If you’re looking to invest in HMOs or want to expand your existing portfolio, then buying an existing HMO with tenants in situ can be an attractive option offering landlords a guaranteed income with no additional tenancy-find fees and a potentially lower refurbishment cost. However, it is not without pitfalls, which can be complicated and costly.
Read on for our 7 top tips to consider before you sign on the dotted line:
1/ Planning
Check whether the property has the correct planning permission in place for its current use. This can be determined by assessing the planning use class:
Number of occupants: Planning use class
- 3-6 occupants: C4 class HMO
- 7+ occupants: Sui Generis Class HMO
Sui Generis HMOs require full planning permission, so check your local planning authority’s online planning register for any change of use planning applications.
If the property does not have the correct planning permission in place, it would be advisable to purchase the property subject to planning permission, if you intend to retain the number of people living in the house.
Should you purchase a Sui Generis HMO without the correct planning permission, you would become vulnerable to planning enforcement, taking on the responsibility of seeking retrospective planning permission with no guarantee this would be granted.
Conversion of a C3 dwellinghouse to a C4 HMO usually does not require planning permission, however, in some cases, the Permitted Development Right may have been removed, for example through an Article 4 Direction or previous planning conditions related to the site, in which case planning permission would be required. Don’t take for granted an HMO use is lawful in planning terms, always clarify the right permissions are in place with an expert!
2/ Lawful Development Certificates (LDC)
After ten years of continuous use, a change of use can become lawful. For example, if a property has been operating as an HMO with 7 or more tenants for over ten years of continuous use without planning permission, you are able to apply for a Lawful Development Certificate (LDC) to confirm that the current use of the property has consequently become lawful and thus immune from enforcement action being taken.
To apply for an LDC, the “burden of proof” rests with the Applicant, so to put together a strong case for approval you will need to obtain and submit evidence to verify the use.
3/ Permitted Development Rights (PDR) & External Works
Householder Permitted Development Rights afford the ability to undertake certain developments without requiring planning permission subject to specific criteria. However, it is always important to check the planning history of a site to make sure there are no previous planning conditions or constraints that may have removed or impacted these.
If the property is operating in the Sui Generis class it does not benefit from permitted development rights, therefore you will be required to apply for planning permission for external works otherwise considered PDR.
4/ Article 4 Directions
An Article 4 Direction relating to HMOs removes the PDR to change from a C3 dwelling house to a C4 HMO, requiring planning permission for this change of use.
Article 4 Directions (A4Ds) can complicate a purchase and you may need to provide the Council or your mortgage lender with proof that the property in question was set up as a C4 class HMO before the introduction (e.g. through obtaining an LDC).
5/ HMO Licensing
Under mandatory licensing, all HMOs with 5 or more occupants require an HMO licence. Some Councils operate discretionary licensing and therefore the property may require a licence:
- With 3+ occupants through an Additional Licensing Scheme
- Any property in the private rental sector through a Selective Licensing Scheme
It is important to note that HMO licences are not transferrable, as it is an assessment of both the property and the landlord is a ‘fit and proper person’. Therefore, you will need to apply for a licence in your own/your company’s name to ensure that the property can continue to be occupied.
Not having the appropriate licence for your HMO is a criminal offence subject to significant fines, a Rental Repayment Order (tenants reclaiming 12 months of their rent), or even criminal conviction.
6/ Mortgages
Although also possible to purchase an HMO with vacant possession, where tenancies are already in existence it is essential you read the small print and understand exactly what you are buying.
- Check that the mortgage provider will grant a mortgage on a tenanted property, and if they require you to draw up new tenancy agreements
- Be aware that the mortgage provider can put restrictions in place regarding length of AST and limit rent paid in advance
7/ Tenant focus
If a major refurbishment is required, consider if improvements are made with tenants in situ, possibly at a reduced rent, or whether the plan requires a longer-term schedule of works.
Bear in mind that it can be an uncertain time for anyone living in a property that is being sold, so introducing yourself, giving a basic overview of your plans and continuing to communicate throughout the process, can go a long way in making the transition smooth.
Seek professional advice
As always, we would strongly recommend that you to seek expert professional advice before making any purchase, check the relevant paperwork and conduct thorough due diligence in order to help you to make an informed choice.
