Case Study – Purchase of a House in Multiple Occupation (HMO)

Introduction:

In this case study, we look at our private client individual purchasing an existing House in Multiple Occupation (HMO). This case study outlines the legal process and regulatory requirements to ensure a smooth acquisition of the property.

Background:

Our client had identified a HMO to purchase add to their growing property portfolio. They had considered the local demand for the HMO being near to the local hospital and the potentially increased rental yields in comparison to a standard buy to let investment.

Lee Gaddes, Property Solicitor, was recommended for this Property purchase as the client needed his experience in the purchase of an existing HMO, ensuring all legal requirements were in place upon completion.

1. HMO Licensing:
   • One of the primary legal considerations is the requirement for an HMO licence. In many jurisdictions, properties meeting the criteria for HMO status must obtain a licence from the local authority. The criteria typically include the number of storeys, the number of occupants, and the presence of shared facilities. Buyers must verify whether the property they are interested in meets these criteria and ensure that the current owner has a valid HMO licence in place. We check the Licence and its validity. The licence usually lasts for 5 years.
2. Planning Permission:
   • We check the property’s planning permission status. Some HMOs may require specific planning permission or fall under Article 4 Directions, which restrict certain changes without planning approval. We verify with the local authority to confirm that the property complies with all relevant planning regulations.
3. Building Regulations Compliance:
   • We ensure that the HMO property complies with applicable building regulations. This includes fire safety standards, electrical safety, and other health and safety requirements. Our client Buyers conducted a thorough inspection and hired a professional surveyor to identify any potential issues.
4. Landlord and Tenant Legislation:
   • We familiarise ourselves with the local landlord and tenant legislation, as it can vary from one jurisdiction to another. It is important to understand the rights and responsibilities of landlords and tenants, including issues related to rent, eviction procedures, and maintenance obligations.
   • We also check any existing leases or tenancies, ensuring their validity and that our client is aware of any onerous clauses or conditions.
5. Leasehold Considerations:
   • If the property is leasehold, we would carefully review the terms of the Lease. In particular we are checking for any restrictions related to subletting, alterations to the property, or other conditions that may impact its use as a HMO. Sometimes we may need to obtain consent from the freeholder or management company if required.
6. Freehold Considerations:
   • If the property is freehold, a historic Legal Transfer or Conveyance may contain a covenant not to use the Property other than as a single private dwellinghouse. If such a covenant exists, we would need to negotiate this to be varied or removed to allow for use as a HMO.
7. Compliance with Health and Safety Standards:
   • HMO properties are subject to stringent health and safety standards. We check before completion that the property has the necessary safety features, such as fire alarms, fire extinguishers, and adequate escape routes. Regular inspections and maintenance are crucial to meeting ongoing safety requirements.
8. Energy Performance Certificate (EPC):
   • We ensure an up-to-date Energy Performance Certificate for the property is in place. This document assesses the energy efficiency of the building and is a legal requirement for both residential and commercial properties.
9. Contracts and Legal Documents:
   • We review and advise on the contract and all legal documents associated with the purchase. This includes the sale agreement, legal title, searches, and any additional agreements related to the transaction.
10. Financial Considerations:
    • If a mortgage is required, we act on behalf of the mortgage lender also, ensuring all their terms and conditions are met. We also consider potential tax liabilities regarding Stamp Duty Land Tax (SDLT).
11. Local Authority Regulations:
    • It is important to keep up to date about any additional regulations or requirements imposed by the local authority. Local rules and enforcement mechanisms can vary, and compliance is essential to avoid penalties and legal issues.

Conclusion:

By addressing these legal considerations, buyers can navigate the purchase of a HMO with confidence, ensuring compliance with all relevant regulations and setting the stage for a successful and legally sound property investment.