Tribunal ruling highlights need for clear HMO management agreements

The case centred on a landlord whose property was managed by an agent under an agreement that paid them a fixed monthly sum of £3,400. According to reports, the agreement prohibited the property from being used as an HMO; however, the management company let it as an HMO and collected between £7,000 and £10,000 per month from tenants after the HMO licence expired.

Tribunal clarifies who was in control

The legal issue centred on the meaning of “rack rent”, which is used to decide who is legally in control of a property for HMO enforcement purposes. The council’s case was based on a valuation of the property as a single-family home, rather than on the income being generated from its actual use as an HMO.

The Upper Tribunal ruled that the calculation should be based on the property’s actual use, and as the landlord was not receiving the relevant level of HMO income, they could not be treated as the person having control on that basis.

HMO investment is growing, but so is scrutiny

The case comes as investors increasingly look at higher-yield strategies, including HMOs, to offset rising taxation, compliance costs and interest rates.

This shift makes compliance more important. HMOs can offer stronger yields, but they also carry additional licensing, management and safety responsibilities. Property managers should ensure they understand whether mandatory or additional licensing applies in each local authority area, and whether any planning restrictions affect the intended use of a property.

The wider enforcement environment is also becoming more active. In a recent case, Tandridge District Council fined a landlord £5,000 after inspections found serious hazards at a rental property, including defective electrical installations, inadequate fire safety measures, windows that could not be opened or lacked proper restrictors, and the absence of a fully functioning kitchen.

Compliance records are essential

HMO licensing, safety standards, EPC requirements and management responsibilities must be actively evidenced, not assumed.

Managers should keep records of licence applications and renewals, inspection reports, safety works, communications with landlords and tenants, and any restrictions placed on a third-party manager. Where remedial works are required, they should be tracked to completion and documented.

Agents and managers should also be alert to the practical risk of rent-to-rent and management arrangements. Even where an owner or agent believes they have restricted HMO use, they should maintain suitable oversight and documentation, particularly where the structure of the arrangement means another party is collecting rent directly from occupiers.

Support for members

Propertymark provides resources to help agents understand and comply with the requirements for managing HMO properties, including fact sheets which break down the legal requirements and a comprehensive training course, led by agent and Chartered Surveyor, Aidan Reed. Tailored for professional property managers, the course is suitable for individuals or teams wanting to master the complexities of licensing requirements, housing health and safety regulations, and the Housing Health and Safety Rating System (HHSRS).