New HMO Additional licensing law – Entire portfolio problem

alexcos

I have a portfolio of 15 houses in North London. The local council has just introduced additional HMO licensing whereby small HMOs like mine i.e 3 or 4 sharers in a 2 storey house will need to be licensed.

I purchased my properties all using normal BTL mortgages and the problem i have is that if i continue to rent the houses as i am doing to small sharers, i will be in breach of the HMO law and could face a large fine of to £25K, however if i do the work to make it a HMO and apply for a HMO license, this will inform my existing mortgage lender and i will be in a breach of mortgage, due to the council writing to my lender advising them that a license has been applied for. So i am stuck as what to do with my portfolio now...

i understand that most HMO lenders lend only on properties whereby there is a licence in place, but you cannot get a licence until the work is done and applied for through the council, so there seems to always be a point where you are in breach with someone. Catch 22.

I therefore see no option but to continue to rent my properties as is which are now illegal or sell up.

Is anyone else in this situation? Any advice would be very much appreciated..?

Pixie5740

Have you spoken to your lender(s) about the recent change in local HMO licensing? Perhaps they will accept that you have to make these changes in order to be compliant.

Letting out 15 HMO properties illegally doesn't sound like the best business plan to me.

googler

Pixie5740 wrote: »

Have you spoken to your lender(s)

Letting out 15 HMO properties illegally doesn't sound like the best business plan to me.

Surely if you'd been upfront with your lender, you wouldn't have been left with this predicament .... ?

Pixie5740

googler wrote: »

Surely if you'd been upfront with your lender, you wouldn't have been left with this predicament .... ?

I think these properties were already being let out when the council introduced new HMO rules so they weren't considered HMOs when the OP first set up.

G_M

Depends whether the terms of the mortgage prohibit letting as an HMO, or prohibit letting as a licenceable HMO.

Until this recent change by the council, the properties were the former. Now they are suddenly the latter.

OP - I can't advise having no experience of HMOs, but I agree with Pixie that in the long term ignoring the licencing requirement on 15 properties is a non-starter.

How easy, and over what timescale, could you evict and re-let on joint tenancies?

And does the new licencing requirement apply to 3-4 'sharers' on a single joint tenancy, or only where each 'sharer' has a separate tenancy?

AdrianC

alexcos wrote: »

I have a portfolio of 15 houses in North London. The local council has just introduced additional HMO licensing whereby small HMOs like mine i.e 3 or 4 sharers in a 2 storey house will need to be licensed.

I therefore see no option but to continue to rent my properties as is which are now illegal or sell up.

Maybe I'm missing something, but why can't you rent them as single-family properties?

davidmcn

alexcos wrote: »

I therefore see no option but to continue to rent my properties as is which are now illegal or sell up.

Or move to another lender?

brit1234

Sell up or remortgage else where who accepts HMOs (probably higher charges). Don't defraud the lender, the consequences can be extreme.

hostie

You need to comply with the HMO requirements now. Failing to do so could land you in jail in the instance that there was a fire or something in one of the properties.
Are you sure that the council will write to your lender? I have HMO licences in Scotland and the councils didn't write to the lenders.
There are companies that accept HMO so you can always move to a new lender, or as the OP says, switch to renting to families or individuals.

dimbo61

You need to speak to the council or read what is required from the New licensing.
They need to inspect the properties and this may take YEARS as they may have thousands to check.
What you can do is start to do the work they require.
Mains wired interlinked smoke alarms, CO alarm near every boiler NOW.
Electric Inspection with certificate. Fire Doors if needed.
Find out what is required and start doing the work one property at a time.
Doing nothing may upset the council but if you start doing your properties you 're showing you have taken the new licensing seriously.

oldestgnome

OP it seems you need to make some important decisions quickly.

G_M wrote: »

Depends whether the terms of the mortgage prohibit letting as an HMO, or prohibit letting as a licenceable HMO.

Until this recent change by the council, the properties were the former. Now they are suddenly the latter.

OP - G_M makes a good point, the properties have always been HMOs, the changes the Council has made now requires them to have a licence.

It will not matter what type of tenancy agreement you have if you have 3 or more people from two or more households in Housing law you will have a HMO. So a couple and a friend or 3 individuals would make a property an HMO.

When councils first bring in a new licensing schemes they may use incentives to get landlords to comply so it usually in your interest to be upfront and admit to having the properties as with that number you will not stay under the radar indefinitely! Some councils are adding extra charges for finding non licensed licensable HMOs onto the fees. You may also get a reduction with multiple properties.

It seems from your post that you have been letting all the properties on this basis for some time. Hopefully you will be aware of the requirements of the Management of House of Multiple Occupation (England) Regulations 2006. These regulations require you to have an electrical certificate every five years, a gas safety cert every year and keep the properties in generally good order. They also require you to maintain any fire alarm systems but do not insist you must have them.

The local council may also have a guide on their website telling you about their requirements in terms of fire safety as these will vary depending on the council. There a link below to some good guidance on licensing generally and also on how to apply for temporary exemption notices (TENs) from licensing if you intend to change the properties back to single family homes.

For each property you could receive a fine of up to 20K for failure to licence as well as up to 5K for each HMO management regs offence.

OP - you are right, the Council under the Housing Act 2004 has to inform all interested parties eg mortgage companies of the application for a HMO licence and will send them a copy of the draft and final licences.

A council does not expect a property already to be up to the standard required. They will inspect and inform you of any works needed to the properties as part of the licensing process and ask you to bring them up to standard as conditions on the licence and give a time frame usually a few months for fire safety works. It is unlikely you will have amenity issues due to the size of the properties.

As it is a new scheme they will be inundated with all the compliant landlords sending in licence applications, these will take some time to process... so it is likely this would buy you some more time to get some money together to do works. In addition if you are working with the council they will try to help with timeframes etc, if they find your properties and you are not seen to be working with them they will be less likely to try and help! HTH

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/15652/HMO_Lic_landlords_guide.pdf