Why HMO Landlords should use Licences over ASTs

The reason that I use licenses instead of the traditional Assured Shorthold Tenancies (AST’s) for my Houses in Multiple Occupation (HMO)  is, it is easier to remove licensees than tenants. The main reason why I need to remove occupiers is that they are not paying rent. Where the occupier is an AST, if I use the legal route as opposed to bribery and persuasion it takes a minimum of 3-4 months and costs £150 for the summons. The judge will then usually give the tenant a further two to four weeks to leave. Should the tenant fail to leave it takes about another 6-10 weeks to get the bailiff to act, and at further cost of over £100. In the meantime I am not usually receiving any rent.

Licenses might not work with single lets in houses and flats as the occupiers can argue they have exclusive possession, while in an HMO they can agree to use any of the rooms in the HMO and therefore would not have exclusive possession of any one room.

Should the legality of a license be challenged then it can only default to an AST so I am possibly no worse off than having granted an AST in the first place. With a license I just ask the occupier to leave, no notice is required though the agreement specifies 7 days notice where there is no default by the licensee and I have not had many problems with occupiers leaving when asked to go but usually I give them time to find somewhere else to live.

I believe that it is very unlikely that any Local Authority Housing Department or Housing Action Group’s would challenge my use of Licenses providing they are not used oppressively as they use Licenses for their own hostels etc. The use of Licenses is widespread throughout the Social Housing Sector and used by them in Hostels, Foyers YMCA’s YWCA’s etc. My solicitor and I referred to these various Licence Agreements when drafting my current Licence Agreement. 

The traditional view of AST’s is that the tenant agrees to occupy the premises for a period of time and gives notice of leaving. This may work for some kinds of tenants but not for most of my HMO occupiers, who tend to be what is known in legal terms as ‘persons of straw’. In other words if they do not comply with their contractual obligations there is nothing I can do. From experience most of my tenants show little regard for their contractual obligations. Unfortunately, the reverse is not the case, they are often, only too aware of their ‘rights’ and would not hesitate to claim for harassment, illegal and unlawful eviction with little effort or cost to them as action will be taken  by the local council or funded by legal aid or by numerous ‘no win no fee’ lawyers. Successful defence of such action would incur substantial legal costs, which I am unable to recover from the occupier. The use of licenses also speeds up the matter of tenants who abandon the property. There is no need to serve notices of abandonment (which in itself is questionable) to the tenant and, usually, I have no redress for the unpaid rent and costs. Using licenses avoids the costs and the time to evict, thus making substantial savings in bad debts and costs. There is antidotal evidence that prompt action against rent defaulters has spurred other possible reactants to pay their rent promptly. Previously, I have had tenants refusing to pay and demanding money to leave and as word soon spreads to the other tenants I have ended up with a house full of defaulters.

It is also questionable even when using an AST agreement, whether many of my occupiers would actually be AST’s as they have a permanent home elsewhere and are only staying at my properties while working in the area, and therefore, are in fact licensees. For an occupier to be an AST they have to show that it is their permanent home.

From any mortgagees view they are not disadvantaged by use of licenses, as HMO occupiers will come and go as they please whether AST’s or licensees are used i.e. it does not make any difference to their length of stay/ permanence, and it has not proved to be a barrier in letting the properties. No prospective occupier has ever questioned never mind objected to their use.

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Tags: and licence agreement, assured shorthold, AST's. Licenses, HMO's, houses in multiple occupation, housing department, landlords, licence agreements, property investing