21st June 2018
We were with a number of other estate agents last week, as part of our membership of the Leeds Estate Agents, Surveyors and Valuers Association, and the subject of student investment property and Houses in Multiple Occupation (HMO’s) came up more than once. Agents are now having a problem selling some HMO’s and some landlords are feeling the negative financial effects, as well as considerable stress.
Most landlords and investors seem to be aware of the Article 4 Direction which Leeds City Council invoked in February 2012. This gave deemed C4 (HMO) planning consent to all properties that were in use by 3- 6 persons who were not members of the same family at that time (an HMO with more than 6 persons falls under Sui Generis planning and does not have C4 consent via this legislation). All houses and larger flats that were occupied by families or couples after the legislation came into force could not, lawfully, be converted into HMO’s without formal planning approval for Change of Use. As the reason for the legislation being invoked was to halt the growth in off-street HMO’s, and to preserve houses for families, change of use was initially declined in each instance.
The Direction caused problems for those families or couples with houses in typical student areas of Headingley and Hyde Park who wanted to sell after 2012, but who did not have C4 planning consent. For those houses in streets almost totally dominated by student HMO’s it has been possible to gain C4 consent through a formal application, although a number of our clients have had to take the matter to Appeal to gain such consent.
Where the street has a mix of student HMO’s and families, even if the number of family homes is very low, it is unlikely change of use will be granted. Losing one family home out of only four family homes in a street of 30 houses will see a 25% reduction in the number of family homes in the street. This is likely to be regarded as a ‘material change’ to the number of family homes in the street – the measure by which the planners judge whether to grant change of use or not.
The problem agents are now facing is proving that a property was an HMO when the Article 4 Direction came into force. For extending a private dwelling the council are time barred from taking action after 4 years has elapsed under the Town and Country Planning Acts, but for change of use to an HMO the time scale is 10 years. Solicitors and lenders are therefore asking to see Assured Shorthold Tenancies predating the 2012 date in order to safeguard themselves from being sued or the lender compromising their loan security. Proving a property was let to a group in 2013 or 2014 wasn’t difficult, as most landlords retained paperwork going back a year or two. But now we are 6 years on from the introduction of the legislation, we are finding few landlords with Assured Shorthold Tenancy agreements going back so far. Where landlords have used multiple agents to let their properties, obtaining back copies of AST’s is proving difficult.
Copies of bank statements proves nothing for a landlord with multiple properties, and Council Tax records equally mean nothing; with only two occupiers who are students there would be no Council Tax due yet this is not an HMO, and tenants paying full Council Tax for one of the years may not indicate a family was living in the house during that year – an HMO can be occupied by four or five professional sharers as well as Council Tax Exempt students.
Although my understanding was that landlords of HMO’s could swap between families and sharers, in the hope more houses would revert back to family use, the legislation is unclear on this and it is possible that any deemed C4 consent could be lost by letting an HMO to a family even for 6 months. I’m not aware there have been any test cases in Leeds to date. Please let me know if you have any experience of this.
One would have thought an HMO Licence for the years 2011 through to 2018 would suffice, but alas this is also not the case. Having an HMO Licence only confirms the house is safe and suitable for the number of occupiers shown on the licence – not that the house was actually let to that number of occupiers for the years concerned.
Relying on a Lawful Development Certificate isn’t the fall-back either. To obtain a Certificate a landlord must have proof of letting going back 10 years! Today, landlord’s who keep paperwork going back 10 years are regarded as ‘old fashioned’ at best, and today potentially targeted by the Information Commissioners Office for retaining personal data beyond a reasonable period under the new General Data Protection Regulations – not that I’m convinced they have the resources to investigate individuals. Yet for the landlord this is vital information if he/she is to protect the value of their investment property.
If you own an HMO investment property (remember, this applies to between 3 and 6 persons) you need to ensure you have copies of all the AST’s going back to 2012 (or the 2011 – 2012 academic year in the case of students) otherwise selling may be a fraught experience, with the value potentially compromised.
Once we get to 2022 and the 10 year time barring rule applies to the Council taking enforcement action one should, in theory, be free from having to prove the use by way of AST’s. But will solicitors and lender be comfortable with ‘deemed consent’ or will they demand a Lawful Development Certificate as a ‘belt and braces’ for their client or the lender?