Creation of Unintended HMOs – Issues to Consider
21 Mar 2022
At the best of times, Houses in Multiple Occupation (‘HMOs’) cause conveyancers and lenders sleepless nights; however, a recent decision by the Upper Tribunal creates further cause for concern given the potential for unintended HMOs to be created in certain circumstances.
Section 254 of the Housing Act 2004 sets out five alternative tests to see whether a property qualifies as an HMO:
- Standard Test
- Self-Contained Flat Test
- Converted Building Test
- HMO Declaration Test
- Converted Block of Flats Test
In the event that one of the above tests applies to a property, the licensing regimes (mandatory, additional and selective) must be considered to see whether the property requires an HMO licence. As to the additional and selective licensing regimes, and as these vary between each Local Authority, it is crucial that the requirements of each Local Authority are checked before advising a purchaser/lender as to whether or not an HMO licence is required.
Unintended HMOs and Property Guardians
In the recent case of Global 100 Ltd v Jimenez and others  UKUT (LC), the Upper Tribunal considered whether a property occupied by property guardians constituted an HMO which would, if the relevant tests were satisfied, have required the property to have an HMO licence. In these circumstances, property guardians refer to persons appointed to occupy vacant properties under an occupational licence to avoid the property being taken over by squatters/trespassers and to prevent the property from suffering any deliberate or accidental damage or destruction.
The facts concerned three property guardians being appointed to occupy, as part of a five storey-office building, three offices which shared a communal bathroom. The main HMO test considered by the Upper Tribunal was the standard test (s. 254(2) Housing Act 2004) and, specifically, whether the property guardians’ occupation of the three offices with communal bathroom for living purposes constituted the sole use of that accommodation (s.254(2)(d) Housing Act 2004).
Global 100 Ltd argued that whilst the sole use of the accommodation as at the time of occupation by the property guardians was for living accommodation, the purpose of their occupation was to prevent squatters/trespassers from occupying the building whilst otherwise vacant. The Upper Tribunal rejected this argument confirming a strict interpretation of the legislation, stating that the test turns on ‘sole use’ rather than purpose, and held that the occupation of the property by the property guardians would constitute an HMO under the standard test for which an HMO licence was required. The Upper Tribunal also noted that the occupational licence by which the property guardians occupied the property prevented the guardians from using the property for any business purposes at all.
Consequences of the Upper Tribunal Decision
The Upper Tribunal decision will trouble property owners and lenders who use property guardians to protect vacant properties and all parties will need to consider the nature of their arrangements in place to ensure that they do not fall foul of HMO licensing requirements, especially considering the nature of the sanctions for operating without a licence.
It should also be noted that one of the key claims of the property guardians was for a rent repayment order against Global 100 Ltd on the basis that a formal HMO licence was not in place – this decision potentially opens the floodgates for claims by property guardians for such orders where HMO licences should have been in place.
For more information please contact David Eder on email@example.com