Setting up small unlicensed HMO

by Readers Question

11:24 AM, 30th June 2014
About 4 years ago

Setting up small unlicensed HMO

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Setting up small unlicensed HMO

I’m in the process of setting a small unlicensed HMO up.The house will be shared with no locks on doors so nobody has exclusive rights to one room.The tenants will join the house share at different dates and leave at different dates. Ideally minimum 3 month tenancy.

What would be the best tenancy agreement for this arrangement?

A.Individual agreements,but then run into problems with council tax/Tv licences for 4 rooms(households), but flexible for tenants coming and going.

B. Joint and several agreement but then how how do you add or remove tenants to this as they come and go? Also do I take four deposits or 1 on this agreement?

Also a separate issue is the electrical system.It says on the local council website that in ANY HMO all the electrics must work as designed and no faults,then every five year a Period Inspection Report carried out by a electrician.

Will it need this report now before I start looking for tenants or just in 5 years? Sorry about all the questions folks but any advice will be greatly appreciated.

Carl



Comments

Barbara Thorning

17:07 PM, 30th June 2014
About 4 years ago

Why do you want to operate an HMO in this manner? The very least most tenants will want is to know their possessions will be secure ie locked in their own rooms, ergo 'exclusive use'. It will be extremely hard to find four tenants who won't mind other unknown people having access to their belongings.
Whether or not you use ASTs, or try to circumvent the regulations and try to use licences, the Council Tax and TV Licence will still be the landlord's responsibility. To use licences you would have to also provide other services apart from just accommodation.
You may issue an AST for only three months if you wish and you can agree to a tenant leaving after three months, but you will not be able to ask them to leave under six months.
You will need the electrical safety certificate before any tenants can move in, along with a Gas Safe certificate too, also a fire alarm system and a fire door on the kitchen at least.
Have you checked whether your local authority requires a licence and/or whether or not it is an Article 4 area?
If you do a search on here you will find several really helpful discussions around HMOs, including ASTs v licences.
I would say in the nicest way possible that more research into your obligations and the myriad of regulations is needed before committing yourself financially. HTH

Gilly

20:02 PM, 30th June 2014
About 4 years ago

I have run a couple of HMOs for years, which are similar to the way you seem to want to do it. I find myself rather passionate about this sort of living, as I always shared in a house of five (which I thought a great number) with people who weren’t students. It was great. Sociable, cheap, more luxury than I would normally afford and comforting when arriving in a new town knowing hardly anyone. I vowed to organise such a property for young professionals/post grads when I was in a position to do so and it still seems the way forward.

It has been a struggle, however, as Councils seem hell-bent on calling these shared houses, “houses in bedsits” – which they most certainly are not. If everyone shares one large kitchen and living room and there are a few bathrooms and each person has their own bedroom (with no cooking facilities in it), but sometimes with an en-suite, then it should simply be a shared house. It should not matter whether there is a lock on the door (normally for Insurance purposes) or how the contracts are set up, but somehow or other it does, enormously, and affects the regulations in some disastrous ways, particularly regarding fire doors.

I wanted a family home, which could be sold later as a family home – with a bonus of extra fire precautions. This did not mean closers and fire doors and enclosed staircases – it meant a good alarm system and exits so they could get out. It meant choosing like-minded tenants who grew to care about one another and hopefully become good friends, so that they would know if someone remained in a burning house. It meant creating a nucleus of nice people that other people would want to join. It meant houses where people had their doors open or shut the same as anyone would in a family home. Recent statistics show that HMOs are now safer than family homes. Sprinklers are being introduced to save one life every eight years – it’s elf-n-safety gone mad. (I know there will be a lot of opposition to what I say here – but that’s my view. I don’t even have a smoke alarm in my own home – yes, I’m that sort.) Having said that, some councils just insist on a fire door to the kitchen and I can live with that.

I fervently believe that the government should make this sort of house easier to organise and there is a bill going through the Welsh Assembly where they are hoping to make joint tenancies easier to manage, or so they say. We shall see.

Currently you can issue a deed of assignment to the outgoing tenant; the new tenant and other residents all then need to sign it. You simply inform the deposit scheme and it runs alongside the contract with nothing more to pay. Okay so far…. If this happens too many times, however, the contract becomes messy and you need to issue a new one. For some unknown reason it is also not possible if the tenancy has become a statutory periodic. To overcome this a little, I issue one AST for a year and/or unprotect and re-protect the deposit and issue a new contract when necessary. I also issue a separate letter in which I over-ride the need for the tenants to have to pay any rent on behalf of anyone who leaves the property. This is a ridiculous clause that exists normally, but I want the other tenants to stay and if they know someone to move in they get first choice, but they normally trust me to find them someone nice, to keep the gender balance and match them up. It normally works but very occasionally it’s a disaster and I have to start all over again. I have no solution to the fact that some rooms may be more expensive – I just put in the total and give an individual letter to each tenant outlining their terms. Inventories are a bit of a waste of time too.

I pay the Council tax, water rates and television licence and include it in the rent, but they are responsible for the utility bills. (Another of my gripes – separate tv licences – a complete nonsense and I am someone who loves the BBC and think they deserve every penny – just not five lots of pennies in one home). Until recently I never put locks on the doors and as the houses were so sought after no one seemed to care – and they all had their doors wide open anyway. I have noticed that this has changed over the last few years though, mainly as Insurance companies insist on locks on doors, but it is one of the criteria that Councils use in assessing a property as this enigmatic house of bedsits, with no just reason in my view. Good luck anyway. I could go on all night – but I won’t, even though there is a whole paragraph just on escutcheons 🙂 

Phil Ashford

23:16 PM, 30th June 2014
About 4 years ago

I cannot advocate what Gilly has put here.

Letters overriding clauses, inventories a waste etc...?!

In short, set up a HMO correctly, or don't bother. Try and circumvent things in your favour and it will come to bite...

Gilly

6:31 AM, 1st July 2014
About 4 years ago

Thanks Phil! I think you have misunderstood. Nothing I do is in my favour - it is all to help the tenant live in the way that makes life good for them. I want them to stay for as long as possible and live in a happy house in which they meet new people and fit in, not hide in their rooms - and this mostly works well. In one of my HMOs three of the tenants (all graduates) lived there for over ten years with the other two rooms being inhabited by various friends or people new to the area who wanted a friendly house to live in. This is what all the people looking on Spare-room etc are crying out for, so I can't be the only one.

The tenancy agreement is fully lawful and whenever anyone moves in or out there is the deed of assignment to cover it. Years ago you merely changed the names and put an initial against it but since the deposit protection scheme, that is the best method. Why on earth would anyone want to be held responsible for someone else's rent? - unless you are married maybe. If someone does a runner, I don't try to get that person's rent from the others, I quickly find a replacement and lose very little - it is only for a room after all, not a whole house.

An Inventory is just there to protect the landlord's property or provide compensation and in my self-contained flats I have one an inch thick. In a shared house it is a bit different and I would repeat that it is a bit of a waste of time as they can all blame one another. Conversely no one can get away with anything as the others are all too ready to tell you who broke the door/Ming vase etc. In twenty-odd years I have had very little stolen, the odd mirror maybe and any damage (never very much) seems to have been done by Mr Nobody, however it is most unlikely that the whole place would be trashed unless all five of them put in a great deal of effort and why would they want to do that to their home?

The only thing I will say is that it is high maintainance when it is not working that well, so the choice of tenant is of paramount importance. I have never had to evict anyone (I've asked politely once or twice) as if they don't get on they will not want to stay. I mainly deal with graduates when I can.

Gilly

6:05 AM, 2nd July 2014
About 4 years ago

I’m sorry Carl – I was hoping to spark a bit more of a debate, but I suppose what I am trying to highlight is the fact that the law is not tailor-made for the sort of accommodation that we want to provide. As far as I am aware an Agency would not consider this proposition, unless everyone starts and finishes together.

Even with long-term tenants, we still want to be able to welcome the odd Intern/Erasmus student/visiting professor for a few months’ stay from time to time, if there is a space. Everyone enjoys it. Newcomers would only consider entering a joint tenancy agreement if the house is stable. It is and they do. Is that the sort of set up you want to create?

If it is a joint tenancy then one total deposit is registered (hence one of the reasons for my “letter”).

As you are evidently aware, locks on doors and separate tenancy agreements are the main criteria by which the Councils assess HMOs, albeit outdated and problematic. This “exclusive use of a room” idea is a very grey area and in practice quite ridiculous. What person in their right mind has a bedroom that they consider useable by everyone else in the house? The laws surrounding licensing are equally strange. (Sorry, going into grumpy old woman mode).

There are, of course, AST agreements available for rooms in shared houses, which is probably the easiest method . You can still choose to pay the Council Tax/tv licence and include it in the rent. If you don’t, there are areas now where the Council is trying to charge for each room. Greedy.

To answer your question about the Electric – you need a certificate in place, same as for Gas. The extra revenue from an HMO will easily cover an Inspection and certificate.

Phil Ashford

6:34 AM, 2nd July 2014
About 4 years ago

Hi Gilly.

Ironically, I would advise a tenant to steer clear of your arrangement. Since their legal obligation is extremely onerous.

They must be jointly liable to any unpaid rent - with people they do not know and can place no trust in. A group approaching a landlord, who have pre formed is a different risk profile for each member within that group - they know who they are getting in to bed with, so to speak!

Whilst you may choose to waive your legal right to be able to claw back arrears from any individual it does not stop that legal right from being in place.

Your approach could change, you may pass the property on, an agent may take over the management all for many varying reasons. Your tenants are then subject to the terms to which they signed. That is joint and several with strangers.

For that reason I would advise any tenant of ours to steer clear, despite best intentions, as their legal exposure is leveraged.

Whilst you are able to sell this model on to tenants, I do not believe that the legal exposure is fair, given that you cannot guarantee your own involvement in their tenancy forever - they may end up with an entirely different Manager who takes a very different view to your own. For this reason, I would not setup a HMO under the description of this thread, in this way as I believe it is not fair on each tenant.

This post is purely about the legal exposure of the tenant, and not about how you might operate in practice Gilly - I think that is clear from my post, but always worth a caveat!

Gilly

10:15 AM, 2nd July 2014
About 4 years ago

Reply to the comment left by "Phil Ashford" at "02/07/2014 - 06:34":

I appreciate what you are saying Phil (no offence taken, as I know you would not ask them to steer clear if you knew me and my properties!), but that is why I also provide a formal letter. They each have the written evidence setting out the practice and waiving my right to pursuance of anyone else's rent. I doubt any court would over-rule that would they, as it is not an unfair term (only to me)? If you really don't think that this is fair to the tenant I may have to re-think.

In any case, would you agree that there is nothing in place for the type of property that I provide? I set up a home not a house, with a shared lounge rather than just a kitchen-diner. I choose the first individual, who I then"buddy up" with someone else and they help to choose the rest of the housemates. They may start out signing the contract together but over the course of the next few years, one or a few will leave and be replaced by others who like the set-up in the house and want to join it. They are not strangers for long and no one is encouraged to stay in their room (unless they want to of course). My houses have produced life-long friendships and even marriages.

I am not sure how Carl envisaged making it work at the outset, as it is indeed a difficulty if they don't have doors they can lock, not least because of the Insurance.

It is simple if there are a group of sharers, but that doesn't help the poor soul who has just landed a job the other side of the country and wants to live in a shared house.

Do you simply suggest separate contracts and all that entails?

I only object to them because of the assumptions the Council then make and the inevitable extra regulations, even in a low risk property. Also Carl makes the valid point that there are more implications for council tax and tv licences and the cost, albeit small, of registering separate deposits all the time.

Unless Utility bills are included in the rent then there also needs to be an agreement in place for that. The Utility Companies certainly wouldn't agree to my methods, although even they have chased errant individuals for me in the past, rather than the remaining tenants who have paid.

I agree it may not be the norm and it may be quirky, but it is all in favour of the tenant (I have also won a tribunal ruling against the council). It was moreso years ago in the days of a handshake and exchange of keys and then there were the greedy idiots who never returned deposits...... Over to you!

Gilly

12:03 PM, 2nd July 2014
About 4 years ago

Reply to the comment left by "Gilly " at "02/07/2014 - 10:15":

I have just noticed that I actually include the waiver in the additional clauses in the tenancy agreement - (but I also send a letter :)) I hope that makes it less onerous as that is the last thing I would want. The whole idea of charging people for someone else's rent is unspeakable - the person who leaves is liable morally and the agreements/laws should be changed to reflect that.

philip allen

12:15 PM, 5th July 2014
About 4 years ago

Love the sound of your house Gilly, can I stay there? For what it's worth I have a 5 bed HMO. It's been running for 4 years, no locks on doors, so just ONE TV licence. Never been asked about locks but would be happy to let the tenant know that they can have a lock if they buy a TV licence first.

Jeremy Smith

14:32 PM, 5th July 2014
About 4 years ago

Hi Carl,
I think Gilly has almost 'highjacked' your post !! - but at least she's keeping to the subject !!
IMO, no locks, shared, friendly house, a good idea, but as Phil has implied, a legal nightmare if anyone gets difficult about the arrangement.

Gas Cert - mandatory in any rented house
Elect Cert - not mandatory (yet) in a private single tenancy rented house, but a very good idea anyway. - if your electrics are not safe, the last thing you want is to electrocute a tenant and have the problem of trying to find another one, let alone the problem of trying to explain to the relatives what you have neglected to do, from jail !!

Being an electrician, I can say that one house can be easy to test whilst another can be a right pain. Try to find an electrician who is not just going to test a circuit or two, then just give you a certificate. Try to find one who will really check anything, and also any appliances you supply should be PAT tested, to ensure they are safe and don't have a live case, for example.


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