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Does an HMO Licence Stick to a Property and Would it Reduce the Sale Value?

Property Technology Blog

HMO licencing is a complicated matter. From the application process to complying with licencing conditions to passing inspections throughout the licensed period, the licence holder has many regulatory procedures to observe. It is, therefore, advised that landlords seek advice from professionals when dealing with a property licencing issue. This is a guest article prepared by Paul Conway, an expert in property licencing and HMO licences. He looks into three key areas of consideration when dealing with HMO properties and properties with multiple households.


1. Does an HMO Licence Stick to a Property?

It’s not an HMO licence that sticks to a property, it's the planning permission. Planning permission runs with the property/land, not the owner.
For example, changing from a C3 dwelling to C4 small HMO (up to six people), and vice versa, is permitted development (i.e. not require an application for planning permission), so planning permission isn’t needed. An exception is where there is an Article 4 direction in place, you would have to apply for permission to convert from C3 to C4. Article 4 Directions are a means by which a local planning authority can bring within planning control certain types of development, or changes of use, which would normally be permitted development.
Sometimes when a property is run as an HMO, its planning use changes. If you have more than six tenants, then it is no longer a C4 small HMO, and you will generally need planning permission for a large HMO (known as a Sui Generis). It’s worth noting that where the increase in numbers between C4 and Sui Generis HMO is small, you might be able to argue that the change of use is not material, and ask for an exception from seeking planning permission.

2. What happens to the licence when the property is sold?

As opposed to planning permission, a property licence sticks to the licence holder. An HMO licence is issued to a person known as the licence holder. The licence holder can be the landlord, or their letting agency. The licence holder is required to inform the council of the change in ownership of the property, normally within 21 days of selling. If the landlord is the licence holder, they are strongly recommended to inform the council at the point of sale. This is because the licence holder must still comply with the conditions and HMO licence requirements attached to the licence, even after they cease to be the owner of the property. The penalty for non-compliance can be hefty. A licence holder must apply for the licence to be revoked, because property licences (including HMO licences) do not expire. Not even when the ownership of the property changes.

An HMO licence is not transferable to another person. You should inform the council who the new owner is and if they intend to continue its use as an HMO, the new owner must apply for a licence separately. 

Theoretically, it is possible for the licence holder to continue as the licence holder should the new owner want this and an agreement struck between the two interested parties. A common situation where this happens is when a letting agent holds the licence for the house and the new owner wants them to continue in this role, then no revocation is needed. But the agent is advised to inform the council about the change of ownership. 

3. How do HMO Licences or Property Licences affect sale value?

One thing to note where an article 4 direction has been issued on the property is that if a new owner wants to continue with its existing small HMO use, it must continue to be occupied as an HMO. If it returns to single-family use for any period of time, it will revert to C3 use automatically. So the council will then require a new planning application to be submitted before the property can become an HMO again.

In many areas, a property's use as an established and licensed HMO could increase its sale value due to its potential rental yield. However, an article 4 direction is likely going to decrease its sale value if it doesn't have the correct planning permission. This is because the new owner will take a risk as to whether the Council will grant planning permission in future. As article 4 directions are used to reduce the conversion of family houses to HMOs, it's usually more difficult to get new planning permissions in these areas. So established HMOs tend to be worth more. Personally, I'd never buy an HMO in an article 4 area without planning permission or assurance and demonstrable continuous history of established use preceding the date the direction came into force.

If a C3 to C4 conversion had taken place before the Article 4 came in, it would be lawful to do so without submitting for new planning permission. Such conversion would be considered permitted development prior to Article 4. You would certainly want some assurance from the Council and could apply for a Lawful Development Certificate to get confirmation before the Article 4 comes in. Most Article 4 directions are subject to a consultation period first before they come into force so there is an opportunity to seek confirmation from the Council in advance.

Conclusion

Interestingly, many councils now require planning permission to be regularised before giving licences for five years. Issuing 1-year licences to allow owners to regularise their planning permission is now commonplace in areas where article 4 directions are in place. So our advice to buyers is to do your homework before making a substantial purchase. As for sellers, we advise you to seek assurance before spending money on conversions. You have been warned about the wrath of the planning officer. This is not to be taken lightly as they can force your expensive conversion back to family housing.  Seek professional advice and having someone on your side can save you a lot of time and money and you will more likely get you the result you want.

 

Download our Property Licensing Cheat Sheet and get to grips with key things to consider throughout a licencing term:

property licencing cheat sheet

Paul Conway

Written by: Paul Conway

Co-Founder and MD of HMO Services. Bringing skills and experience from an oil industry engineering background to the property market, Paul oversees the company’s smooth running while ensuring compliance doesn’t get in the way of great customer experience.

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