Creating an HMO Tenancy Agreement: Six Must-Haves to Include in Yours 

As a landlord stepping into the HMO (House in Multiple Occupation) market, you’re not just offering a living space –you’re entering a territory loaded with legal complexities and responsibilities and protecting yourself against future claims and disputes is fundamental. In this guide, we take on HMO tenancy agreements. Sure, there are lots of free tenancy agreements that can be found online; however, securing an agreement suitable specifically for an HMO property is imperative; a standard single-let agreement will not suffice. 

THE LEGAL LANDSCAPE OF HMO TENANCY AGREEMENTS

The bottom line is you’re taking on various legal obligations as an HMO landlord, and a standard single-let tenancy agreement won’t cut it. To protect you against potential future disputes and claims, a lease contract must be up to date at the point of signing. HMOs are unique in their structure and tenant dynamics and thus require a specialised approach to tenancy agreements.

Creating a new tenancy agreement based on one you made even last month can leave you with an invalid lease. 

One of the critical aspects to understand is that laws and regulations governing HMO tenancies are fluid. Regulations and requirements can, and often do, change regarding a tenancy. They evolve and adapt, often in response to changing housing needs or government policies. This dynamism means that a tenancy agreement that was compliant a month ago might now be outdated or, worse, non-compliant. As such, ensuring your tenancy agreement is current at the time of signing is not just good practice –it’s a necessity.

While numerous free, downloadable tenancy agreement templates are available online, the value of a customised agreement explicitly tailored for your HMO property can’t be overstated. This is where qualified and regulated letting agents come into play. These professionals are not just well-versed in the latest changes and requirements in tenancy laws; they also bring a wealth of experience and knowledge specific to HMO properties. More on this later.

SIX ESSENTIALS OF AN HMO TENANCY AGREEMENT

So, let’s get to the backbone of HMO tenancy. Crafting an effective tenancy agreement is not just a legal requirement but a critical aspect of successful property management. This document is more than just a contract; it’s the pillar of your relationship with your tenants, detailing responsibilities, rights, and expectations for both parties. In short, you must ensure your HMO tenancy agreement incorporates the considerations to protect your investment.

Core Elements of an HMO Tenancy Agreement

1. Defining Responsibilities and Rights: Whether you own a licensed or unlicensed HMO, your tenancy agreement must unequivocally state the responsibilities and rights of both the landlord and tenants for the duration of the tenancy. This clarity is essential in preventing misunderstandings and disputes down the line. More details on landlord responsibilities can be found here. 
2. Legal Binding and Protection: This agreement serves as a legally binding document, safeguarding the interests of both tenants and landlords. For you, the landlord, it outlines your right to charge rent and, if necessary, repossess your property.
3. Comprehensive Coverage: It’s imperative that the agreement thoroughly covers all legal and regulatory requirements. On this basis, it must be correct in every aspect to ensure is binding. Remember, these regulations are not static; they evolve, can and do change each year, and your agreement must evolve with them to remain relevant.
4. Type of Tenancy: The contract will likely be an Assured Shorthold Tenancy(AST), which is standard unless you’re expecting to make more than £100,000 in rent per annum or if you’ll also be residing in the property alongside your HMO tenants (which would effectively make them lodgers).
5. Joint vs Separate Contracts: One of the main differences between a single let and HMO agreement is the number of tenants you’re entering into a contract with. While HMO landlords and tenants can elect to sign a joint tenancy agreement between all parties, most opt for a separate tenancy contract. The decision here hinges on numerous factors, including management preferences and the nature of the tenant group.
6. Financial Responsibilities: The agreement should detail who is responsible for paying rent, utility bills, council tax, and general property upkeep. While landlords commonly factor these costs into the rent, assigning a tenant as the responsible party for certain expenses is also an option. It’d be best if you kept an eye on regulatory updates such as the recently amended Council Tax for HMOs.

TAILORING YOUR AGREEMENT TO THE PROPERTY AND TENANT GROUP

The size of your HMO and the number of tenants significantly influence the nature of your agreement. HMO properties housing more than five tenants with shared facilities (all of whom must be from different households) may require licensing and follow specific rules in addition to your strategies, such as securing HMO insurance. Moreover, the regulations in England and Wales can differ from those in Scotland, necessitating a tailored approach to your tenancy agreement.

 

MANAGING THE FINANCIAL ASPECTS OF HMO CONTRACTS

In most HMOs, landlords retain control over financial aspects, incorporating charges such as utility bills into the rental price. This approach simplifies management and ensures all costs are covered.

A word of caution about assigning financial obligations to tenants: transferring the responsibility of council tax to renters has no longer been permitted since December 2023. The new council tax rules for HMOs have transferred this duty entirely to the landlord, along with the provisions to eliminate the practice of taxation per room for HMOs.

WHERE CAN YOU FIND AN HMO TENANCY AGREEMENT TEMPLATE? 

At the time of writing, the NRLA has a very good list of examples to consider; these samples provide a foundation for the kind of details you’ll need to include in any HMO tenancy agreement. 

However, we’d always recommend taking the time to speak to professionals.

Finding the Right Support

If you’re uncertain about navigating the complexities of HMO tenancy agreements, reaching out for professional assistance is a wise move. Our team has compiled a list of trustworthy letting agents specialising in HMO properties.

If you need recommendations, don’t hesitate to get in touch with us. We aim to connect you with the right professionals to safeguard your investment and foster a successful landlord-tenant relationship in your HMO venture.

Securing the Right Template for Your HMO Tenancy Agreement

A well-crafted tenancy agreement is pivotal in the HMO market. Given the level of risk you’re undertaking, it’s well worth spending a few hundred pounds on the assistance of a specialist in the sector, who will be able to draft up an HMO agreement specific to your terms and conditions. Beyond templates, there is proven value in accurate, comprehensive, and timely professional advice. Engaging with a reputable letting agent offers several benefits:

1. Expertise in HMO-specific regulations: While templates offer a solid foundation, the complexity and risks associated with HMO tenancy agreements warrant professional input. Engaging with experts, such as HMO specialists and law firms, can elevate your agreement from a standard template to a customised, legally airtight document. They understand the complexity of HMO regulations, ensuring your contract complies with current laws.
2. Risk Mitigation: Investing in professional services may seem like an additional outlay, but it’s a prudent step in safeguarding your interests. These professionals can tailor your agreement to the unique aspects of your property and tenancy, ensuring full compliance with current regulations and laws. Ensuring that all legal bases are covered will help protect you from potential legal pitfalls and disputes; it’s an investment in peace of mind.
3. Staying Ahead of Changes: The dynamic nature of HMO regulations means that what was compliant yesterday might not be today. Professionals stay abreast of these changes, ensuring your agreement remains valid and enforceable. And with their awareness of current and eminent legislative changes, letting agents can get you from ‘up to date’ to staying ahead of the curve.

TAKEAWAY

Being an HMO landlord brings its share of challenges, but it can also be incredibly rewarding with the right approach and resources. Here’s how to keep on top with tenancy agreements:

• Commit to understanding the elements of a well-crafted HMO tenancy agreement
• Keep up to date with changes in national and local regulations
• Stay compliant -key to a thriving investment and a binding contract
• Ensure your tenancy agreement is tailored to your HMO and needs
• Leverage the expertise engaging with professional letting agents

PARTNER WITH HMO ARCHITECTS

At HMO Architect we live and breathe injecting new life into properties. Our expert team has mastered the insights into the wealth of design and management considerations HMOs require. From the nitty-gritty of architectural details to optimising layouts and ensuring iron-clad regulatory compliance, we can help you forge the path to HMO success, every step of the way. Curious? Check our services portfolio or reach out for a detailed, no-obligation discovery call. Your HMO vision is in expert hands!