If you’re a landlord with a property that consists of three or more bedrooms, you may one day consider renting that property to more than one tenant as a House in Multiple Occupation (HMO).
However, before you do this, there are some legal aspects that need to be considered. One aspect is the Assured Shorthand Tenancy (AST) agreement.
An AST for a HMO is very similar to an AST for regular rental properties. It is a legal contract between the landlord and tenant. The main difference is that an AST for a HMO must include specific clauses relating to the shared accommodation, to help protect both the tenant and landlord.
If you don’t have any experience with these agreements and what they entail for HMO properties, then it is important that you read on and learn more.
This article will cover how AST’s for HMO’s differ from single let AST’s, and give an overview of things that need to be considered to help protect both the tenant’s rights and yours as the landlord and property owner.
How Does A HMO AST Differ From Single Let AST’s?
Typical clauses in a HMO AST which are not required for single let properties, include details on how to keep the communal areas clean and free from any inconveniences, as well as ensuring that individuals behaviours don’t cause any problems for other tenants within the shared accommodation.
It is important to note that shared living accommodation is very different to a single let property. AST agreements for HMO properties grant exclusive possession to a bedroom for each tenant as well as access to shared facilities including the kitchen, bathroom and lounge areas.
There may also be clauses regarding storage space for each tenant. For example, each tenant might be allocated a designated cupboard in the kitchen to store their own food.
Every property is different so each landlord will need to take the time to implement arrangements that will be both convenient and beneficial for all tenants involved.
Although landlords have the freedom to produce a tailor-made AST suited to their rental property, it is important to remember that they are crucial documents that outline the terms of the rental agreement and should be created with the utmost care and attention.
Legal advice should be sought if there is any doubt as to the contents and clauses of an AST, before it is signed and formally agreed by the landlord and tenant.
Can A group Of Tenants Sign One AST For A HMO?
Yes. HMO properties can be let on a joint AST for a group of tenants under one contract or on an individual or sole AST agreement for each tenant. Joint AST agreements are best suited to a group of people who know each other well. They are a popular option for the student rental market.
The tenancy agreement terms and conditions should state whether the tenancy is a Sole or Joint agreement.
There are several advantages to letting a HMO property on a joint tenancy agreement:
- All tenants will move in and leave at the same time giving the landlord the certainty of no void periods for individual rooms.
- All tenants named on the contract are jointly liable for the rent payments. So if one tenant fails to pay the rent, the other tenants are responsible to cover the shortfall.
- If one tenant decides to leave during the fixed term of the contract, the other tenants are responsible for finding another tenant or making arrangements to cover the rent payment in full.
- There is less administration required by the landlord as only one tenancy agreement and one deposit is required.
What Is An AST For A Room?
This is an Assured Shorthand Tenancy (AST) agreement which gives the tenant exclusive possession of a room, typically a bedroom, within a shared property. The tenant will also have access to shared facilities including the kitchen, bathroom, lounge and other communal areas.
Renting a bedroom within a shared property is a great way for a tenant to save money on their rent, compared to renting a property on their own.
If a tenant is new to the area, it will also allow them to meet new people and get to know the local area before buying or renting their own property.
Tenancy agreements will have a fixed term, usually for six or twelve months. At the end of the fixed term, the tenant has the option to move out or stay on a monthly rolling contract with the requirement to give one months notice when they wish to leave.
Does Every HMO Property Have An AST?
HMO properties, or any type of residential or commercial properties, that generate an income under £100,000 per year, will be tenanted with an Assured Shorthand Tenancy (AST) agreement. Properties that generate more than £100,000 per year in rental income will require a Common Law Tenancy agreement.
How Should Utility Bills Be Managed On A HMO AST?
In my experience, it is easier and works best if the landlord manages the utility bills for a HMO. The landlord can add the cost of the bills to the rent, to cover the expenses, and this also prevents any unpleasant surprises to the cost of living for the tenants during the cold winter months.
Landlords being able to advertise ‘bills included’ in the property listing, is also good for marketing as it can make a property more appealing to prospective tenants.
Leaving the tenants to manage the supply and payments of the utility bills, could lead to problems if one tenant regularly pays late, or even refuses to pay. There may also be disputes if one tenant believes they use less energy than another.
When the landlord manages the bills, it’s one less thing for the tenants to worry about.
The AST should list all the utility bills which are, or are not, included with the rent. Including, but not limited to:
- Council Tax
- TV Licence
Considerations For Landlords When Creating An AST For A HMO?
It is important for you as the landlord and property owner to put yourself in your tenant’s shoes and think about what would work best for them while they live there. Considerations, in addition to details within a single let AST, should include:
- Granting exclusive possession of a bedroom to each tenant as well as access to shared facilities including the kitchen, bathroom and lounge areas.
- Details on how the communal areas should be kept clean and free from any inconveniences for all tenants.
- How individual behaviours will not cause any problems for other tenants within the shared accommodation.
- Details regarding storage space for each tenant, such as individual cupboards in the kitchen to store their own food.
- Details on what should happen if a tenant damages any communal areas or another tenants property and how this will be resolved.
- A clause regarding pets that may or may not be allowed in the property.
In order to create an AST agreement of this type of tenancy, you must ensure that all parties involved are aware of their responsibilities within the contract and how they can help each other with regards to any issues or problems that may arise.
You may also want to consider whether you would like a lead tenant to assist you with co-ordinating the day to day maintenance of the property. They could help with regards to cleanliness and reporting any maintenance issues that require your attention.
In additional, they could assist with viewings when rooms become available for let. After all, the prospective tenant will be sharing the property with them and not you! So it makes sense that they meet each other at the earliest opportunity.
As an incentive you could offer the lead tenant a reduced rate on their rent for assisting you with the upkeep and maintenance of the property.
Operating a HMO property requires a level of education to ensure it runs smoothly. Not just for the landlord, but for the tenants as well.
For some tenants, it will be there first time living within shared accommodation. So they will require some guidance on ‘HMO etiquette’, so to speak.
The greater understanding that both the landlord and tenants have regarding the HMO property, the better it will run and the more likely it will be a success for everyone involved.
If you would like to learn more about investing and managing a HMO property, take a few minutes to read my ‘Everything You Need To Know’ article.