• The property's living arrangements must adhere to the standard guidelines for room sizes.
• Generally, the number of shared facilities per person is stipulated, ensuring everyone has satisfactory access to amenities.
• Rigorous fire safety measures must be in place for the safety of the tenants.
• Landlords should not have any criminal convictions and should pass the "fit and proper" tests conducted by local authorities.

These benchmarks help determine if a property needs a mandatory HMO licence and what requirements must be met. For a full breakdown, check out this Ultimate Guide to HMO Property.

Additional Licensing

Additional Licensing is at the local council's discretion and varies by case. It was introduced to assist tenants in properties not covered by mandatory licensing and to address poor management issues related to the managing agent. Policies differ among boroughs, with some extending licensing to properties with three or more occupants from two households, ensuring they do not exceed the maximum number of occupants allowed. Landlords should consult their local council or website for specific requirements.

Criteria for Additional Licensing

Under Additional Licensing, the following conditions usually apply:

• The local council determines the need for licensing, which generally pertains to smaller properties not covered by Mandatory Licensing due to their size.
• Additional licensing tends to cover properties housing three or more unrelated individuals, making up two or more households.
• Measures must be implemented to avoid poor management situations, adversely impacting living conditions.
• The local council will ultimately say whether additional licensing is needed for your HMO.

These criteria can help landlords or managers understand when the local authority might deem additional licensing necessary.

Selective Licensing

The Selective Licence is an HMO Licence issued at the local authorities' discretion. It can apply to all privately rented properties, regardless of size or occupancy. For instance, a council concerned about tenant conditions may require licensing all residential properties in a specific area. This Licence aims to improve areas with housing complaints. Landlords should check with their local council for HMO rules in their area.

To understand how HMO financing differs from standard options, look at this guide on HMO vs Buy-to-Let Mortgages.

Criteria for Selective Licensing

Unlike its counterparts, Selective Licensing applies to all rental properties, irrespective of their size or the number of people occupying them. Here are the key criteria to be mindful of:

• The decision to enforce selective licensing lies with the local borough authority.
• Typically, selective licensing is enforced in areas or wards where there have been complaints about housing standards to improve living conditions.
• The licensing can apply to a specific street, ward, or even extend to cover the whole borough.

Understanding these guidelines can aid landlords in determining whether they may require selective property licensing.

How to Apply for HMO Licences?

Getting an HMO licence involves a detailed process—from filling out forms to meeting property standards and management rules. Since costs and timelines can vary, landlords should understand the full scope. Learn more in this guide on HMO Mortgage Requirements.

Process of Application

Application procedures for HMO licences can widely differ among local authorities, though the general steps stay relatively consistent. Practically all applications start with completing an online or paper form, which provides valuable information about the HMO property and the proposed HMO licence holder. The required details generally include relevant health and safety precautions regarding the HMO property.
When applying for an HMO licence, you’ll typically need to provide:

• • Property address and owner’s name
  • Type of HMO arrangement planned 
  • Building details – including room sizes, layout, and dimensions
  • Information about the proposed landlord or property manager
  • Any additional documents as required by your local council – always check their specific guidelines

Every HMO licence application must include a fee, which usually varies based on the number of occupants in the property. Once submitted, the application is reviewed by the local authority. If any objections arise, a hearing may be scheduled. Additionally, the council typically conducts an inspection to ensure the property meets all required standards and regulatory guidelines.

Costs Involved

The cost of an HMO licence application depends on several factors, with the number of occupants being a key one. On average, fees are around £185 per occupant for a five-year licence. However, rates vary significantly by local authority, so landlords should always consult their local council for the most accurate and up-to-date pricing.

Landlord Obligations and Compliance

Once an HMO licence is obtained, the onus falls on landlords to uphold their obligations and ensure continual compliance with all licence conditions set out by the local authority. Landlords are expected to:

• Maintain adequate accommodation standards and ensure compliance
• Fulfil their responsibility towards repairs, cleanliness, and rubbish disposal
• Share necessary information with tenants

Landlords are also expected to establish and uphold sound management arrangements, ensuring they have competent management mechanisms. Furthermore, landlords must pass "fit and proper" tests, confirming they don't hold criminal convictions.

Penalties for Non-Compliance

Failing to comply with HMO regulations can be costly and legally damaging. Here are the key risks landlords should be aware of:

• Operating an HMO without a valid licence is a legal offence.
• Exceeding the permitted number of tenants can result in penalties.
• Fines can reach up to £30,000 for non-compliance.
• Landlords may lose their HMO licence or be banned from operating.
• Annual gas safety certificate checks are mandatory.
• Tenants can claim up to 12 months' rent back through a Rent Repayment Order.
• Failure to comply can result in losing the right to evict tenants under a Section 21 notice.
• Staying informed and compliant with all legal obligations is crucial to avoid these risks.

What are the best practices for managing HMOs legally?

• Obtain the correct HMO licence from your local council.
• Ensure the property meets the required health, safety, and space standards.
• Maintain fire safety measures, including alarms, extinguishers, and clear escape routes.
• Conduct annual gas safety checks and provide tenants with gas safety certificates.
• Have electrical installations inspected regularly (every five years).
• Carry out Right to Rent checks on all tenants.
• Keep the number of tenants within the licensed limit.
• Provide clear, signed, and up-to-date tenancy agreements for all tenants.
• Respond promptly to maintenance and repair issues.
• Keep accurate inspections, maintenance, safety checks, and tenant communications records.
• Stay informed about changes in HMO regulations and local council requirements.

Discover HMO Types: Smarter Property Investment with The HMO Mortgage Broker

Are you interested in investing in an HMO but unsure which type suits your needs? The HMO Mortgage Broker is here to help you navigate the different types of HMOs and make an informed decision. We understand that navigating the HMO market can be overwhelming, especially if you're new to property investment.

Whether you're considering a shared house, student accommodation, or a larger HMO, we'll explain the pros and cons of each type. Our expert advice and tailored support will ensure you choose the right HMO property, with access to exclusive deals and funding options. Get in touch with us for more information and free quotes!

Conclusion

Mandatory licensing is required for larger HMO properties that house five or more individuals and form at least two households. You need a mandatory HMO licence if renting out a house or flat with shared toilets, bathrooms, or cooking facilities. On the other hand, the Additional HMO Licence applies to smaller properties only housing three or more people forming two or more households, subject to local council discretion.

Frequently Asked Questions

What is the difference between mandatory and additional licensing?

Mandatory licensing is required for larger HMO properties that house five or more individuals and form at least two households. On the other hand, additional licensing applies to smaller properties that only house three or more people and form two or more households, subject to local council discretion.

How can a landlord apply for an HMO licence?

Landlords can apply for an HMO licence by completing an application form, either online or on paper, through their respective local council. The procedure may vary slightly depending on specific council guidelines.

What are the consequences of not complying with HMO regulations?

Yes, licensing requirements and regulations for HMOs vary amongst local authorities, with some implementing additional licensing schemes. Different council areas may have unique criteria and standards, making it vital for landlords to understand the specific local council stipulations for their HMO property. For further information, landlords should refer to local guidelines.

Are there different rules for HMOs in other regions?

Yes, licensing requirements and regulations for HMOs vary among local authorities. Different council areas may have unique criteria and standards, making it vital for landlords to understand the specific local council stipulations for their HMO property.