How to Avoid Being a HMO

New regulations published will mean some older converted blocks of purpose-built flats will suddenly find themselves given the dubious distinction of becoming defined as houses in multiple occupation (HMOs). John Mills of the Association of Retirement Housing Managers explains the implications.

The new regulations commence on October 1st 2007 and apply in England only for now and introduce a new piece of jargon – the S.257 HMO.  Section 257 is the clause in the Housing Act 2004 that introduced this new type of HMO. If a block meets the definition of a S.257 HMO (for which see later) it will have consequences for the management of it. And there are additional prescribed management standards that a landlord or managing agent will have to comply with – it may need to be licensed by the Local Authority.

The definition of a S.257 HMO

The definition is in two parts and the block must meet both parts to be a S.257 HMO. The standard of conversion does not meet at least that required by the Building Regulations 1991, and, less than two thirds of the flats are owner-occupied. A building will not meet the first part if the standard of conversion meets any of the following, which is to say, if carried out:

• Before June 1st 1992 the standards are equivalent to those required by the Building Regulations 1992;
• on, or after June 1st 1992, but before the Building Regulations 2000 came into force, the requirements of the Building Regulations 1992 have been complied with; or
• on, or after the date the Building Regulations 2000 came into force the requirements of the Building Regulations in force at the date of the conversion have been complied with.

If a building does not fall into any of the above categories it will usually meet the first part of the definition. When deciding whether a building meets the relevant building regulations it should only be necessary to consider the common parts, not individual flats. But there is a catch 22. So far the government has refused to issue any guidance about what the 1991 Building Regulations required. Do any of our readers remember?

Owner-occupation

Looking at the second part of the definition, the block must have less than two-thirds of the flats in owner-occupation. So what is the definition of owner-occupation? Owner-occupier is defined as a person:

• who has a lease of a flat for a term exceeding 21 years;
• who is the freeholder of the block of flats (including a person who has a share of the freehold if there are joint freeholders); or
• who is a member of the household of a person who is the owner; and
• who is occupying the flat as his/her only or main residence.

When trying to decide if the block is less than two-thirds owner-occupied it does not matter who has granted a short tenancy or licence. So if the long lessee of a flat has sublet the whole of the flat on a shorthold, then that flat is not owner-occupied. If the landlord has let flats he/she owns in the block, they are not owner-occupied. In addition a company-owned flat held on a long lease in which a company employee or owner lives will be counted as a letting.
It is appreciated that a landlord or agent may not know how many flats in a block have been sublet, if the leases do not require lessees to seek permission or register the letting. But a local authority has the power to require a landlord or managing agent or lessee to produce relevant documents to check on the position over subletting.

How to avoid being a S.257 HMO

Let us assume you have been able to confirm that a block you live in or manage is a S.257 HMO. How can you change this? One way is to reduce the amount of subletting but that may not be possible because leases allow it. More practically a landlord or RMC could decide to undertake works to make the common parts compliant with the latest building regulations. But at what cost?

HMOs falling within the definition of a S.257 are not subject to mandatory licensing, but may be licensed under S.56 of the Act (additional licensing schemes). This means that if a local authority wished to apply licensing to such HMOs it would need to identify problems with the management of the stock, consider how those problems might otherwise be resolved, consult on its proposal and obtain consent from the Secretary of State for any proposed scheme.
Licensing of S.257 HMOs is meant to be a targeted measure to arrest problems in specific circumstances and specific types of block. It would not, therefore, usually be appropriate for a local authority to adopt a licensing scheme that covered all S.257 HMOs throughout its area. It will not be possible for any licensing scheme to come into force until three months after they receive government approval.

If a building does meet the definition of a S.257 HMO it will be subject to some minimum national management standards. These management standards apply whether the building requires a licence or not. The regulations are duties on the manager of the block and so the agent will be liable jointly with the landlord. The duties under these management regulations apply only in relation to parts of the block over which the manager would be reasonably expected to have control, such as common parts and flats let by the landlord on short lets. The duties do not apply to flats sold on a long lease.

The minimum standards include: the name, address and telephone number of the manager must be displayed in a prominent position. Every fixed electrical installation be inspected and tested at least every five years.
What is the future for S.257 HMOs?

The declaration that the building you live in is an HMO is unlikely to be welcome news to leaseholders, landlords and managing agents. The connotation of HMO means usually poor standard rented accommodation without facilities, not self-contained flats sold on long leases for home ownership.

For managing agents, even if you can work out whether blocks may or may not be S.257 HMOs – not easy at present – do you want to manage them? Agents can be liable to prosecution for things over which they will have little control.