There’s nothing fancy or different about creating a tenancy with a HMO (Houses in multiple occupation) tenant – the legal agreement between you and your tenants should be an Assured Shorthold Tenancy (AST), just like if you were letting a property to a single family (i.e. a single let).
AST’s are the most common form of arrangement between private residential landlords and tenants – including HMO tenants – in the UK.
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Introduction to HMO Shorthold Tenancy Agreements
I’ve already discussed Assured Shorthold Tenancy Agreements in depth, and everything in there – including the best practices, rules and legislations governed by the relevant Housing Act(s) – will apply to HMO tenancy agreements, including:
6 or 12 month tenancy terms are most common (I prefer offering 6 months, personally)
Any deposits taken must be protected into a tenancy deposit scheme
A section 8 notice should be used to evict tenants if there are grounds for eviction.
A Section 21 notice should be used for mandatory repossession (i.e. to end a tenancy when there has been no breach).
The tenancy agreement should stipulate who is responsible for what bills e.g. electricity, gas, council tax etc.
At least 24 hours written notice must be provided to tenants before property inspections or for other reasons to enter the premises e.g. repairs.
However, while I’ve been through much of the details already, there are a few specific points I want to highlight and cover in regards to creating an ASTs for HMO’s, which typically aren’t as relevant for regular single let situations:
You probably won’t have an AST if…
you share the accommodating with your tenants. In this case, your tenants are most likely lodgers, and you shouldn’t use an AST, because a lodger agreement comes with a whole different set of more lenient rules and legislations.
you charge more than £100,000 a year for rent. While this will be unlikely for most landlords, I wouldn’t be surprised if some HMOs exceed the threshold.
To check what kind of tenancy you have (if you’re unsure), you can use this nifty little tool by Shelter.
HMO tenants and utility bills
As mentioned, the tenancy agreement should stipulate who is responsible for what bills e.g. electricity, gas, council tax etc. Generally speaking, in shared accommodation situations, the landlord takes care of all the bills and takes that into consideration when setting the rent. From my experience, most HMO tenants and landlords prefer that. It’s the most simple way of handling bills.
I recommend using an energy auto-switch service, which will help ensure you’re benefiting from the best available tariffs, and therefore keeping your energy bills low and profits maximised!
Alternatively, it is possible to assign one ‘responsible’ tenant to be in charge of all the bills, which means he/she will have to collect the money from the other tenants and then make payment. But this option is less desirable for a couple of reasons:
if the assigned tenant decides to leave, someone else will need to be assigned, which isn’t always an easy process
it can be the root cause of tension between tenants:
If a tenant refuses to pay, or frequently pays late
It’s difficult to measure exactly how much of the utilities is used by each tenant, so if one tenant feels they use less electricity, for example, they may begrudge paying an equal share once having seen the bill total.
Landlords often charge a little extra for covering the bills, so they make more money from it.
HMO tenancies can be Joint or Sole/Separate
There are generally two common ways of implementing tenancy agreements for an HMO property: by using individual contracts for each tenant, or using a single ‘joint and severally liable’ agreement.
The tenancy agreement’s terms and conditions should state whether the tenancy is a Sole or Joint agreement:
Joint tenancies: this is a common arrangement for student properties, or a HMO consisting of friends moving in together, and work best if the tenants know one another and are likely to move in and leave at the same time.
The tenants are jointly liable for both the rent and the care of the property; responsibilities are shared between tenants (like a single let arrangement, where the lead tenants, as stipulated in the tenancy agreement, are responsible). For example, if one tenant doesn’t pay rent, then the other tenants will be required to cover the shortfall. Also, usually the remaining tenants are responsible for finding a tenant(s) if a room becomes available.
By nature, a joint tenancy requires less administration, as there is one overall agreement with one single rent payable (and one deposit to protect, should you decide to take a deposit).
All tenants names should be on one tenancy agreement in this case.
Sole/Separate tenancies: HMOs consisting of adults, who usually don’t know one another and don’t want to assume responsibility for other tenants, are usually issued separate (Sole) AST’s for each room.
Each tenant is responsible for themselves i.e. they pay their own rent, and the behaviour of other tenants does not affect their tenancy. For example, if one tenant does not pay rent, or has fallen into arrears, the remaining tenants are not required to cover the shortfall.
This requires more admin work as each room should have their own individual tenancy agreement, and each and every deposit should be individually protected when one is taken.
As briefly mentioned above – in the utility bills sections – if there is a separate AST per room, it usually means the landlord will be liable for council tax and utility bills (it just makes more sense that way, practically speaking).
HMO Tenancy Agreement Contracts/Forms
There’s certainly no short supply of tenancy agreement contracts around the web (a swift Google’ing session will attest to that), many available for free download, which I understand can be an extremely compelling proposition.
My first word of warning is to use a reliable outlet, and use a contract that is specifically for HMO’s that meets the demands of your setup. While, in almost all cases, HMO tenants are given an AST – most AST contracts available from stationers and online are intended for Single let situations. Do NOT use those for HMOs as they won’t be suitable.
My second word of warning is not to butcher existing tenancy agreements by adding and modifying clauses to meet your specific set of circumstances. It’s something many landlords have done only to regret shortly after. You could end up in a legal bind if any of the additional clauses were to be challenged and they weren’t drafted properly, or aren’t legally enforceable in the first place.
The best thing to do is contact a specialist landlord law solicitor, and get them to draft a contract specifically for your HMO. Yup, it may cost a couple of hundred quid, but it’s definitely a sound investment if you’re serious about doing HMOs right.
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