Investors looking to secure their rental incomes have continued to focus on “houses in multiple occupation” or “HMOs”. This correlates with the rise in demand for affordable and flexible housing solutions particularly for young professionals.
In brief terms, where a property is tenanted by three or more people who do not form a family but share key living facilities such as bathrooms and kitchens, an HMO licence may be required. There are a number of other rules and thresholds and, to make matters more complicated, different local authorities can have differing criteria for licensing.
It might look attractive for investors to purchase a property already subject to an HMO licence but, as highlighted by a recent case, a HMO licence cannot be assigned on purchase. In Taylor v Mina An Ltd, an astute tenant sought a rent repayment order for the period between the sale and the implementation of a new HMO licence. Though the property was purchased in October 2016 and the Seller had an unexpired HMO licence in place, the new purchaser did not apply for a licence until May 2017. Though the First Tier Tribunal rejected the tenant’s claim for a rent repayment order for this period, the Upper Tribunal (Land Chamber) allowed the claim as the Seller’s licence could not be transferred and the fact it had not yet expired was irrelevant.
It is therefore essential that when purchasing an HMO that a licence is procured promptly. As a licence can be granted prior to being required, it can be applied for following exchange, ahead of completion.
If you require further information about anything covered in this briefing, please contact Rosie Bishop, or your usual contact at the firm on +44 (0)20 3375 7000.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, September 2019