HMO tenancy agreements: what do you need to include?

As we mentioned recently in our ‘Legal advice for landlords’ guide, there are specific rules and regulations for homes in multiple occupation (HMOs) that differ from other rental properties. It’s crucial for HMO landlords to understand their legal obligations, or they could face fines or even jail time.

While there are no hard-and-fast rules that dictate how landlords should draw up tenancy agreements, they are crucial documents. Without one, you will have a severely reduced legal footing should a dispute with your tenant arise. Plus, some insurers won’t be able to offer you insurance cover

For example, we can only provide cover when either an Assured, Assured Shorthold or Regulated Tenancy Agreement is in place (in England and Wales), or a Short Assured or Assured Shorthold Tenancy Agreement (for Scotland). 

In this guide, we’ll take a look at what you should include in your HMO tenancy agreement and the different tenancy options available to HMO landlords.

 

What qualifies as an HMO?

A rental property can be considered an HMO if it meets both of the following criteria:

  • At least three tenants living there, forming more than one household
  • Shared facilities such as toilet, bathrooms and kitchen

An HMO becomes a ‘large HMO’ and so subject to slightly different rules and regulations if it meets both of the following criteria:

  • At least five tenants living there, forming more than one household
  • Shared facilities such as toilet, bathrooms and kitchen

A household in this sense refers to one or more people that are living together. They can be married, cohabiting or related. 

Are you considering investing in HMO’s? Develop your understanding of the complexities of an HMO including licensing, management and regulation responsibilities with this dedicated course from the National Landlords Association.

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What type of tenancy agreement is best for HMOs?

The majority of HMO landlords will use an Assured Shorthold Tenancy (AST) agreement. The only reasons why you wouldn’t use an AST agreement is either that you share the property with your tenants – in which case they’re technically ‘lodgers’ rather than tenants and subject to different rules – or that your rental income from the property is over £100,000 a year.

 

What should you include in a tenancy agreement for an HMO?

Every property is different and so tenancy agreements tend to vary from one another. However, there are a number of ‘tenancy agreement essentials’ that you should include, GOV.UK have published the following useful guidance:

  • The names of everyone involved
  • The cost of rent, the date it should be paid and any account details
  • How often the cost of rent will be reviewed
  • The amount of deposit required and how it will be protected, such as through mydeposits
  • Specific details of the circumstances that would lead to the deposit being partially or totally withheld
  • The address of the property
  • When the tenancy starts and ends
  • The landlord and the tenants’ obligations 
  • Which bills you will pay and which the tenant is responsible for – in HMO situations the landlord will often handle all utilities and council tax and factor the cost into the monthly rent (more on this below)
  • Whether it’s possible for the tenancy to end early and the circumstances that can lead to this (referencing use of section 8 and 21, though the latter is subject to change)
  • Any special clauses relating to tenant behaviour that might result in the tenancy ending, such as repeated noise complaints or disrespectful behaviour towards members of the community
  • A commitment to providing 24 hours’ written notice to tenants before property inspections or if you’re planning to enter the property for other reasons, like repairs

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Should your agreements be joint or separate?

This is one aspect of HMO tenancy agreements which is different from single lets.

Landlords can sign an agreement with each tenant individually, or sign a joint tenancy agreement with the group. The tenancy agreement should mention which is the case. 

Most landlords prefer to have a separate tenancy agreement with each tenant.

While this will increase the amount of admin on your part, it’s easier for each tenant to be responsible for their share of the rent and for taking care of the property. This leaves fewer grey areas around who is or isn’t responsible for payment or damages. 

If you do decide to use a joint agreement, it’s best to make sure that your tenants are friends or at least know each other well and trust one another. It’s also best if they plan on moving in and out at the same time. 

How should you manage bills?

Some landlords choose to nominate a tenant within the household to handle council tax, utilities and other bills and collect money from their housemates each month to pay for these things. While this can cut down on the admin on your side, there are a couple of things to bear in mind.

If the nominated tenant leaves, another tenant will have to be chosen. It can also create tension within the group of tenants if some tenants can’t pay, won’t pay or keep paying late.

It is often simpler to take on the admin time of doing it yourself, but cover that time by charging a little more than the total cost of all bills, so that you’re not losing out. Tenancy agreements are vitally important, for landlords and tenants.

They outline legal responsibilities on both sides and detail what will happen if either side neglects their responsibilities. The specific rules and regulations relating to HMOs mean that you will have to approach tenancy agreements slightly differently, but with prior planning and using the points mentioned above, renting to multiple tenants needn’t be any more difficult than renting to families or single tenants. 

However, some things in life you can’t plan for. Our HMO landlord insurance is tailor-made for HMO landlords and properties. Get a quote today to find out how much you could save.