There’s nothing unusual about creating a tenancy for an HMO (Houses in multiple occupation) tenant, and the legal agreement between you and your tenants should be an Assured Shorthold Tenancy (AST), just as if you were letting a property to a single-family on a single tenancy. AST’s are the most common form of agreement between private residential landlords and HMO tenants in the UK.
Overview of HMO Assured Shorthold Tenancy (AST) Agreements
Best practices, rules and legislation governed by the relevant Housing Act(s) – will apply to HMO tenancy agreements, including:
- 6, 12, 18 or 24-month tenancy terms are most common.
- Any deposits taken must be protected into a recognised tenancy deposit protection scheme.
- A section 8 notice should be used to evict tenants if there are grounds for eviction.
- A Section 21 notice should be used for mandatory repossession (i.e. to end a tenancy when there has been no breach).
- The tenancy agreement should stipulate who is responsible for what bills e.g. electricity, gas, council tax etc.
- At least 24 hours written notice must be provided to tenants before property inspections or for other reasons to enter the premises e.g. repairs.
HMO Tenants and Utility Bills
In shared accommodation situations, the landlord takes care of all the bills and takes that into consideration when setting the rent, and the tenancy agreement should stipulate who is responsible for the bills e.g. electricity, gas, council tax, and how they get paid. It’s the simplest way of handling bills.
I recommend using an energy auto-switch service, which will help ensure you’re benefiting from the best available tariffs, and therefore keeping your energy bills low and profits maximised.
Alternatively, it is possible to assign one ‘responsible’ tenant to be in charge of all the bills, which means he/she will have to collect the money from the other tenants and then make payment. This option is less desirable for a couple of reasons:
- if the assigned tenant decides to leave, someone else will need to be assigned, which isn’t always an easy process
- it can be the root cause of tension between tenants:
- If a tenant refuses to pay or frequently pays late
- It’s difficult to measure exactly how much of the utilities are used by each tenant, so if one tenant feels they use less electricity, for example, they may begrudge paying an equal share once having seen the bill total.
- Landlords often charge a little extra for covering the bills, so they make more money from it.
HMO Tenancy Agreements: Joint vs Sole
There are generally two common ways of implementing tenancy agreements for an HMO property: by using individual contracts for each tenant, or using a single ‘joint and severally liable’ agreement.
The tenancy agreement’s terms and conditions should state whether the tenancy is a Sole or Joint agreement.
Joint tenancies: this is a common arrangement for student properties or an HMO comprised of friends moving in together, and work best if the tenants know one another and are likely to move in and leave at the same time. Tenants are jointly liable for both the rent and the care of the property; responsibilities are shared between tenants (like a single let arrangement, where the lead tenants, as stipulated in the tenancy agreement, are responsible). For example, if one tenant doesn’t pay rent, then the other tenants will be required to cover the shortfall. Also, usually, the remaining tenants are responsible for finding a tenant(s) if a room becomes available. By nature, a joint tenancy requires less administration, as there is one overall agreement with one single rent payable (and one deposit to protect, should you decide to take a deposit). All tenants names should be on one tenancy agreement.
Sole/Separate tenancies: HMOs comprised of adults, who usually don’t know one another and don’t want to assume responsibility for other tenants, are usually issued separate (Sole) AST’s for each room. Each tenant is responsible for themselves i.e. they pay their own rent, and the behaviour of other tenants does not affect their tenancy. If one tenant does not pay rent or has fallen into arrears, the remaining tenants are not required to cover the shortfall. This requires more admin work as each room should have their own individual tenancy agreement, and each and every deposit should be individually protected when one is taken.
HMO Tenancy Agreement Contracts & Forms
There’s certainly no short supply of tenancy agreement contracts around the web, many available for free download, which can be an extremely compelling proposition.
First warning. Use a contract that is specifically for HMO’s that meets the demands of your setup. While in almost all cases HMO tenants are given an AST, most AST contracts available and online are intended for Single let situations. Do NOT use those for HMOs; they won’t be suitable.
Second warning. Do not butcher existing tenancy agreements by adding and modifying clauses to meet your specific set of circumstances. It’s something many landlords have done only to regret later on down the line. You could end up in a legal bind if any of the additional clauses were to be challenged and they weren’t drafted properly, or aren’t legally enforceable in the first place.
The best thing to do is contact a specialist landlord law solicitor, and get them to draft a contract specifically for your HMO. It may cost a couple of hundred quid, but it’s definitely a sound investment if you’re serious about doing HMOs right.