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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
12:21 PM, 20th December 2022, About A year ago
Your contract with the Uni will be for a property in C4 planning class, not a PBSA. The Renter's Reform Bill does not affect your contract because it is a commercial arrangement, not because the sub-letting organization has an exemption for the sub-let. It will be the same if you rent the house to a company for use by their employees - that would be out of scope and you will still be able to agree a fixed term with the company.
Yvonne Francis
13:22 PM, 20th December 2022, About A year ago
Reply to the comment left by Simon F at 20/12/2022 - 12:21
All I know Simon, is that Brookes said the houses under their mangement will be excempt from the Renters Reform Bill because they conform to certain standards and their houses would be considered University accommodation. Whether that counts as commerical or what difference it makes anyway is somthing I don't know.
I'm a bit confused by the first line of your comment. You must have misread something in my last post as I did not say a contract with a Uni was anything to do with a PBSA?
Simon F
14:14 PM, 20th December 2022, About A year ago
Yvonne. PBSAs will be exempt whether Uni owned or private; we know that. We do not yet know if C4s let by Unis will be exempt, that is only Brooke's assumption at this stage. But still that doesn't apply to your contract with the Uni, only the Uni contract with the student. Your contract with the Uni is not subject to Renter's Reform Bill because it is not a tenancy as defined in the Housing Act, same as in my model or a let to a company. It is only the final end-use r agreement that is in scope.
Paul Essex
21:41 PM, 7th January 2023, About A year ago
Random idea, you may be able to lease the room to the parents, this would make them the landlords thus effectively taking on the burdens and risks e.g. the evil landlord with the noisy students isn't you!
This should still be legal as it is how Serco and the like operate. I guess you would have to insist on an agent to make sure the legal ducks are kept in line.