A guide to tenanting your HMO: Billing, tenancy agreements, and deposit schemes

Property Forum’s HMO series covers everything you need to know about HMOs (Houses of Multiple Occupancy). As well as being jam-packed with helpful links, facts, and guidance, our articles also contain professional tips from Property Forum’s CEO Nicholas Wallwork, as he draws on his 20+ years as a multi-millionaire HMO investor and developer.

The success of any HMO relies on being able to find and keep great tenants. Having the correct billing set up, tenancy agreements and deposit schemes in place will ensure you start your relationship with each tenant on a positive and professional footing (as well as ensuring you adhere to all legal requirements as a landlord).

First up, should you include utility bills in the rent?

In a straightforward house share (say, where a group of friends decide to rent a house together, and everyone is listed on the same rental agreement), taking care of the monthly bills and divvying up costs between them is not so difficult. But an HMO is different. The tenants are effectively separate households, and they may not (at first) know the people they’re living with. For that reason, it’s often easier if you as the landlord take on the bill-paying element, and roll the cost of bills in with your tenants’ monthly rent.

Pro tip: In Nicholas Wallwork’s 20 years of being an HMO landlord, his experience has shown that tenants (especially young professionals) tend to prefer the simplicity of an all-inclusive price. Including bills in the rent will make your property all the more attractive.

With this approach, you should factor all bills into the rent you charge. This includes gas, electricity, water and council tax. But also internet, TV and a weekly or fortnightly cleaner for the communal areas. Most professional tenants are more than happy to pay a slightly higher rent for a property that has a regular cleaner, as it means they never have to debate whose turn it is to clean the microwave this week.

There is a downside to this all-inclusive approach. When tenants aren’t directly paying the utility bills themselves, they can play pretty fast and loose with their energy usage – leaving lights on in empty rooms, having the heating cranked up to the max rather than putting on a jumper, that sort of thing. There are a few ways you can mitigate this:

• Consider investing in energy-saving measures such as double or triple glazing windows, draft-proofing on doors, energy-saving lightbulbs, and smart lighting in the communal areas (so, the lighting comes on when someone enters the room and turns off when the room is empty).
• Consider installing smart thermostats that let you control the heating remotely via an app on your phone.
• Always shop around to find the cheapest utilities providers, and review your providers regularly.
Drawing up tenancy agreements
When it comes to tenancy agreements, you’ll need to sign a separate agreement with each tenant in your HMO, covering:
• The term (length) of the agreement. This is usually for 12 months at a time, at which point you’ll need to reissue the contract.
• How much the rent is and when it is payable (assuming it’s monthly, you should specify which day of the month it’s due).
• Whether the rent is due in advance – ordinarily, the first month’s rent is payable upfront, meaning the ongoing rent is paid in advance, not in arrears.
• Whether bills are included in the rent.
• How much deposit is required (usually one month’s or six weeks’ rent) and which deposit protection scheme it will be placed into. More on protecting tenants’ deposits later.
• How much notice either party has to give in order to end the agreement.
• What happens if tenants don’t pay their rent on time.
• Tenant responsibilities, such as:

– Keeping their room clean and in good condition.
– Not damaging the property, furniture, and fixtures and fittings.
– Letting the landlord know when repairs are needed.
– Not causing a nuisance (such as loud noise) for other tenants and neighbours.
• Landlord responsibilities, such as:
– Giving appropriate notice (usually 24 hours) before entering the property for an inspection. Obviously, this doesn’t apply if you’re a live-in landlord.
– Providing facilities such as water, electricity, and drainage, without unreasonable disruption.
– Providing waste disposal facilities.
– Keeping communal areas clean and in a good state of repair.
– Conducting repairs in a proper and timely manner.
– Ensuring that smoke alarms and fire safety equipment are installed and maintained, and that there’s a safe means of escape.
– Ensuring proper safety checks, like the annual gas safety check and electrical installation check.

Pro tip: There are loads of contract templates available online, and different types to choose from. Nicholas Wallwork’s go-to option is an assured shorthold tenancy (AST) agreement, although he’d always recommend talking to a lawyer with HMO experience to get the best contract advice for your circumstances. For example, if you’re going to be a live-in landlord, you may be better off with a contract that has more freedom than an AST – you might, for instance, want to end someone’s tenancy early if living with them proves untenable.

As well as the tenancy agreement, you should also draw up a full inventory of any furniture, appliances and other items that you have placed in the property, noting what condition these items are in at the start of the tenancy. This inventory should be signed by you and your tenants.

Protecting your tenants’ deposits

Where a deposit is taken under an AST agreement, that deposit must be placed in a government-backed tenancy deposit scheme. The idea is to safeguard tenants’ deposits and provide a faster, cheaper way of resolving any disputes further down the line or when a tenant checks out.

Pro tip: Even if your contract isn’t an AST, always protect a tenant’s deposit using one of these schemes. This gives the tenant confidence, and gives both of you a third-party mediation service in the event of a dispute.

In England and Wales, a deposit must be registered with one of the following schemes within 30 days of receiving it (and you’ll have to inform your tenant which of these schemes their deposit is placed with):

• Deposit Protection Service
• MyDeposits
• Tenancy Deposit Scheme

Please use the catagory search menu at the top right of the page to see all other HMO articles in this series. You can also download our free HMO ebook (written by our CEO Nicholas Wallwork) and ask any questions in the HMO forum.

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