As we mentioned recently in our ‘Legal advice for landlords’ guide, there are specific rules and regulations for homes in multiple occupation (HMOs) that differ from other rental properties. It’s crucial for HMO landlords to understand their legal obligations, or they could face fines or even jail time.
While there are no hard-and-fast rules that dictate how landlords should draw up tenancy agreements, they are crucial documents. Without one, you will have a severely reduced legal footing should a dispute with your tenant arise. Plus, some insurers won’t be able to offer you insurance cover.
For example, we can only provide cover when either an Assured, Assured Shorthold or Regulated Tenancy Agreement is in place (in England and Wales), or a Short Assured or Assured Shorthold Tenancy Agreement (for Scotland).
In this guide, we’ll take a look at what you should include in your HMO tenancy agreement and the different tenancy options available to HMO landlords.
A rental property can be considered an HMO if it meets both of the following criteria:
An HMO becomes a ‘large HMO’ and so subject to slightly different rules and regulations if it meets both of the following criteria:
A household in this sense refers to one or more people that are living together. They can be married, cohabiting or related.
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The majority of HMO landlords will use an Assured Shorthold Tenancy (AST) agreement. The only reasons why you wouldn’t use an AST agreement is either that you share the property with your tenants – in which case they’re technically ‘lodgers’ rather than tenants and subject to different rules – or that your rental income from the property is over £100,000 a year.
Every property is different and so tenancy agreements tend to vary from one another. However, there are a number of ‘tenancy agreement essentials’ that you should include, GOV.UK have published the following useful guidance:
This is one aspect of HMO tenancy agreements which is different from single lets.
Landlords can sign an agreement with each tenant individually, or sign a joint tenancy agreement with the group. The tenancy agreement should mention which is the case.
Most landlords prefer to have a separate tenancy agreement with each tenant.
While this will increase the amount of admin on your part, it’s easier for each tenant to be responsible for their share of the rent and for taking care of the property. This leaves fewer grey areas around who is or isn’t responsible for payment or damages.
If you do decide to use a joint agreement, it’s best to make sure that your tenants are friends or at least know each other well and trust one another. It’s also best if they plan on moving in and out at the same time.
Some landlords choose to nominate a tenant within the household to handle council tax, utilities and other bills and collect money from their housemates each month to pay for these things. While this can cut down on the admin on your side, there are a couple of things to bear in mind.
If the nominated tenant leaves, another tenant will have to be chosen. It can also create tension within the group of tenants if some tenants can’t pay, won’t pay or keep paying late.
It is often simpler to take on the admin time of doing it yourself, but cover that time by charging a little more than the total cost of all bills, so that you’re not losing out. Tenancy agreements are vitally important, for landlords and tenants.
They outline legal responsibilities on both sides and detail what will happen if either side neglects their responsibilities. The specific rules and regulations relating to HMOs mean that you will have to approach tenancy agreements slightly differently, but with prior planning and using the points mentioned above, renting to multiple tenants needn’t be any more difficult than renting to families or single tenants.
However, some things in life you can’t plan for. Our HMO landlord insurance is tailor-made for HMO landlords and properties. Get a quote today to find out how much you could save.
