What is an HMO and a Bedsit? What are the differences?
For many new landlords, getting started in the industry involves finding out a lot of facts they might not previously have known.
The actual amount of jargon involved may be less than in some other sectors of economic activity, but there are still a number of terms that investors should make sure they are familiar with before they buy, in order to be sure about exactly what they are doing.
This is not just about matters such as tax and regulation, but property type. Two of the most common terms are bedsits and homes of multiple occupancy (HMOs). The differences between the two are significant and need to be understood.
What is a bedsit?
What is a bedsit you ask? A bedsit is defined by the government as a single unit within a home where the tenant is renting a room, but sharing other facilities such as a bathroom and kitchen with other people living in the same building.
What is an HMO Property?
Then what is an HMO property? An HMO is defined as the whole residential building containing different bedsits, or rooms occupied by different renters who are defined as separate households from each other. The minimum number living there to meet the criteria is three. In short, a bedsit is a single unit and an HMO is plural. The landlord insurance policy must be tailored accordingly.
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The definition of an HMO can also extend to a building consisting of several self-contained flats where the different households do not have to share facilities with each other, provided there is at least one potentially shared element (such as a toilet) outside the front door of at least one of the flats within it.
In both cases it will be each household that is paying the landlord a rental bill each month, with these definitions excluding a single household unit that occupies a whole building. The multiple occupancy aspect is based on more than one household, rather than more than one person, living in the property.
Landlords will need an HMO licence to rent out an HMO in certain circumstances. This applies if it is rented to five or more people constituting more than one household, or is at least three storeys high. However, some local authorities may choose to apply more stringent rules, so it is worth checking if a licence is needed for any HMO. A separate licence is required for each property and failure to have one – or renew it before it expires after five years – can incur fines of up to £20,000.
Because of the definitions that apply to an HMO, this can mean that a landlord can rent out bedsits that are not part of such a property – such as where there are two bedsits occupied by single people.
The HMO definition also matters because there are some cases where a local council will choose to implement an article 4 directive. This is where it opts to use its power to force anyone wishing to convert a house into an HMO to seek planning permission first. The Residential Landlords Association, which opposes article 4, has noted Falmouth Council in Cornwall is the latest local authority to consider taking such a step, following in the footsteps of Worcester, Chester and Tendring.