Houses in Multiple Occupation (HMOs) are becoming a popular asset class of choice among buy-to-let investors, as returns outperform single tenancy rental properties by 40% and provide added income security in an ever-changing market.

But achieving higher yields and rental rates is not easy. Landlords need to put in the time and capital to ensure they are providing high quality accommodation that meets tenant demand and, more importantly, they must know the law.

One of the most significant aspects of operating an HMO, more commonly known as a shared house, is to understand licensing requirements.

Here are some fast facts that all HMO landlords need to know.

What types of HMO need a licence?

Currently all HMOs of at least three storeys with five or more people living in two or more households – so not from the same family – and sharing bathroom and kitchen facilities require a licence.

Landlords of smaller HMOs may also need to apply for a licence, especially in locations where there is additional or Selective Licensing in place, and the rules and requirements differ from one local authority to the next.

Licences are specific to the HMO and the landlord and so one may be required for each property.

Failing to obtain a licence when required could result in hefty fines or even prosecution.

What is a licence for?

The purpose of HMO licensing is to ensure minimum standards are met and rogue landlords are deterred and this requirement is becoming more widespread throughout the country.

A licence assesses the fire safety, amenity standards and room sizes of a property and will not be granted until these are up to the required standard. A licence also ensures that a ‘fit and proper person’ is the licence holder and that properties are safe and properly maintained.

How much does a licence cost and how long do they last?

This varies between councils as each can decide how much to charge for a licence. Any charge is only for covering the costs of the administration of the licence fee and the council is not supposed to make a profit on it. The cost of a licence tends to be between £250 and £500.

How do I apply for a licence?

If required, your local council provide you with a licence. It will either be the Environmental Health department or the Private Sector Housing team who monitor HMOs.

You can usually apply for a licence by post or online and will need to have supporting information ready beforehand, such as floor plans, Gas Safety Certificates, periodic inspection reports for the electrical and fire detection system.

How do I know what standards are required?

HMO amenity standards are available on the websites of most councils. If not, a member of the Private Housing or Environmental Health teams is usually happy to provide a copy to you.

As an example, a council may require one bathroom for every five tenants and a minimum single room size of 6.5 square metres.

Are there any other legislative requirements for HMOs?

Some HMOs may also require planning permission, as could standard buy-to-let properties. While licensing is concerned with the health and safety of the tenants and the facilities of the HMO, planning is concerned with the use of the land rather than the internal layout of the HMO.

There may be instances where an HMO requires planning permission but not a licence, so it’s important that landlords know the legal requirements in their investment area. For example, where there is an Article 4 Direction in place or if there are going to be more than seven tenants living in one HMO.

In addition, some local councils choose to regulate the standards of all private landlords through Selective Licensing. This means that as well as an HMO needing a licence, the landlord might need one too.