Houses in Multiple Occupation (HMOs)

A House in Multiple Occupation (HMO) is a property, such as a house or flat, that is occupied by three or more individuals from two or more separate households who share common facilities, such as a kitchen and/or bathroom. Simply put, HMO’s are often referred to as Shared Accommodation. 

Examples include a three-bedroom house rented to three students or a couple sharing with an unrelated friend.

Yes. There are “small” and “large” HMO’s and they are classed differently by planning use. 

Small HMO’s accommodate between three and six occupants and fall under Use Class C4 (House in Multiple Occupation).

Large HMOs, which house seven or more occupants is categorised as Sui Generis, which is effectively a Planning Use Class for those properties that do not fall under any other Class and may require specific planning permission. 

A HMO licence is a legal requirement for any HMO with five or more unrelated occupants within the property. It ensures that the property meets specific standards and that the landlord is a 'fit and proper person' to manage it. Licences are typically valid for five years and cannot be transferred to a new landlord following a sale. The exact requirements can vary depending on local authority regulations. 

Certain cities, such as York, also have additional licensing scheme which require HMOs with fewer than five tenants to also obtain licences. 

The most common starting point for an HMO conversion would be a C3 dwelling, a use class which refers to dwellinghouses and flats occupied by one person/ family. We consider here what is required for conversion to a HMO from C3. 

A small HMO (C4) can be converted from C3 through Permitted Development Rights. 

A large HMO (Sui Generis) would require Planning Permission.

This does however all depend on the Local Council and Article 4 restrictions.

An Article 4 Direction is a planning regulation that allows local authorities to remove certain permitted development rights in specific areas and restrict the change of use. For example, if a property falls within an Article 4 area, the property cannot change from C3 residential use to a C4 HMO through permitted development rights. The Article 4 Directions are common in student cities where local authorities are trying to limit the increase in the number of properties being let as student HMOs rather than using the housing as C3 family houses. 

A Certificate of Lawfulness, also known as a CLEUD or LDC, can be used to confirm a properties use class is lawful for planning purposes. It acts as retrospective planning permission. CLEUDs are often used for HMOs whereby planning permission was never sought prior Article 4 (because it wasn’t needed) and continue to operate as HMOs. It is best practice to obtain CLEUDs prior to a sale although we can still sell properties without CLEUDs as long as there is enough supporting evidence.

The minimum bedroom sizes for HMOs in England are typically: 

• 6.51 sq m for one adult
• 10.22 sq m for two adults

However, local authorities may set higher standards, so it's essential to check local regulations. 

Live-in landlord HMOs are properties where the landlord lives in the property and rents out rooms to tenants. These arrangements often have different legal requirements compared to standard HMOs, particularly regarding licensing. The specific rules can vary depending on the number of tenants and local authority regulations.

HMO’s are income driven assets and therefore a typically valued on an investment basis, by applying an appropriate yield on the gross/ net income. This approach can of course vary depending on the circumstances and the valuation approach is therefore selected on a case-by-case basis. The capital value can be sense checked on a price per bed basis. 

Typically, HMOs are valued based on a gross yield net of utilities however other metrics such as whether the property is under or over-rented and has value-add potential are taken into consideration to arrive at the valuation. 

Factors which can determine how the HMO is valued are the use class of the property, the tenancy details, licensing details, location and demand, as well as many other factors. The income can be generated from a variety of different sources, such as student lets, professional and other shared living services. 

For Tenants

Renting a room in an HMO is often a more cost-effective alternative to renting an entire property. Additionally, HMO rents typically include utility bills such as heating, electricity, and council tax, which is an added incentive.

For Investors

HMOs offer landlords and property investors the opportunity to maximize rental income from a single property. In most cases, the total rental income generated from multiple tenants significantly exceeds the amount that could be achieved by renting the property as a whole to a single household or family. This has been more important to investors since the significant increase in interest rates over recent years.