HMO – single private dwellinghouse covenant refusal?

by Readers Question

10:58 AM, 3rd March 2021
About a month ago

HMO – single private dwellinghouse covenant refusal?

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HMO – single private dwellinghouse covenant refusal?

I’m selling a house set up as an HMO, that hasn’t been rented out to anyone. It has a ‘single private dwelling house’ restrictive covenant. We are/were ready to exchange & complete.

The buyer has had the HMO licence guaranteed by the council 14 days post-completion, and it was a term of his mortgage that covenant consent should be provided by the council prior to exchange. So he wrote to the council and requested approval.

Their response was ‘I wish to confirm that the Housing Department will not release the covenant in order to use the above property as an HMO’.

I believe the council do not necessarily act against HMO’s breaching covenants in the area, although I’m well aware this isn’t a guarantee they won’t, but without consent, I don’t see how the buyer’s mortgage provider will release funds.

This is now my problem because he can walk away, and I will struggle to sell the house to anyone other than a cash buyer willing to take the risk.

Does anyone have any possible solutions? Other than selling it to someone else as a family home?

Very grateful for any assistance you can provide.

Nic

Comments

DSR

11:36 AM, 3rd March 2021
About a month ago

I am certainly not an expert, but to get over this problem, surely the best way to go is getting permission from whoever 'owns' the covenant to amend it's wording?
If I am reading your post right, the assumption is the Council own the covenant?
You need to ask them for the full detail of it, and with that will come a whole document no doubt of what you can/cannot do. There are ways to challenge a covenant, and what I thought would be the most obvious way is to show it is actually directly helping with the local housing need. If there are any Local Plans where this property is, you might find that there is something that may override this covenant. You can always point to the precise point that a licence was granted by the same council - so there must be a serious element of need for the Council to require such accommodation in the first place.

It might be a case of making it expressly clear to a completely blind Council that their own rules are restricting their own clients on their own housing lists of actually being accommodated!

Of course until you bottom this out - you might find that you can't sell to an HMO investor (unless they are willing to take it on as is which will mean they will probably offer you a lot less, but that depends on your own time V cost analysis.

DSR

11:37 AM, 3rd March 2021
About a month ago

Of course if it is empty and you can sell as a family home for what you want to achieve then that's still an option!

Ian Narbeth

14:35 PM, 3rd March 2021
About a month ago

Hi Nic
You should never have allowed the buyer to write to the Council about the covenant. He has queered your pitch.

You refer to a ‘single private dwelling house’ restrictive covenant. Not all such covenants are breached by HMO use and not all restrictive covenants are enforceable. You have almost certainly lost the current buyer. You have also scuppered your chances of getting restrictive covenant indemnity insurance.
It might be worth getting a specialist lawyer to review the covenant and to advise. If it is not enforceable (or if there is a question mark about enforceability) it may be possible to find a buyer who will proceed or to go to the beneficiary of the covenant (I assume the Council) to negotiate a release or modification of it.

Bill O'Dell

16:37 PM, 3rd March 2021
About a month ago

We had this problem in Guildford. 2 HMO's that we had were former council houses. The whole are was studentville and many houses were HMOs and there had never been a prosecution. You can buy an indemnity for this and I'd advise that you don't approach the council yourself or the indemnity will be invalid. We took achance when we bought, ran for 10 years and our buyers took a chance and have had 5 years and no difficulties.
You should be able to get a copy of the covenant (the beneficiary in our case was a company that sold the land to the council and they made it) from the Land Registry. Or you could ask your buyer to obtain a copy, but you should keep your distance from it!
Good Luck!

Ian Narbeth

17:44 PM, 3rd March 2021
About a month ago

Reply to the comment left by Bill O'Dell at 03/03/2021 - 16:37Hi Bill
The OP is the Seller so he is in schtuck as his buyer approached the Council. This fact will need to be disclosed to indemnity insurers and I would expect them to decline the risk.

In addition the house has not yet been used as an HMO so no history of non-enforcement.

Steve Bower

1:11 AM, 4th March 2021
About a month ago

An HMO isn't such until its 'occupied'. Until then, it's just a house, though possibly poorly configured for a single-let.
The OP should have made enquiries when purchasing that the property was suitable for his intentions, as will his buyer need to.
Just sell it for the empty house that it is.

DSR

14:51 PM, 4th March 2021
About a month ago

Reply to the comment left by Ian Narbeth at 03/03/2021 - 14:35
...or could he himself not approach the Council (the covenant holder) to determine exactly what the covenant states to start with? Like you say it might not be termed clearly enough , and therefore the enforceability could be challenged or perhaps a request for the covenant to be amended? Get advice from a solicitor at this point if need be to check the wording/applicability to your circumstance.
This will of course take time.
Otherwise sell the house as it is - a house and let the buyer decide to with it what they wish. Even if they are aware of the covenant if it doesn't affect them or their plans, it wont be an issue.

Ian Narbeth

15:44 PM, 4th March 2021
About a month ago

Reply to the comment left by RL at 04/03/2021 - 14:51
Hi RL, he does not need to approach the Council "to determine exactly what the covenant states" or even to ask them what it means. The wording of the covenant will be apparent on the Charges Register of the title. Given where he is now the OP should still get specialist legal advice. As I mentioned above, restrictive covenants can be unenforceable. Getting a good legal opinion may (a) persuade a buyer to take a view and buy anyway (b) enable the owner to seek insurance or (c) give negotiating leverage with the Council.

I assumed the value as an HMO is higher than as a non-HMO or else the seller and buyer have been wasting their time.

Rob Crawford

9:39 AM, 6th March 2021
About a month ago

Surely this all depends on the definition of "single private dweling house" and the reason for having it in the covenant! I understand that restrictions were commonly used to prevent other properties being built on the land that forms part of the original property. Assuming the HMO is still the same original building where rooms are rented out, it is still a single private dweling house. It would be worth trying to getting confirmation of the reason for inserting this as a covenant. I don't think using the property as an hmo breaches this!

Edwin Cowper

12:55 PM, 6th March 2021
About a month ago

Ian Narbeth is the person who has understood the legal position. He says not all covenants are enforceable. Exactly so. As a former local government lawyer, this came up when people tried to split premises. Same principle on sale and licence. Get a good property lawyer who knows about restrictive covenants and their enforcement. Quite easy to decide actually. If the seller didn't contract with the council, thats a help. Just a bit of legal enquiry and thought needed to decide whether there is any ability to enforce

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