How a ‘model tenant’ secretly turned a family home into an HMO

A landlord who believed he had found an ideal tenant was later threatened with substantial financial penalties after his property was secretly converted into an unlicensed house in multiple occupation (HMO.

The landlord let a four-bedroom house to a man who said he wanted it for himself and members of his family. He appeared organised, produced convincing documents and gave a plausible explanation for needing a large property.

The tenancy agreement stated that the house was being let to a single household and expressly prohibited subletting. However, once the tenant had possession, reception rooms were turned into bedrooms, locks were fitted to doors, and individual rooms were offered to unrelated occupiers.

The tenant selected the occupiers, agreed their payments, collected the money and dealt with repairs. To those living in the property, he was the landlord. The owner knew nothing about the arrangement.

For several years, the tenancy appeared to be running smoothly. The agreed rent arrived on time, the tenant answered calls immediately and rarely asked the landlord to pay for repairs. He repeatedly said the property was in good order and discouraged unnecessary visits.

Might discover changed locks

The rent paid to the owner was only part of the money collected from the occupiers. Repairs were handled privately because a contractor might have discovered locks, beds and unrelated people throughout the house. Promptly answering calls gave the tenant advance warning of inspections.

The deception came to light after the property attracted attention from the local authority, possibly following a neighbour’s complaint, police visit or another routine incident.

When officers spoke to the occupiers, they learned that several unrelated people were renting separate rooms. They identified the tenant as the person who had granted access, collected their money and managed the house. Some had never met the actual owner.

Messages, payment records, room agreements, photographs and witness accounts showed who lived there, what they paid and who controlled the accommodation. By the time the owner received the first council letter, officers may already have known more about the property than he did.

HMO license breaches

The council began investigating possible offences involving an unlicensed HMO and breaches of the HMO management regulations. Although the tenant had created the arrangement, the owner was also investigated as a possible person managing or having control of the HMO under the Housing Act 2004.

The landlord was bewildered. He had granted one tenancy to a man and his family. Subletting was prohibited, the rent had always been paid, and the tenant had repeatedly said everything was fine.

However, the wording of the tenancy agreement did not prevent the council from investigating what had happened.

Councils can issue statutory requests for information and invite landlords to interview under caution. A landlord who treats those communications as an informal attempt to clear up a misunderstanding can make damaging admissions without appreciating how they may be used.

In this case, the owner obtained professional advice before responding further. The required information was supplied, but the response was limited to the facts and prepared with the criminal allegations in mind.

Fines for an unlicensed HMO

The council later issued notices stating that it intended to impose financial penalties on the property-owning company for allegedly managing or having control of an unlicensed HMO and breaching the HMO management regulations.

The defence focused on the evidence rather than the fact that the company owned the building.

The tenancy agreement showed that the property had been let to one household and that subletting was forbidden. The tenant had secretly created the HMO, chosen the occupiers, granted the room agreements, collected the money and controlled the rooms.

Crucially, the council’s witnesses identified the tenant as their landlord. They did not say that the property-owning company had granted them rooms or managed their occupation.

Representations were made that the company was neither the person managing nor the person having control of the HMO for the purposes of section 263 of the Housing Act 2004. It was also argued that the company had a reasonable excuse because it did not know the tenant had created and operated the HMO.

According to the case account, the council cancelled the proposed penalties rather than reducing or negotiating them.

That outcome did not mean the landlord had managed the property well.

Tenant’s claims not verified

The deception succeeded because the tenant’s claims were not independently verified, inspections were too infrequent and regular payments were treated as evidence that nothing was wrong. A good personal relationship had replaced active management.

After the case, the owner reviewed the portfolio. Occupancy was checked, properties were inspected on proper notice, records were updated and inspections were introduced every three months.

Contractors were asked to report unusual signs rather than limiting their attention to a specific repair. Locks on bedroom doors, excessive numbers of beds, large amounts of post or occupiers who do not know the named tenant can all justify further checks.

Landlords should also verify references and identity documents independently. A tenant offering extra money, discouraging professional referencing or appearing unusually keen to prevent inspections should not automatically be treated as dishonest, but those circumstances justify closer scrutiny.

Inspections must establish more than the condition of the decoration. Landlords need to know who is living at the property, whether its use has changed and whether rooms have been altered.

Silence is not proof of compliance. Rent arriving on time does not show that a property is occupied lawfully, that fire precautions are adequate or that the named tenant is the only person making money from it.

Take council correspondence seriously

The case also shows why council correspondence should be taken seriously. A request for information, an alleged-offence letter or an interview under caution can mark the beginning of a criminal investigation, even where the council is considering a civil financial penalty rather than prosecution.

The owner avoided the penalties because the evidence supported the defence. Another landlord with weaker records, fewer inspections or communications suggesting knowledge of the subletting might face a different result.

The lesson is simple. Trust the tenant, but verify the occupation, inspect the property and keep evidence of what was agreed and what was found.

A landlord who does not know who is living in a property may discover the answer only after the council does.

Des Taylor is a director of Landlord Licensing & Defence who has extensive experience of the Renters’ Rights Act, rescuing landlords and letting agents from council fines and rent repayment orders. Mr Taylor also advises on property compliance, HHSRS, HMO licences, HMO design, fire risk, housing and planning Law and selective licensing.