Restrictive Covenant / HMO

[SteveFLS]

I am hoping - post divorce - to retain what was the family home in Durham City and use it for a small HMO let to students, the change of use is a Permitted Development and the house is not subject to any article 4 Direction, the HMO makes financial sense..BUT their is a Restrictive Covenant " not to use or permit to be used other Han as a single private dwelling house " and I have confirmed that all of my immediate neighbours have the benefit of the Covenant and will likely not welcome an HMO.

I'm aware of the case Authority Roberts v Howlett 2002 - coincidentally a Durham City -case where it was held that a covenant with same wording as mine did not prevent the property being let to a ' pre-formed group of friends / students' but subsequent legislation / case law might have changed that position. I have not been able to obtain legal indemnity insurance.

It's probably a shot in the dark but wonder if anybody here has any views or thoughts please - realise I'm probably going to have to find a specialist solicitor but thought I'd see if anybody here has any advice please ?

[Equus]

Roberts vs. Howlett touches upon what constitutes a single household, and the key words are pre-formed.

You would have to be able to demonstrate that the occupiers formed a single social unit, and did so as a result of some connection outside of the fact of having come together to live in your HMO.

[SteveFLS]

Thank you very much Equus, I'm thinking that letting to second or final year students who formed friendship group after sharing Hall or other accomodation might satisfy the requirements as per Roberts v Howlett, would welcome your thoughts please?

[Equus]

In reality: how much do you want to spend fighting legal battles?

[SteveFLS]

I really want to avoid any legal battle but am thinking that it might be worthwhile taking legal opinion about whether the RC prevents HMO & what % chance likelyhood of it being enforceable, if the opinion in my favour and the % favourable I would re - visit potential legal indemnity insurance with the formal opinion, if uninsured litigation probable I will probably sell the house and think again, does that make sense ?

[Equus]

In short: you want someone to give you the answer you want to hear.

A HMO is a HMO, unless you're willing to spend a lot of money proving otherwise. You've even acknowledged by your first post and the thread title that you know what it is really.

[anonymous-user]

I certainly don't think it's wise to push your luck when the neighbours are so likely to try and enforce it. You risk not only a lot of legal costs, but also falling out with all your neighbours, bearing in mind that disputes need to be disclosed to future buyers of the property.

As you know, you need proper legal advice on this, only then can you judge the risk (and get the legal comeback that professional advice provides).

HMOs are a very specialist area (I was a letting agent, and we wouldn't touch them with a bargepole), and while the returns can be good, the hassle and legal obligations are correspondingly high.

If you are not local then you will want someone to manage it (even if you are local this may still be wise), which will further reduce your margin.

It is also likely that you will have to spend some money to make it compliant, which is an up front cost and unlikely to be reflected when you come to sell (it may even reduce the value, if the new buyer is likely to want to revers the changes).

I would also wonder whether the current situation will affect the demand for student accommodation. Clearly I'm speculating, but I suspect we are going to see a big increase in distance learning in the next few years.

[SteveFLS]

Yes I'm definitely wanting to use the property as an HMO and hoping that the RC doesn't prevent it, the stated case seems clear from what I know of it to date but that was a while ago so interested to know what the current position is, if there's potential for legal challenge then indemnity insurance would make sense.

[SteveFLS]

Thanks very much inkyfingers, I don't want to be in dispute with my neighbours and the legal advice will determine next steps, my house is close to some flats many of which are let mainly to overseas students. - mostly Chinese- and the Durham students generally are a pretty tame lot so don't anticipate too much difficulty if / when I get the HMO running and do take your point on the amount of work needed to ensure compliance with HMO regs etc, also take on board your points about future use / saleability when we see what ' the new normal ' post Covid looks like...

[brman]

SteveFLS said:

Yes I'm definitely wanting to use the property as an HMO and hoping that the RC doesn't prevent it, the stated case seems clear from what I know of it to date but that was a while ago so interested to know what the current position is, if there's potential for legal challenge then indemnity insurance would make sense.

Well, I know nothing about the subject but I am bored so, to summarise.....
You bought a house with a covenant that intends to stop HMOs, you know your neighbours want to keep it that way but you are looking at any way possible to piss on the law and the neighbours?
Have I got that right?

Sorry, but that is just as stty as moving to castle combe then trying to get the track shut down as your quiet enjoyment of your garden is ruined by all those nasty car noises.

yes, I know, you didn't want someone to get on their moral high horse. Bad luck, I have got nothing better to do right now....

[SteveFLS]

Thanks Briman, actually we bought the house to be the family home with no thought of letting it out but soon after I found out that my wife was cheating on me and we are in the middle of divorce, we put the house up for sale as a result and had offers from people wanting it for HMO use. I had recently retired from the Local Authority after 37 years in child protection and now looking at losing a good part of my pension so decided to explore possibility of buying my ex out of the house and using it as an HMO myself, have always get along very well with my neighbours and I would be a good landlord making sure tenants don't cause any problems - I wouldn't contemplate doing anything illegal or landing me with litigation but if there is the option of somebody benefiting from the house don't see why it shouldn't be me.

[brman]

Fair enough. What got me was you statement that it would be an HMO and you neighbours will likely object. I think that is the key point, if the neighbours are against you then I would have though you are going to struggle both legally and morally.

I am also curious that you have offers based on it being used as a HMO. Do those people that offered actually know about the covenant? Normally searches reveal this sort of stuff after the offer is accepted?

Lastly (and trying to be more helpful), I always thought that idemnity insurance only covers you for things you are not aware of. So unlikely in this case? I could be wrong though?

[Equus]

You could, of course, simply decide to respect the covenant and rent it out to a single occupant/family, and forget all about pissing off neighbours, paying for legal advice and/or indemnity policies, and potentially fighting costly legal actions.

Or is that too easy?

[SteveFLS]

Thanks Brman, I think it's possibly a legal - hence my first post - rather than a moral issue, I might be overthinking things as we already have students living nearby and it's not caused any problems but these are two bed flats so not in need of licence. The title deeds that detail the covenants are readily available from Land Registry for £7 ( £3 if you're a solicitor or other professional with an account) and I expect both potential buyers will have seen the deeds before making offers on the place - both are ( separate) experienced landlords / developers in the student market.

It's possible that the covenant doesn't present any barrier to HMO use but I'm risk adverse and will only go ahead if the covenant either definitely doesn't present a risk or if any risk of challenge such that it can be mitigated via legal indemnity insurance - I think this is difficult to obtain if you've alerted other interested parties in advance of seeking cover and you have a duty to disclose all the facts to the potential insurer. It's looking very likely that I'll need to pay for some expert legal advice but my divorce final financial Hearing a little while away and I've time to do my own research too in the meantime.. Cheers

[SteveFLS]

Thanks Equus, I think the key point here is whether the covenant was drafted / intended to prevent use as HMO, hence my first post, if not the -current- level of demand for good student accomodation such that if I don't change use to HMO somebody else likely will. I've checked out the potential for family let and while definitely more straightforward it would generate 30% less income than HMO use so not financially viable for me.

[anonymous-user]

SteveFLS said:

Thanks Equus, I think the key point here is whether the covenant was drafted / intended to prevent use as HMO, hence my first post, if not the -current- level of demand for good student accomodation such that if I don't change use to HMO somebody else likely will. I've checked out the potential for family let and while definitely more straightforward it would generate 30% less income than HMO use so not financially viable for me.

The costs for managing an HMO will be higher though, as turnover of residents in much greater, more day to day involvement and more legal obligations (fire risk assessment, electrical certificate etc). You may be able to do this yourself, but I would think carefully before going down that route.

You may also need to pay a license fee to the local authority.

The 30% difference may in fact be far less than that, and the level of hassle, compared to having a good professional family who might stay for years, is likely to be far higher.

I'm not trying to be overly negative, but as somebody with professional experience and qualifications in residential lettings, I know that being an HMO landlord is pretty niche and not for everybody.

[Equus]

SteveFLS said:

Thanks Equus, I think the key point here is whether the covenant was drafted / intended to prevent use as HMO...

You told us that the covenant requires you "not to use or permit to be used other than as a single private dwelling house "

It really doesn't get any clearer than that.

What you are then quibbling over is whether occupation by a pre-formed group of people living as a single household constitutes HMO (multiple occupancy) or single occupancy (ie. a single social unit).
.
At it's very best, the situation would be marginal or disputable, and rely upon a legal interpretation by the courts.

Edited by Equus on Tuesday 12th May 14:59

[paulrockliffe]

If you don't go the HMO route, but let it as student accommodation was always let when I was a student - on an AST with joint and several liability for the rent etc - what happens if you get shut down?

Your tenants have rights under their AST, are they sufficient to allow them to avoid eviction in that situation? And if they carry on paying the rent then have you got round the problem?

[Dixy]

Can someone clarify who can enforce covenants. Was this covenant set by a developer when the house was built, are they therefore the only one who can take action and would the neighbours therefore have to get the developer to do it.

[anonymous-user]

The OP said that the neighbours have the benefit of this covenant.