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9:23 AM, 13th December 2022, About A year ago 34
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For mitigation against the worst implications of the (expected) Renters’ Reform Bill for my Student HMOs, I am mulling a business model change to…. Leasing individual rooms on a fixed-term basis to the PARENTS rather than the occupying students….Will this work?
Here’s my thinking so far…
Lease terms would allow the room to be licenced for residential use by one member of the same household who is enrolled at the Uni with the main purpose being their term-time accommodation (only). The occupying student would need to provide an affidavit stating that the parental home will remain their main residence which they will return to at the end of the fixed term.
The occupying student would have an agreement, on a licence basis, only with their parent, the leaseholder, not directly with (me) the freeholder. It would be basically a Rent-to-Rent arrangement with someone whose interests are wholly aligned with the student occupant and who would otherwise be acting as guarantor in an AST scenario.
On Planning: Use remains “Residential”, and with multiple occupation in the building as a whole; so this is an HMO as defined in Town & Country Planning Act, and the existing C4 Use Class is still the most appropriate, there’s no change required.
On Housing Act (HA): the multiple occupants of the property will all have their main residence elsewhere, i.e., their parental homes (and that’s in writing), and the contracts are not between freeholder and occupants, so: (a) ASTs as defined in HA are NOT required or naturally created, and (b) this is not an HMO as defined in HA either as there are not 3+ persons for whom it is their main residence. If any AST is inadvertently created, that would be between the parent (leaseholder) and the student; the freeholder is not on the hook.
On Council Tax vs. Business Rates: My initial research shows that so long as the Planning Use remains Residential, the Council would not have a good case at all to call in VOA and force the freeholder onto Business Rates and there is Case Law to support that position – but a fair chance the Council might try that if the matter came to their attention.
On general management and maintenance: Logical and prudent to stick to all the normal HMO standards with gas safety, EICRs, smoke alarm test records, maintain and manage to all the normal HMO standards.
Mortgage: Mortgage conditions always state properties must be let on an AST basis, so this will only work on mortgage-free properties.
Deposit: There’s no AST, it’s more of a Rent-to-Rent contract, so any Deposit paid to freeholder by the parent does not need protecting. If an AST is inadvertently created then that is between the lease-holder parent and student, not the freeholder
Collecting Rent: Should not be any harder to collect than with current student fixed term ASTs where the parents act as guarantor.
On HMO Licencing: An HMO Licence would not strictly be required, but likely best to keep paying the licence fee, (a) allows for quick switch back to ASTs and a standard business model if problems arise, and (b) not to draw the Council’s attention by having an unlicenced C4 property.
On Marketing: Would be more limited as some advertising sites do specify that offers being on AST basis is a condition of business.
Please help fill in the gaps, what have I missed?
Anyone else with mortgage-free Student HMOs thinks this might be a workable idea?
Thank you,
Simon
Martin O'Hearne
11:02 AM, 13th December 2022, About A year ago
The results of unintended consequences, a Bill written by Civil Servants and Anti-Landlord groups without the involvement of the people at the coal face! I wrote to the Housing Select Committee to point this and other “unintended consequences” out, I’m looking forward to their report due out in the new year!
Yvonne Francis
11:15 AM, 13th December 2022, About A year ago
I can't see any difference, whether you use a licence or lease, between renting to the parent or the student. The PBAS are exempt because they rent under government codes so any one you offered your property to, they would have to abide by those codes which a parent clearly would not.
I had a talk with the manager of Oxford's Brookes University accommodation. They manage PRS houses and they said the codes they work under are acceptable. Having had experience of their management they pay less, and don't manage as well as I would have liked, but one would have a regular letting term which I'm sure would make me sleep better at night!
So I advise you to see if the university you get your tenants from runs similar schemes.
However I am not very optimistic as it's a way of getting student houses off the streets, which has always been a running sore. We are being victimised.
Simon F
12:16 PM, 13th December 2022, About A year ago
Reply to the comment left by Yvonne Francis at 13/12/2022 - 11:15
Yvonne: The difference in having a contract with the parent vs student is that any contract directly with the occupier using the premises as a residence can be deemed to be a tenancy by a court and all the rules pertaining to ASTs would then apply irrespective of contract wording. But I don't see how a court could deem the contract a tenancy if the contract is with a party that is not resident and the occupier is not the one paying the rent. That's the crucial point.
Your point that Uni's managing PRS housing are expecting to get dispensation for those properties as well as PBSAs is really very interesting indeed - not sure that NRLA have picked up on that. If that does come about then there's an opportunity for our local landlord's association to do a deal with the University of Portsmouth who don't currently do anything like that, i.e. we build that framework together.
Grumpy Doug
12:32 PM, 13th December 2022, About A year ago
Reply to the comment left by Simon F at 13/12/2022 - 12:16
Simon. I put one of my houses through the Uni as a PBSA effectively back in 2010. It sort of worked but be prepared for a massively reduced rent to you. It was convenient for me at the time but I've not used it since.
Scotland have already been here for a few years and the word on the street is that it's not too bad. I've had about 70 groups over the years - I do get those that want to stay on and that is all arranged by mutual consent. All others leave naturally at the end of their academic year. Being students they drift off randomly, with the last ones staying to the end of July which is the end of contract anyway (I do 11 month contracts usually). I will do a bit more due diligence and if there's any red flags I'll just move onto the next group - currently more demand than supply. The biggest risk will be a month of no rent if they leave early. They will still (I hope) be on joint and several contracts so that should mitigate the risk.
Simon F
12:43 PM, 13th December 2022, About A year ago
Reply to the comment left by Grumpy Doug at 13/12/2022 - 12:32
Grumpy Dog: I'd say biggest risk (with end of fixed terms) is if they give notice to move out just one or two months into the tenancy cos they've found an empty house just a wee bit cheaper down the road.
Grumpy Doug
19:16 PM, 13th December 2022, About A year ago
Reply to the comment left by Simon F at 13/12/2022 - 12:43I agree that's a risk. At the moment a) there are no empty houses down the road b) if they're empty there's a reason ie they're horrible c) they'll need to get their act together and jointly give me notice d) they'll need to go through all the paperwork trail together with their guarantors again e) the agent will ask me for a reference as they'll wonder why this is happening in the middle of the academic year and you can be sure that my reference will stink and they won't get the house f) none of the above will happen as they're students and they're just far too lazy.
My houses are really, really good and I look after them and my students. They know they're into a good thing. I'm happy to take the risk and let's face it, if rents in Scotland went up 30% overnight, then I could be suitably compensated for doing so.
Grumpy Doug
22:57 PM, 13th December 2022, About A year ago
Reply to the comment left by Simon F at 13/12/2022 - 12:43
(g) they'll have to stump up another deposit in the middle of the academic year. As this is often paid by their parents, that'll be an interesting conversation between parent and child
(h) they need to clear all their stuff out my house and hand it back to me spick and span and then do the same for their cheaper house down the road a few months later.
Maybe I'm just a sunny optimist but I think we'll be ok. Students are inherently lazy - that's not a criticism but just a fact of life. I think those of us that provide good quality houses will be fine as they basically can't be arsed to move just to save a few quid. Mine BTW don't think twice about getting a McDonalds delivered for £6. iPhone contract? Pah - only £50 a month ....
Christopher Lee
17:22 PM, 15th December 2022, About A year ago
I haven't thought this through yet but I wondered if there was something you can do where you insert yourself as one of the tenants whereby you can block them leaving early. Ie, on joint & several surely all decisions will need to be unanimous?
Also, will we be able to somehow insist on giving notice upon signing? Fixed contract by the back door?
Just thinking out loud.
student landlord
21:54 PM, 15th December 2022, About A year ago
Reply to the comment left by Christopher Lee at 15/12/2022 - 17:22
Hi Christopher I suggested a few months ago that we could require student tenants to give 12 months notice on signing the AST. It was met with some criticism but with the lack of any alternative legal and practical suggestions that’s what I will do if the end of fixed term tenancies comes to pass. One would hope that the government would see sense to exempt certain sectors but I have zero expectations on that so we have to be creative. I know it’s not a foolproof solution but I see nothing better being suggested! (To avoid repetition please could readers offer positive alternatives rather than pointing out the shortfalls of this suggested solution)!
Christopher Lee
22:01 PM, 15th December 2022, About A year ago
Reply to the comment left by York student landlord at 15/12/2022 - 21:54
Yep. Unless I hear that it's illegal I'll do the same. There's definitely a need to not allow early termination as well. I can see a scenario where some groups might leave a month early to save some money especially of their exams are early. Need to find a solution for that.