254: What’s the difference between HMO planning and HMO licensing?

Listen to this episode below:

Before you even consider touching HMOs, you need to be able to tell your HMO planning from your HMO licensing. Once you’ve got your head around them, you should be able to see that the difference between them is pretty clearcut. However, when you first come across these two terms it can be easy to get them mixed up.

Show Sponsors

Optimise Accountants are highly regarded UK property tax specialists, helping hundreds of property investors save thousands of pounds in income tax, VAT and SDLT. To find out more about how they can help take care of your tax and accounting needs, visit them at OptimiseAccountants.co.uk and schedule a free call to understand how they can help you.

What is HMO Planning Permission?

Planning permission is usually the first thing to consider in the schedule of an HMO project. Planning permission is needed if you want to build something, add an extension or change the use of a building. When it comes to planning requirements for HMOs, there are 3 essentials to keep in mind: planning applications, permitted development rights and Article 4 directions. To get planning permission, you must submit an application to a local planning authority. They then review the submission and grant or refuse permission within 8 weeks for standard applications.

Change of use: C4 and Sui generis

When we’re talking about HMO planning, we’re specifically talking about change of use. Whilst you may be building something new or adding a big extension as part of your HMO project, these two aspects of planning aren’t specific to HMOs so we won’t be covering them here.

In the UK there are around 20 different use classes. Each one has a definition of what a site can be used for, whether it be retail, food and drinks outlets, hotels or industrial sites. Two use classes that are relevant when thinking about the end use of HMOs are C4 and Sui generis. C4 is probably the more common of the two. It is defined as small house in multiple occupation, shared by 3-6 unrelated individuals.

Sui generis on the other hand is a catch-all use class for everything that doesn’t fit into one of the other defined use classes. It basically translates as ‘unique’ or ‘of its own kind.’ Larger HMOs with 7 or more occupants fall under the sui generis use class.

The only time you do not need to consider planning regulations at all is where you are not changing the use of the building. Typically, this would be if you’re buying an existing C4 small HMO to keep it as such, or buying an existing sui generis HMO with 7 or more occupants and again planning to keep it as such.

For any project you’re buying where the existing use class is anything other than your intended end use, you need to consider the planning requirements.

HMO planning and permitted development rights

Your best friend when it comes to planning and HMOs is permitted development. Permitted development rights were introduced to speed up the development process and allow certain buildings works to be carried out without having to submit a planning application.

Permitted development rights exist that allow you to change the use of a C3 property (a residential dwelling, usually a single family home) into a C4 HMO – that’s the small HMO for up to 6 occupants that most HMO investors are looking at .

If you plan on creating larger HMOs with 7 or more occupants, this would come under a sui generis use class and a full planning application would be required. Likewise, if you’re planning on converting a building with a different use class into an HMO of any size planning permission would also be required as these changes of use do not have permitted development rights in place.

Beware of Article 4

Article 4 directions are implemented on a local basis by the planning authority to remove or restrict permitted development rights. They are particularly common in city centres and areas around universities where it’s felt the number of HMOs is negatively affecting the local area. In areas where Article 4 directions apply for C3 to C4 changes of use, you will now need a full planning application, even if your project would normally be allowed under permitted development rights.

Not all Article 4 directions block C3 to C4 changes of use, so it’s worth checking whether the Article 4 directions restrict another type of permitted development first. Also, just because an Article 4 direction has been put in place by your local authority it doesn’t mean it applies everywhere. Often it will just cover a specific district. Do your digging before assuming anything. 

HMO planning summed-up

Most smaller scale HMO conversions from a C3 dwelling house to a C4 HMO will likely come under permitted development. A planning application would only be needed for conversions in Article 4 areas. Any other change of use will require a planning application, regardless of whether you’re aiming for a C4 or sui generis HMO.

One last thing…

Depending on how by-the-book you like to be, there is one more alternative which is to stack permitted development rights in your favour. Whilst we’re not recommending this approach, you’ve likely already heard of it from other sources. It involves, for example, starting with a B1 office, changing it to a C3 dwelling under permitted development rights and then from C3 to C4 HMO under permitted development rights again. As always, it’s worth discussing this option with a planning consultant beforehand to see if it works for you.

What is HMO licensing? 

There are three different licensing schemes investors need to be aware of. The first two of these are mandatory licensing and additional licensing, both which apply to HMOs specifically. The third is selective licensing, which covers privately rented housing in general.

Mandatory licensing

You’re likely already familiar with mandatory licensing, often referred to simply as HMO licensing. As of October 2018, if your HMO has 5 or more occupants it needs a license under the mandatory licensing scheme. 

Additional licensing

Additional licensing is similar to Article 4 directions insofar as it’s applied on a local basis by local authorities. The additional licensing requirements can be applied to all HMOs in a district, or just to specific areas.  

According to the 2004 Housing Act, it ‘permits additional licensing where the local authority believes that a significant proportion of HMOs are poorly managed and giving rise to problems for residents or the general public.’

The requirements to comply with additional licensing will be the same as for mandatory licensing. The only significant change is that you may need to apply for a license on an HMO that typically would fall under the minimum size requirement for mandatory licensing.

The requirements can vary from one area to the next, but at a high level you need to ensure that the house is suitable for the number of occupants you intend to let it to and that whoever is managing the house is capable of doing so.

The suitability of the house is based on factors like room sizes (both of the bedrooms and the communal spaces), the amenities provided in the house (so things like cooking facilities and number of bathrooms), as well as safety requirements like appropriate fire alarm systems for the size of the house and annual gas safety certificates.

The capability of the property manager, which will usually either be yourself or an agent you employ, is tested through a series of open-ended questions on the license application form. These questions cover topics such as the procedures you have in place in case of things like emergencies or tenant disputes. The license application form also requires a criminal background check to be completed.

Selective licensing

Selective licensing is applied to all privately rented properties in an area where the local authority believes it would reduce or eliminate specific housing problems.

The requirements are very similar to those for mandatory and selective licensing. Both the property and the owner must meet certain criteria in order to get a license. There are mandatory conditions applied to all selective licensing schemes. These include fire safety certificates and smoke alarm systems, as well as references from tenants before they move in.

Each local authority may implement further discretionary requirements that are usually related to the problem the licensing scheme is trying to solve, for example for landlords taking steps to prevent antisocial behaviour in the property.

Summary: planning or licensing?

The main nugget to take away from licensing is that mandatory HMO licences apply to any HMO with 5 or more occupants. Some of the requirements will affect the layout of the house as well as renovation schedules or specifications, so make sure you understand the conditions early on in the process. And even if you’re exempt from a mandatory HMO license, remember to check whether additional or selective licensing still applies.

Above all, don’t forget that planning and licensing are completely different things, but both equally important. So the next time someone mentions Article 4 directions and licensing in the same sentence, you can correct them with confidence.

Last chance to get our HMO Investing course at current price

Just before we wrap up, we wanted to let you know that the price of our Inside HMO Investing course is going up on 1st February.

It’s a huge amount of content. Over 15 hours of online videos, guiding you through every step of the HMO process to help you find, fund, renovate and manage your first or next deal.

It’s ridiculously under priced compared to the competition, but we keep getting feedback that the level of detail is better than anything else out there.

You can go back and revisit any sections of you want, whenever you want and as often as you want, as well as having ongoing access to our private HMO community as well. It’s the best way to build your knowledge and confidence towards getting that next successful HMO secured.

Inside HMO Investing – find out more about our unique online course teaching you how to successfully invest in HMOs.