When drafting your HMO Agreement your ambitions to become an HMO Landlord come to fruition.
It’s an important step and drafting a thorough and robust agreement will make your experiences as an HMO Landlord as easy as possible.
Your HMO Agreement will afford you the most protection where you might have issues with tenants so it is crucial you execute it properly.
A ‘House In Multiple Occupation’ (HMO) is a legally recognised category of housing listed in part 7 of the Housing Act 2004. Under s254 of the Housing Act 2004, there are four main categories of HMO, covering:
- The standard case of a HMO
- Converted buildings
- Converted blocks of flats
- Instances where, irrespective of the requirements in other categories, a local authority declares a property to be an HMO
A property that is rented out by three or more people, who share some facilities, such as a kitchen or bathroom, but are not from the same ‘household’ is considered a standard HMO.
A large HMO arises where the same arrangements for a living are in place but there are five or more tenants in the property.
For a property to be considered an HMO, the persons in the property must be from separate households. A household is considered either as a single person or members of the same family (including partners) who live together.
In this article, we will outline what you should include in your HMO Agreements and, more importantly, what clauses they should not contain.
We will then tackle common misconceptions about HMOs to provide you with a comprehensive guide to HMO contract management.
- Names and details of parties involved
- Clauses relating to tenant behaviour that may result in the tenancy ending early
- Notice periods and access
- When do you need an HMO licence?
- Do you need smoke detectors in every room?
- Can neighbours object to an HMO?
What should you include in your HMO Agreement?
The vast majority of HMO agreements will be an Assured Shorthold Tenancy Agreement (AST), the most common type of tenancy agreement used in residential lets.
Landlords can sign one AST with a group of individuals or sign an individual AST with each of the tenants. In HMOs, individual contracts have proven to be the most popular because in the former case your tenants will be jointly and severally liable.
Where your property is an HMO, you will want to be sure to include certain clauses in your agreement that you might not include in a sole occupancy agreement.
1. Names and details of parties involved
It is crucial that the contract defines the parties to the agreement clearly, setting out their names and preferably details, such as their previously registered address.
The landlord’s and tenant’s details need to feature in the contract, even if the agreement is created on their behalf by a letting agent. These details might extend to including details of the deposit provider’s (typically the tenant) next of kin.
Like any contract, it is important to outline what the object of the contract is. In your tenancy agreement, you should include the address of the property and outline the start date and end date of the tenancy.
Break clauses are often a convenient way to allow for flexibility in your tenancy.
It is commonplace to ask for a deposit when entering into a tenancy agreement to act as security for any damage to the premises or outstanding bills or rent.
In your tenancy agreement, you should detail how much the deposit will be and how it will be protected.
In your tenancy agreement, it is important to clearly state how much rent must be paid. It is paramount that you include details of payment of that rent, including when the rent should be paid, where and to whom.
You should also outline what will happen in the case of rent arrears, including the interest on late rent. If you have requested a guarantor for the tenant, you should include their details in your tenancy agreement.
In an HMO it is crucial that you outline where obligations will fall, especially as you may have tenants living together who do not know each other.
A landlord is responsible for the cleanliness and maintenance of communal areas and facilities.
An HMO landlord also must carry out annual gas safety checks and make copies of the certificate, displaying one in communal areas of the property and sending one to their local council.
HMO landlords also have extensive obligations in regard to fire safety. Electrical safety inspections must be carried out every five years and checks must be made on electrical fixtures over the course of the tenancy.
Kitchens must also be installed with certain fixtures such as sinks with draining boards, instruments for the cooking of food, electrical sockets, cupboards, worktops, refrigerators and adequate freezer compartments, refuge facilities and extractor fans, fire blankets and fire doors.
In an HMO, the landlord is liable to pay council tax and it is also commonplace for a landlord to cover all bills relating to the HMO and then reflect these charges in the rent.
It is important that you list what utilities and bills will be included, such as wifi and TV licences, to avoid disagreements with tenants.
By simply stating ‘all bills and utilities’ you may find yourself liable for extra bills and charges that you had not originally foreseen.
6. Clauses relating to tenant behaviour that may result in the tenancy ending early
As a landlord, you have the right to detail how the tenants can make use of your property.
In an HMO these clauses are incredibly important, especially as you will want to ensure the peaceful enjoyment of the property between tenants who may not know one another.
Typical clauses relating to the use of the property include:
- Prohibiting business or trade from the property;
- To use the property with care;
- To maintain the cleanliness and state of repair of the property, including rubbish outside of the property;
- Prohibitions on antisocial behaviour including excessive noise and harassment;
- Prohibiting illegal activity on the premises;
- Prohibiting tenants from bringing furniture, electrical equipment or pets into the property;
- Prohibiting smoking;
- Replacing or paying reasonable costs for repairs resulting from tenant damage, and;
- Keeping fire exits and equipment free of obstruction;
If a tenant breaches one of these terms, the landlord then can serve a notice to terminate for breach of agreement under either a section 8 or 21 notice.
A landlord can also include a section entitled ‘Landlord’s Right of Termination’ to include instances where they can lawfully recover possession of the property, such as where the tenant is bankrupt.
7. Notice periods and access
It is also sensible to state if the tenancy will become a monthly periodic tenancy after the tenancy has ended.
You should outline clearly the relevant notice periods needed by either party for the property to be vacated and how and where these notices can be served.
You should also outline how the landlord can gain access to the property by providing information relating to notice periods and a clause stating that access to the property cannot be denied for completion of tasks and checks required by law, such as those relating to gas safety.
What shouldn’t you include in your HMO Agreement?
Whilst what is in your tenancy agreement is very important to ensure you can handle difficult tenants, it is also very important to ensure your tenancy agreement does not contain certain clauses.
Following the Tenant Fees Act 2019, a series of restrictions placed controls on what landlords can charge tenants for.
1. Professional cleaning fees
A landlord can no longer contract with a tenant that the tenant must have their property professionally cleaned at the end of the tenancy.
Whilst a tenant must return the property in the same condition as when the let began, there can be no formal requirement for the tenant to bear the cost of professional cleaning.
2. Deposit caps
The Tenant Fees Act also introduced caps on deposits: landlords cannot charge a tenant a deposit amounting to larger than the equivalent of five weeks’ rent.
Holding deposits are also capped at one weeks’ rent and they must be returned to the tenant or taken from the tenant’s first rent payment if they agree.
Where the annual rent is over £50,000, a landlord can request a deposit of up to 6 weeks’ rent.
Whilst it is important to outline in your tenancy agreement what will happen in the case of rent arrears, you are not entirely free to contract what will happen in these circumstances.
The Tenant Fees Act 2019 introduced a cap on the interest that can be put on late fees of 3% per annum, plus the Bank of England’s rate.
The 2019 Act also introduced restrictions on fees that cannot be charged to tenants, including:
- Renewal fees
- Referencing and credit fees
- Right to rent checks
- Checks relating to guarantors
Including these clauses or fees in your tenancy agreement will put you at risk of financial penalty and criminal sanction.
If your contracts include these clauses you could be charged £5,000 in penalties and any further breaches within five years of the initial breach could result in bans, further financial penalties or criminal convictions.
Common misconceptions about HMOs:
HMOs are a hot topic which is great for you as a prospective HMO Landlord but it’s important that you keep on top of the facts, not just the chat.
In this section, we will myth-bust some common HMO related misconceptions.
When do you need an HMO licence?
Landlords will need an HMO licence if they have a ‘large HMO’ under part II of the 2004 Act and meet the standard test, contained flat test or converted building test.
Mandatory licensing is contrasted to additional or selective licencing whereby councils can request licences for other types of HMOs.
Before renting out your property to people from more than one household it is recommended that you check with your local authority, as even though your property does not meet the requirements for mandatory licensing you may still need to obtain one from your local council.
In the case of live-in landlords, the situation is slightly different.
Where a live-in landlord, who is the owner-occupier of the property, decides to rent out part of the property, they are permitted to have two non-household lodgers before this constitutes an HMO.
If you are not the occupier and a tenant taking in lodgers, the usual rules surrounding HMO licensing applies.
An HMO licence is valid for five years and will need renewal.
If a landlord purchases an HMO and intends to continue to let it as an HMO they will need to obtain a new licence, as irrespective of whether they are still in date, licences are not transferable (s68(6) Housing Act 2004).
Do you need smoke detectors in every room?
It is a legal requirement to have smoke detectors on every storey of an HMO. You do not need to install smoke detectors in every room but carbon monoxide alarms must be installed in every room that hosts a solid fuel-burning appliance, such as a wood stove.
You must ensure you follow fire safety regulations and ensure there is access to escape routes in the case of fire at all times. Where the property is a large HMO, fire alarms and extinguishers are mandatory.
Can neighbours object to an HMO?
Procedures and protocols for licensing will be decided by individual authorities. Neighbours cannot object to an HMO licence, though they can raise concerns to their local housing authority.
Neighbours can however object to a full planning application for a large HMO conversion.
Usually, when a landlord applies for a large HMO conversion, they must make people aware of their intentions by displaying a notice outside the property for 21 days and include information as to how people can submit objections to the grant of the licence.
Neighbours can then write and sign their objections to the grant of the licence (which must be for specific reasons) and send this on to their local authority to consider.
Where objections are raised, local authorities will often present these to the landlord to order a response which will be taken into account when making the decision whether to grant a licence.
Licences can be suspended if certain standards are not met during the licenced period or councils can refuse to renew requests.
Most councils, on the grant of an HMO licence, require landlords to provide neighbouring properties with their contact details should issues arise.
If discussions directly with the tenants or the landlord do not improve the situation, neighbours can write to their council.
How large must your HMO be to get a licence?
The HMO Licence imposes minimum floor area requirements for rooms used as sleeping accommodation.
- For an individual under the age of 10: 4.64 square meters
- For an individual over the age of 10: 6.51 square meters
- For two individuals over the age of 10: 10.22 square meters
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