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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
Simon F
23:07 PM, 15th December 2022, About A year ago
Reply to the comment left by York student landlord at 15/12/2022 - 21:54
Problem with demanding the tenants give notice at contract signing is that any court would determine that was a ruse to illegally fix the term and your case would collapse even you otherwise had very strong arguments and evidence against some nightmare tenant and no-win no-fee lawyer trying it on. That's not a position of strength at all. Having the contract with the parents who don't live there makes it a commercial let, not an AST, so out of scope for all the AST rules new and old.
student landlord
7:21 AM, 16th December 2022, About A year ago
Reply to the comment left by Simon F at 15/12/2022 - 23:07
Hi Simon as per my post, i’m fully aware of the various shortfalls of my suggested solution but it would be helpful if readers could offer positive alternatives rather than pointing out the flaws (which have already been discussed on a previous post). Bearing in mind the current lack of any positive solution to overcome the end of fixed term tenancies, landlords will have no option but to try to navigate their own way around the legislation and work with student tenants to find a solution.
Christopher Lee
10:33 AM, 16th December 2022, About A year ago
Reply to the comment left by Simon F at 15/12/2022 - 23:07
What's the downside if it is classed as a commercial let?
Christopher Lee
10:34 AM, 16th December 2022, About A year ago
Reply to the comment left by York student landlord at 16/12/2022 - 07:21
Totally agree with your sentiment. Landlords will have to get creative to solve this. I appreciate your efforts.
Simon F
11:08 AM, 16th December 2022, About A year ago
Reply to the comment left by Christopher Lee at 16/12/2022 - 10:33
The downside I see are (1) it wouldn't work for mortgaged property, and (2) it would blow fuses in the brains of the local council PSH dept - they would threaten al sorts to cajole you back into a standard model. But the point of the original post was to find out if anyone can think of other issues.
Richard D.
11:37 AM, 16th December 2022, About A year ago
Looking for positives in the current proposals is hard! I understand that 1 tenant giving notice ends the whole joint and several contract. In that instance we would try and resign the rest with an increase to cover the empty room or a replacement. This depends on the market in each town. If the whole group does leave early we would look at short terms lets (Air BNB) etc to try and get some income, but still be able to relet to a whole group for the next year. Preserving the property for that would be key for us.
Chris Bradley
7:18 AM, 17th December 2022, About A year ago
The problem I envisage is that the group or some of the group may decide not to leave at the end of the fixed term and stay on. Maybe for local jobs or to have a summer of fun.
You wouldn't be able to sign up new tenants until the current ones have given notice.
Christopher Lee
8:16 AM, 17th December 2022, About A year ago
Reply to the comment left by Richard D. at 16/12/2022 - 11:37
Are you sure about 1 'tenant' being able to end a contract? The thing is, there is no concept of an individual tenant. X people form a single entity called the tenant in a joint agreement.
I'm guessing, I admit it, but I'd have thought that they all need to act as one in any decisions.
Christopher Lee
8:17 AM, 17th December 2022, About A year ago
Reply to the comment left by Chris Bradley at 17/12/2022 - 07:18
In what scenario? This whole discussion revolves around legally circumventing that point. That's why we're having it.
Simon F
10:28 AM, 17th December 2022, About A year ago
Reply to the comment left by Christopher Lee at 17/12/2022 - 08:17
Thanks Christopher Lee - There are plenty of discussions elsewhere on implications of the bill for student market. On legal circumventions, we have so far (1) potential to form contract with parents - no-one has yet highlighted fundamental issue with this, or (2) Yvonne's option of rent-to-rent with the Uni as the intermediate party. On the latter point, I think there is scope to do workable deals if the local landlords association forms a management cooperative of participating landlords that the Uni delegates management too -- that could be win-win. The co-ops income gets divided back out the landlords based on number and class (ie final rental rate) of rooms provided and landlords can elect to do their own maintenance in their own way subject to minimum service required.