9:23 AM, 13th December 2022, About A year ago 34
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?