News and Press releases

Turning their backs on HMO had advantages for some landlords

17/06/2010

The court heard that a landlord let out a flat to six students without having an HMO licence. And when it was brought to the attention of the authorities, he tried to justify his actions on the basis that the students were part of a Mormon religious group – which they were not. Consequently, the landlord was charged with letting out a property to three or more unrelated people when the property did not have an HMO licence.
If the student tenants really had been part of a bona fide religious group then the landlord, possibly, may not have required an HMO certificate, but this was one of very few exceptions as to what qualifies as a ‘house of multiple occupation’ under the legislation.
In general terms, a house of multiple occupation is a property which is shared by three or more people who are not related. In practice, this means that flats or houses with three or more bedrooms and which are let out to tenants will require HMO certificates.
When first introduced, my immediate reaction was to look upon this as just another example of Holyrood/local authority interference, which would not improve the letting sector, add to the financial burden of decent landlords, and justify the hiring of yet more public sector busybodies. As it happened, the legislation has proved to be one of the more sensible ideas to come out of the mouths of politicians, not least because of the dimension of personal safety, particularly the fact that to qualify for an HMO, a property must have superior fire protection levels to a ‘normal’ house or flat, which is undoubtedly a good thing when one considers that most large shared tenancies comprise young, often transient, people.
The legislation has also been welcomed by owner-occupiers who shared a ‘stair’ with groups of tenants and who frequently complained that their behaviour changed – and not for the better – not just a tenement block but an entire street. Residential anti-social behaviour is, of course, a subjective subject and I have listened to complaints from owner-occupiers about the so-called disruptive behaviour of neighbouring tenants that have turned out to be completely spurious. Even when some minor upset occurs, but there is no evidence as to the perpetrator, there is often a presumption that “they’re tenants so they must be to blame”.
Having said that, I can sympathise with owner-occupiers (and, indeed, mature tenants) who have lived alongside various groups of 18-year olds for the past 20 years. The HMO legislation has now given them a “voice” in that they can object to the granting of licences and to their renewal every 12 months.
The legislation also brought relief because many landlords of larger flats were not prepared to pay for the improvements necessary to require a licence, plus the licence itself (in Edinburgh currently between £505 and £585 for new licences and between £330 and £410 for renewals) and so the number of tenancies involving unrelated occupants fell sharply.
This, of course, worked to the advantage of those landlords who did bite the bullet and “invested” in both a licence and on bringing their flats up the standards required because the law of supply and demand meant a big boost to rentals for properties that could still be let out to unrelated groups. The HMO influence is apparent in our recently-launched Residential Rental Monitor, the first of which looked at rental costs during the first three months of this year. In Edinburgh, the cost difference in renting a two-bedroom flat and a one-bedroom flat was just £176 (i.e. £735 compared to £599); however the gap between the cost of renting a four-bedroom flat and a two-bedroom flat was £558 (£1,293 compared to £735).
Ironically, even some of those landlords who decided not to bring larger flats up to HMO standard also benefited. Facing the prospect of a substantially reduced level of rental income they decided to sell up – and at the height of the boom this will have produced huge capital surpluses in many cases. Those still letting out HMO licensed properties are, more the most part, raking in good rentals – but it will be some time before they see a return to capital growth.
David Alexander is proprietor of the letting agency, D J Alexander.