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  • HMO & Multi-Lets

    HMO or Guest House?

    Hi there,

    I own and live in a large 3 storey property. The property comprises ground floor owners accommodation (2 bedrooms), then has 8 bedrooms, two bathrooms on the 1st and 2nd floor with space on the 1st floor potentially for a shared kitchen. I live with my family on the ground floor which is a bit tight but we need to renovate the 1st and 2nd floors before we can use any of the other rooms.

    I intend to live in the house with my family for the foreseable future and would like to rent out the remaining rooms on either a long term or short term basis (ideally a mix). The ground floor will be solely for my families use not shared with any of the guests but the kids will most probably take 3 of the rentable rooms until they move out (heres hoping!) and as owners we will use the shared facilities on 1st and 2nd floor if required.

    Currently the property is C3, so appreciate I will need to apply for change of use /  license as applicable, in order to rent rooms.

    There seems to be two options HMO or Guest House, can anybody offer any guidance to the best option for my situation? I am in a position to choose shared facilities whether it be shared bathroom/toilet or shared kitchen (I am aware of the HMO regs from reading through threads on PT) and also in full time employment and higher rate tax payer.

    Appreciate any guidance that can be given.

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    I gave quite a detailed response to a similar question a while ago but I can't find it now...

    There are many things for you to consider:

    Whether you create a licence (to let) or a tenancy.

    When you are an owner occupier and when you are a resident landlord and the significance of each.

    The definitions for main residence.

    The precise definitions for an HMO - management, licencing, planning and council tax.

    The different options for short term lets - hospitality sector (Guest House) - business sector (Lodging House) - gig economy (airbnb, etc)

    Lender requirements (if you have a mortgage) and also insurance requirements.

    Finally, the full scope of the Rent a Room scheme.

    I will try to add some links later if I find time but a few points for starters:

    An owner occupier can have up to 2 lodgers and be exempt from HMO legislation. Resident landlords are exempt from selective licencing. The VOA can introduce individual council tax banding for a liveable unit and business rates if 6 or more bed spaces are let. Whether a material change of use has occurred, requiring planning consent, can be complex and open to interpretation. Full Time Students and Migrant Workers can not retain their main residence elsewhere.

    A couple of simple examples to show some of the considerations:

    If you let 4 rooms to 4 full time lodgers as their main residence you will have an HMO, if you let the rooms to 2 full time lodgers as their main residence and 2 part time lodgers who have a main residence elsewhere you won't have an HMO (think along the lines of 1 month lets or Mon-Fri lets for contractors). If the part time lodgers are migrant workers or full time students you will, however, have an HMO.

    If you convert the top floor to a self contained flat and let it you will create a common law tenancy, it can't be an AST while you or your family are resident. If you provide services (cleaning, meals etc, not utilities) the occupiers will be licencees. If you don't have proof of achieving the current building regulations (i.e. DIY conversion) you will have also created a S257 HMO (different to the more common S254 HMO) which may or may not require a licence dependent on your local council policy. If you achieve building regs it won't be an HMO. Either way the flat will qualify for its own council tax.

    A few interesting sites (you will need to remove the s from some of the https links at PT automatically adds it)

    https://www.thecaterer.com/articles/3309...-name-game

    https://www.lodgerlandlord.co.uk/

    https://nationalhmonetwork.com/what-is-a...xemptions/

    https://www.landlordlawblog.co.uk/2016/1...ion-types/

    https://thesapodcast.com/18-business-rates/

    https://thesapodcast.com/03-planning-use-class/

    And some links to relevant legislation:

    https://www.gov.uk/government/publicatio...cheme-2017

    https://www.gov.uk/hmrc-internal-manuals...al/pim4000

    https://www.legislation.gov.uk/uksi/2006/370/made

    https://www.legislation.gov.uk/ukpga/1988/50/schedule/1

    https://www.legislation.gov.uk/ukpga/1988/50/section/31

    https://www.legislation.gov.uk/uksi/2006/...ion/6/made

    https://www.legislation.gov.uk/ukpga/2004/34/schedule/14

    https://www.legislation.gov.uk/uksi/2015...596_en.pdf

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    A good teacher must know the rules; a good pupil, the exceptions.

    Martin H. Fischer


    Thanks for this, lots to digest.

    Rooms will be let on a licensed basis, we will provide a weekly cleaning service and retain the ability to enter the rooms and change room allocation if required.

    Each of the rooms will be a bedroom & sitting room combined, with sink and work surface (with a baby bell hob / oven / fridge), with a shared bathroom and shared toilet.

    The rooms are already plumbed for the sinks so other than the fact that I am fully renovating the existing structure to modern standards, there's no real conversion work required or adaption. Property operated as a guest house for many years but was wound down 10 years ago due to an elderly owner but was always classed as C3.

    Based on the above, do you think that each unit will be rated separately for council tax? Or one banding for the house as a whole? Or would I have to pay business rates instead or in addition? In my view rooms are not self contained and I would like to prevent paying CT for the rooms - intact it is a deal breaker as an HMO.

    The link provided you kindly provided https://thesapodcast.com/03-planning-use-class/ raised a really good point on the Sui Generis Use Class

    The most interesting feature of sui generis is that because it is a “one of a kind” planning application, you can apply for dual uses. This is particularly useful for HMO type properties, where you might want to test the model with serviced accommodation, knowing you have a safe fallback option as an HMO. Alternatively, you might wish to have long term tenants over the winter, and let the rooms on a short stay basis over the summer when the demand is highest.

    As the property is over 3 floors it would fall into Sui Generis class so offers flexibility, in theory I can combine the principles of a guest house and HMO serving temporary short stay guests and also long stay guests (permanent residence) - what are your thoughts on this?

    Wonder where I stand on reduced rate of VAT for the building works. HMO conversions qualify - the change of use is the only material conversion. If I mitigate the CT position I may loose the ability to claim reduce rate on building works (HEAD ACHE). Keen to hear anyones thoughts on this also.

    Thanks

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    This sounds very interesting and certainly different from the norm.

    Your questions are beyond my knowledge and experience but in the absence of any other replies I'll give my thoughts.

    You will have licencees and not tenants, so no need for S21, etc.

    I don't think you can be liable for ICTB if the rooms don't have en-suites, its usually the other way around where there is already an en-suite and potential for cooking.

    I'm really not sure on planning usage, suis generis seems likely if you're letting all the rooms, but it may not be necessary if you fall within one of the other groups. I believe it is possible to have multiple classes, e.g. C1/C3 but I'm not sure if you can have C1/C4. One negative with suis generis is that you will lose all permitted development rights. It may be worth questioning whether there is a  material change of use as you are not changing the layout of the property. Building regs may have different criteria to planning.

    Planning aside, you will most likely need an HMO licence if you have more than 2 permanent guests, although there are exceptions to this.

    Unfortunately, I can't even guess regarding the VAT.

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    A good teacher must know the rules; a good pupil, the exceptions.

    Martin H. Fischer


    Hi Dan,

    I would not mix long term tenants and short term guests.  I think it is a recipe for disaster.  The long term tenants will not appreciate strangers coming and going and there are safety and safeguarding issues imho.

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    I don't entirely agree V.

    Mixing young professional tenants with airbnb party guests is not going to end well, but a mix of working tenants and contractors on a Mon-Fri basis can work well. I've also heard of Guest House owners taking in lodgers with no adverse effects.

    Unfortunately, legislation doesn't distinguish between these very different uses.

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    A good teacher must know the rules; a good pupil, the exceptions.

    Martin H. Fischer

    We will have to disagree Gary.  Creating harmonious households is one of the best ways to keep long-term HMO tenants imho.  Strangers in the mix is far from harmonious and, as a single woman, I would never rent a room in the property where there are transient men.

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    I'm happy to disagree, diverse opinion is one of the great benefits of PT Smile

    I will also disagree that a harmonious household is reliant on tenant mix for a resident landlord. As the OP is resident, there is the opportunity to manage any issues as they occur. There are limits, of course, which is why I suggest that professionals/airbnb is unlikely to work.

    I would also suggest that your example of a single female and transient males is based on personality and attitude to risk and not gender. Some people are happy to stay in a hostel or share a bathroom in a B&B, for others an en-suite with room service is a minimum.

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    A good teacher must know the rules; a good pupil, the exceptions.

    Martin H. Fischer

    David is absolutely correct, these are the rules, but when do they apply, what are the exceptions?

    With reference to David's ending comment: "difficulties using a property not authorised for a business, for business purposes". This would suggest that a holiday let would be an onerous proposition, but it's not the case. Similarly, as a holiday let is a business if let for more than 140 days it is liable for business rates, business utilities, etc. How often is this actually enforced? I believe councils have discretion over this and it is not an absolute requirement. Small business relief on business rates is probably the deciding factor.

    Similarly, councils have discretion over guest accommodation. There is a general consensus that 3 or fewer guest rooms will not require any planning or building regs changes, but there is no legislative basis for this. Unlike HMOs there is no numerical legislation for guest accommodation and it really is at the discretion of the local council.

    As the OP is not looking to convert an HMO into serviced accommodation, he is a resident owner of a Guest House with C3 usage, I believe his options will be significantly different and at the discretion of the local council.

    As an anecdote to the above I read of a case regarding a hotel housing asylum seekers. They had been approached by the council's homelessness department and had agreed a rate per person to provide temporary housing for a number of asylum seekers. At some point the same council's licencing department investigated the arrangement and decided that an HMO licence was not required due the circumstances of occupation. The same council's planning department also investigated the arrangement and found it to be in breach of planning regulations and took enforcement action. Surprisingly, not as an HMO, but as a Hostel. As the homelessness department had agreed a rate per person, not per room, and unrelated individuals were sharing rooms, it was no longer operating as a hotel but as a hostel. Even departments within the same council can interpret legislation differently and vary their discretion on a particular situation.

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    A good teacher must know the rules; a good pupil, the exceptions.

    Martin H. Fischer