Planning Laws Renting to sharers... REBUILD HMO ISSUE LICENCE
Small-shared houses or flats occupied by between 3 and 6 unrelated individuals who share basic amenities were reclassified under planning laws from "C3 Dwelling Houses" to "C4 Houses in Multiple Occupation".
Under Legislation changes introduced 6th April 2010 this meant the Landlord required planning permission. Although the new coalition government then overturned this many councils have decided they want the renting of shared houses be controlled by planning applications. Long term this will have a major implications where and the type of properties Landlords invest in.
If you do not have permission you cannot let to sharers
A council has the power to insist Landlords apply for planning permission - All councils need to do is invoke Section 4 of Town and Country Planning (General Permitted Development) Order 1995. Once implemented the council removes the right of the Landlord to claim they can rent to sharers because this was allowed under their ”permitted development rights". Councils are giving 12 months Notice for this negates the Landlords right to claim compensation for loss
What does this mean in reality
Renting to three or more sharers
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Class C4: small shared houses or flats occupied by between 3 and 6 unrelated individuals who share basic amenities.
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Class C3 :(a) those living together as a single household as defined by the Housing Act 2004 (basically a related family)
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Large houses in multiple occupation (those with more than 6 people sharing) – these are unclassified by the Use Classes Order. In planning terms, they are described as being sui generis (of their own kind).
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In consequence, a planning application will be required for a change of use from a dwelling house to a large house in multiple occupation or from a Class C4 house in multiple occupation to a large house in multiple occupation see HMO
- The point here is if a council wishes to impose restrictions on where Landlords can rent to Tenants (sharers) they can do so.
Now if councils widen Selective Licensing they can charge you a fee for planning permission and a fee to rent in that area (this could be £700+). You cannot ignore this for if you do not have a licence you are unable to evict a tenant using the Section 21 route
The effect of such a Direction is to remove permitted development rights, thereby necessitating a planning application to be made. |
Which areas are affected?
Bath, Leeds, Manchester and Oxford are amongst the 22 Councils that have already announced the dates when Landlords will have to a apply for planning permission click here No Go HMO
What happens if you are refused permisson "During our initial conversation with the council they stated that they would simply not be issuing any more HMO licences in the town as there were simply too many of them." click here to read article
Refused permission Shared Houses Location Location
Typically areas that are predominantly owner occupied do not want a litter of beer cans, old shopping trolleys and traffic cones lining their street and will often vehemently object to a property being let on a room by room basis. read more buying in the right part of town
Below we review the implication of Change of use from shared house to family let and backto shared house |
Article 4 Directions are not issued without careful consideration, because the Council may be required to pay compensation in circumstances where you cannot obtain planning permission for development which otherwise would be treated as permitted development.
Landlords claim for compensation for loss
The Town and Country Planning (Compensation) (No. 3) (England) Regulations 2010 (2010 No. 2135) will reduce local authorities’ liability to pay compensation where they make article 4 directions as follows:
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where 12 months’ notice is given in advance of a direction taking effect there will be no liability to pay compensation; and
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where directions are made with immediate effect or less than 12 months’ notice, compensation will only be payable in relation to planning applications which are submitted within 12 months of the effective date of the direction and which are subsequently refused or where permission is granted subject to conditions.
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The following clarification was issued by CLG on 28 September. "It does not matter whether a local authority has an existing policy restricting HMO development or not for the purposes of compensation liability. Under the planning system there is a general principle that once permission has been granted, either by a specific grant of planning permission or by means of a development order, the right to develop is guaranteed and can only be withdrawn upon payment of compensation. It is that principle that is being adhered to here. Local authorities will, therefore, be liable to pay compensation in all instances where Article 4 Directions are made with less than 12 months’ notice.
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Previously a claim for compensation could have been made under section 108 of the 1990 Act for abortive expenditure
Change of use from shared house to family let and back
For those property owners who already rent properties to sharers/students, it will be important to establish with the Local Authority the legality of the existing use. It is important that landowners maintain records to prove how a property was utilised immediately prior to 6 April 2010 or date Article 4 came into being to ensure that existing use rights are not extinguished.
The revised use classes allows as permitted development a change from use class C4(HMO) to C3 (a),(b) or (c), but does NOT allow a change of use from Use Class C3 back to C4. Landlords who currently let properties to sharers should be aware that if they subsequently let the property to a single family they will effectively lose the right to revert to shared accommodation in the future. It remains to be seen how vigorously local authorities will enforce the regulations. As with most planning enforcement it is likely to be complaints driven, thus if tenants occupying a dwelling illegally as an HMO upset the neighbours then enforcement action could well follow.“ this section is the view of David Jones of
www.evansjones.co.uk
ABUSE OF THE RULES
The original intent of Section 4 was to allow Councils the right to protect the local areas "conservation areas" without having to apply to Secretary of State. The use of Article ameans councils can make whole areas no go HMO or shared Houses.
A good article on the intended use of Section 4
If you rent to sharers (3 and 6 unrelated individuals) in the following areas you
CANNOT do so unless you have planning permission see
new changes in planning laws This means under planning laws your property will need to be reclassified from "C3 Dwelling Houses" to "C4 Houses in Multiple Occupation".
Individual councils decide their own policies and can vary ward to ward and street to street = so Search the internet for local councils website for "Landlord Licencing" and "Article 4 planning" and be wary where they state "consultation" for usually means coming soon
If the council do not grant/refuse permission to let a property as a house share then you will be in breach of planning laws and can be prevented from doing so. The council are able to enforce this and recover any legal fees.
This example represents just how painful it can be if you make the wrong judgement when moving into investing in HMO’s. Thankfully in this example the lesson just cost a few hundred pounds in legal fees
CASE Story supplied by Your Property Network Magazine
2 years ago we were in the position where we had a number of single let properties and were looking to take our first step into multi-letting by purchasing a property to be rented on a room by room basis.
Never ones to dip our toe in first we spotted an opportunity to pick up a guesthouse in a seaside town where we own a number of properties.
The Numbers
This 11 bed guesthouse with separate annexe was on the market for £250,000 and after some careful negotiation we agreed a purchase price of £170,000 as the owners had found a bungalow that they wanted to move to – they had been running the guesthouse for almost 20 years and price was not their key motivating factor. After having the property on the market for 11 month’s with no offers they just wanted to get on and enjoy their retirement.
We had done our sums pretty carefully and estimated that the individual rooms would let easily at £75 per week and the annexe should achieve an addition £475 per month.
Total income at 80% occupancy would be £3240.
Monthly Mortgage cost approximately £800 with additional costs including council tax, electricity and gas bills coming to a further £700 pcm (although we actually felt our running costs would be nearer £500 pcm it’s best to err on the side of caution).
After all costs we anticipated we should be making around £1740 pcm – a nice figure that would comfortably replace my wife’s income as she was heavily pregnant with twins at the time!
The great thing about this type of deal is that we also knew that we could achieve commercial financing against the income generated by the property rather than simply against merely the bricks and mortar value enabling us to refinance and end up with none of our own capital left in the deal.
Another aspect of this particular property deal that we loved was that as the property was a functioning guest house it needed very little work doing to it to get it compliant with HMO regulations. We anticipated a total spend of £20,000 just modernising the look and feel of the rooms and a quick refresh of the lounge (currently operating as the dining room) and the kitchen.
So things were all set to move forward when we took the decision to have a chat with the local council to ensure that we would be operating according their local guidelines.
During our initial conversation they stated that they would simply not be issuing any more HMO licences in the town as there were simply too many of them.
Apparently they felt that multi-let properties caused social problems through alcohol and drug usage.
We took our discussions further and soon realised that although we might be able to challenge the council we were unlikely to be off to a great start. Thankfully at this point we had not yet exchanged on the property so with more than a little reluctance we had to pull out of the deal.
As a single let property there really was no market for this type of house and at the very best we might have realised a rental profit of £900 pcm. In addition we would have had to make substantial changes to the property to make it suitable to operate as a family home.
The only other option we would have had would be to have tried to run this as a bed and breakfast ourselves but neither my wife nor I fancied frying up eggs and bacon for a handful of holiday makers during the summer months.
Source Here at Your Property Network magazine.
Shared houses are here to stay but councils will be able to use the granting of planning permission to control where they can be permitted. In the example below it is unlikely the Investor would have been granted permisison to let as a shared house for the local area was prime family lets. This example is from Your Property Network Magazine and demonstrates the losses resulting from poor research A fellow investor friend of ours was not so lucky when they took their first foray into student let properties. This investor already owned a number of properties and after speaking to other landlords who owned student property and was attracted by the returns they were getting – up to and exceeding a 20% yield in a number of cases. After spending around £180,000 on a 6 bed property in Plymouth this investor was hoping to achieve £2250 per month. When it came to “student let season” the investor was disappointed to find no takers despite kitting out the house with flat screen tellies and very modern looking décor. When it became obvious they were unlikely to find tenants they began asking more questions of their agent. It transpired that they were about a mile and a half in the wrong direction from the university from the rest of the student accommodation. This investor had visited the City on a couple of occasions and had checked on multi-map that the property was in walking distance of the University but had not taken the time to really understand where students wanted to live. Often in student towns the student areas are limited to perhaps a dozen streets typically surrounding shops, pubs, bars and local supermarkets. Step outside of these areas and you can be entering a zone where students can be made to feel most unwelcome. Typically areas that are predominantly owner occupied do not want a litter of beer cans, old shopping trolleys and traffic cones lining their street and will often vehemently object to a property being let on a room by room basis. In this instance with no student takers and no rental income coming in the investor ended up renting the property via a local letting agent as a single let family property for just £700 p.m. (The local market rent for larger homes in this area) a massive difference of £1550 from what they had been expecting to achieve as a student let. This property now makes a monthly net loss of £360 pounds after the agent’s fee rather than an estimated profit of £1200. Both of these examples highlight just how important a thorough understanding of the local market is if you are seeking to multi-let a property. Failure to understand local policies on HMO licensing or the a lack of understanding about who your target renting customer will be can result in investors losing literally thousands of pounds every month in rent and can leave you with a property turkey – impossible to offload and with you being left to service a substantial monthly mortgage payment. Often just a few hours research speaking to local agents, perhaps running a few test ads on sites like Spareroom or Gumtree. There is an excellent expression that goes “nothing fails like success” and often we see investors who have had some success in single let properties come unstuck when they move into development, flipping properties or HMO’s largely because they have become blasé. They forget all of the knowledge they had to build up to get where they are in their existing investments and adopt a gung-ho approach. Our advice would be to take the time understand the local market – who are your target market? and what are they looking for?. Tick these boxes and you are well on your way to successful HMO ownership.