Published: 24/01/2017If you’re looking to buy a HMO (House in Multiple Occupation) in Leeds to let to 3 or more unrelated sharers, the thorny issue of planning permission may be on your mind. Leeds City Council brought in an ‘Article 4 Direction’ on the 10th February 2012 in order to control the use of HMO’s within a defined area. The Leeds Article 4 area map can be found here for reference. From the date onwards, properties within this area have become subject to a planning application for change of use from C3 (ordinary residential dwellings) to C4 (houses in multiple occupation) status. More information on this can be found on the council’s website here . This information on planning should not be confused with licensing, which we will discuss in a later blog.
It is important to know that HMO’s are not forbidden within the Article 4 area. But it does introduce an element of uncertainty into investing decisions.
It is also important to know that if the property has been continuously as a HMO since prior to the 10th February 2012, and this can be proven (usually via signed AST’s), then planning permission for change of use will not be required. ie the local authority accepts that the property may be operated under C4 usage without any further consent in this situation. However if the usage of the property has had any interruption in HMO usage, for example, if a family moved in since 2012 for any period of time, then this will not apply and an application for change of use as described above will still apply.
This means that HMO’s with continuous proven HMO history , or having obtained C4 through planning since 2012 may be sold at a premium. This is because the property is able to generate a higher income and yield as a HMO than C3 dwelling and therefore can justify a higher re-sale price. It grants the investor with piece of mind and security, which of course comes at a price. That said the price may well be worth paying!
Savvy investors will be thinking of the opportunities all of this raises at this point. If a clear understanding of the planning process and decision can be understood, then this can be used to their advantage. For example:
1. It is possible to buy C3 obtain C4 usage, then flip for profit, or re finance to pull further funds out later.
2. The complex nature of planning, combined with the hassle an time involved is enough to put most would be property investors off in favour of something easier. This gives rise to a less competitive field, where the juiciest fruit is left for those that know how to find it.
So how do we go about understanding whether we can get planning for our HMO’s?
The planning department will treat every case uniquely and each application is assessed on a case-by-case basis. The process takes into account a lot of variables that include:
- Concentration of HMO’s already in use in that immediate area
- Parking provisions
- Bus stops and transport links close by
- Access to local employment
- Local demographic (ie families, students etc)
- Housing shortages
- Anti social behaviour
- Would changing the use of property become and benefit or a detriment to the local area benefit ?
Clearly it’s not a straight forward decision. This is the reason the process is shrouded in uncertainty. There is no one size fits all approach. To make matters trickier, planners are notorious for keeping their cards close to their chest, providing vague responses to enquiries, and speaking in jargon. Not only that, the process takes a remarkable length of time to reach a decision and a fair amount of patience is required on behalf of the investor.
For this reason, we strongly suggest enlisting the help of a qualified Planning Consultant as a key member of your investing Power Team early on in the process. Speak to your Planning Consultant early on, and in advance of making your offer to buy the property. His evaluation will allow you to understand your chances with the likely planning decision.
You should also look for 3 exit strategies in case you do not get the planning decision you were hoping for. For example your options may look like this:
1. Obtain change of use to C4, refurb, let room-by-room, re finance, hold
2. Obtain planning to title split to 2 dwellings, refurb, let, re finance, hold
3. Refurbish, flip as C3 dwelling
You should be happy with the numbers of all of your exit strategies, should plan A not be possible.
If you are looking for a HMO or you already have one contact us today and we can show you how to get the best results.