HMO landlords and investors get effected by online studies

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Cambridge University has announced plans to go online for the academic year 2020-2021. They have decided to suspend in-person lectures for the 2020/2021 academic year. The university has also confirmed that its smaller group teaching will continue to be in person. The plans risking significant impact on HMO landlord and investor.

HMO’ stands for ‘house in multiple occupations.’

CHANGES TO THE STUDENT LETTING MARKET

Students make up a significant number of persons who rent accommodation within HMOs. Cambridge’s decision raises the prospect that many students may be able to pursue their higher education remotely. They don’t need to rent accommodation in their university town or city. This has a potentially significant impact on the market for HMOs.

The situations may not be as bleak as it seems. Cambridge’s announcement should be treated with some caution. Given that the university has also confirmed smaller group teaching be in person, meaning that students will still need to reside within striking distance of their college or faculty.

What different approaches other universities are taking?

Furthermore, other universities have taken different approaches. The University of Bolton, for instance, intends to introduce “airport-style walk-through temperature scanners at every building entry” and make face masks compulsory to ensure that its campus is fully operational in the new academic year.

The University of Manchester has suggested that students should live in ‘bubbles’ with others studying the same course. This may mean that more students need to live in University halls of residence. In turn, they may even lead to the universities themselves seeking to procure more private sector accommodation.

It is also very likely, whatever approach the individual universities adopt, that there will be fewer overseas students. Moreover, there will be a decline in the UK student population in 2020/21.

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Challenges for the HMO landlords and investors and solutions:

Firstly, the rapidly developing situation may well lead people who have already signed up for a tenant/licence agreement to reconsider their options. In practice, executions of most ASTs are very shortly before the tenant goes into the residence.

However, it is not uncommon for there to be a pre-contract, with the potential tenant having paid a holding-deposit to the landlord or letting agent. Such deposits are often only returnable in exceptional circumstances if the tenant chooses not to take up the tenancy, and landlords should check the small print in any holding agreement.

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In the unlikely event that a tenant has already signed a tenancy or a licence agreement for the new academic year for a fixed period, that agreement may well be binding, at least to the extent that it can only be terminated by giving notice following its terms.

Underwriting a tenant’s obligation is important:

If a tenant breaches a tenancy agreement by not entering into an occupation or paying rent, a landlord may be able to recover damages for breach of the agreement and lost rent. However, the landlord must take reasonable steps to attempt to re-let the premises to ‘mitigate their loss’ before bringing any claim. Most students do not generally own property or have extensive income or personal assets. Therefore, recovering the money awarded under any money judgment may not be straightforward.

In uncertain times such as these, obtaining properly referenced guarantors to underwrite a tenant’s obligations becomes particularly important.

What are HMO landlords likely encountering?

Secondly, in the current academic year, many courses are going online. And many of the service industry jobs that employ students are drying up. HMO landlords are likely encountering a pattern of increased and increasing rent arrears.

There has been no rent moratorium from the government to help HMO landlords. The Coronavirus Act 2020 and PD51Z have almost entirely removed a landlord’s ability to recover possession of a property. Any possession action brought in a County Court is currently being automatically put on hold until 25 June. Although, there is a rumour about the extension in this period.

What can the court proceedings do?

Furthermore, a landlord now has to provide a tenant with at least 3 months’ notice of any court proceedings seeking possession on the grounds of rent arrears (as opposed to 14 days before the passing of the Coronavirus Act). This does not prevent a landlord bringing a debt claim for rent arrears they owe, as long as the landlord does not seek possession of the property at the same time.

Though, with the court system struggling to adapt to remote working, such an action, if defended, may not be dealt with for many months. The threat of court proceedings or a county court judgment may be enough to make a tenant or a guarantor make a payment of arrears if they possibly can.

It is important that before issuing any court proceedings, the landlord writes to the tenant explaining the problem. The landlord must offer to explore ways to resolve the dispute.

 

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