HMO Planning vs Licensing: Why Business Owners Must Know the Difference!

Welcome to another edition of The Business Owners' Property News - my weekly newsletter dedicated to helping business owners and busy professionals get started in property investing.

When business owners start looking at investing in HMOs (Houses in Multiple Occupation), one of the biggest pitfalls they face is confusing HMO planning permission with HMO licensing.

I've seen many properties on sale, offered by estate agents and sourcing agents, claiming to be "HMO Compliant". They may have a licence but not the correct planning and often come on the market to be sold to new investors as they can't be operated as a HMO.

Many assume that getting a licence means their property is fully compliant, but in reality, licensing and planning are completely separate processes—and a mistake here can be costly.

In this article, we’ll break down the key differences, why they matter and how to avoid falling into a compliance trap!

HMO Licensing: What It Covers and Why It’s Required

HMO licensing is about ensuring tenant safety and property management standards. Local councils issue HMO licences to landlords who meet specific requirements, which typically include:

? Property Size & Occupancy Limits – A licence will specify how many tenants can legally live in the property.

? Fire Safety Measures – This includes fire doors, alarms, escape routes, and sometimes sprinkler systems.

? Amenities & Facilities – The council checks if the kitchen, bathrooms, and living spaces meet minimum requirements for multiple occupants.

? Management Standards – The landlord or managing agent must be deemed “fit and proper,” with no history of housing violations.

Do All HMOs Need a Licence?

Not necessarily. HMO licensing comes in three forms:

• Mandatory Licensing – Required for all large HMOs (5 or more occupants).
• Additional Licensing – Some councils extend licensing to smaller HMOs (3 or more occupants).
• Selective Licensing – Some councils require ALL rental properties, not just HMOs, to be licensed in certain areas.

Many investors assume that once they have an HMO licence, they’re legally covered. But here’s the catch: licensing does NOT mean you have the correct planning permission.

HMO Planning Permission: The Land Use Regulations You Can’t Ignore

Planning permission regulates HOW a property is used, ensuring it aligns with the council’s housing strategy and local development plans.

Here’s what you need to know:

? C3 vs C4 Use Class

• A standard family home is classified as C3 (residential use).
• A small HMO (up to 6 occupants) is classified as C4 (small HMO use).
• Larger HMOs (7+ occupants) fall under Sui Generis (unique use class) and require full planning permission.

? Article 4 Directions – The Game Changer In many areas, you can convert a house into a small HMO (C3 → C4) without planning permission under Permitted Development Rights. However, if the council has an Article 4 Direction in place, this automatic right is removed, meaning you must apply for planning permission even for a 3-6 bed HMO.

? Retrospective Planning Issues A property can have an HMO licence but still lack the correct planning permission. If the council discovers this, they could issue an enforcement notice, forcing you to revert the property back to a single dwelling—potentially at great expense.

Social Housing - "The Get Out Clause"!

In Article 4 areas, like Birmingham, many investors jumped into "social housing' after the introduction of Article 4. This is because HMOs leased to supported accommodation providers are exempt and no planning or licensing is required for a property that is given to Housing Associations and other authorised organisations that provide support to their tenants receiving enhanced benefits.

However, this has caused oversupply in some areas with many poorly run and poorly organised providers in the area taking advantage of the support payments on offer without actually providing the provision of services to their tenants - who are often the most vulnerable in our society.

This has resulted in many neighbourhoods full of mis managed properties and tenants causing problems for the community.

Furthermore, social housing requires specialist mortgage products and special insurance cover that is fit for purpose.

Be careful when leasing your property to a social housing provider - it too is fraught with risk!

Make sure you do your due diligence on the provider and the type of tenants that will be in your property.

How to Stay Compliant as a Property Investor

If you’re a business owner looking to invest in HMOs, here’s how to ensure you don’t run into legal issues:

1?? Check Article 4 Restrictions First – Before purchasing or converting a property, check if the local council has Article 4 in place.

2?? Check the Planning status of the property – If you need a C3 → C4 planning permission due to Article 4 - is it in place or likely to be granted? Or is Sui Generis planning in place for 7+ occupant HMOs?

Find out before buying the property!

3?? Deal with your HMO Licence Separately – Even if planning permission is approved, you must still meet licensing conditions.

4?? Speak to Local HMO & Planning Officers – Councils operate differently, and separately and there may be lack of communication between the two departments - so always clarify requirements before making decisions from the correct department.

5?? Use Professional Advice – Engaging an HMO specialist (like my company, HMO Smart) can help you navigate both processes correctly.

Final Thoughts: Don’t Fall Into the Planning vs. Licensing Trap

HMO licensing and planning are NOT the same thing, and councils enforce them separately. Many landlords assume they’re covered after getting a licence, only to later discover they lack proper planning permission—leading to fines, legal battles, and lost income.

If you’re serious about building a profitable and compliant HMO portfolio, make sure you understand the distinction and plan accordingly.

So there we have it - another article done and dusted and all about navigating the HMO planning and licensing maze!

Need help navigating HMO planning or licensing or just a hand getting started in property investing?

Drop me a message, call 0121 647 7090 or email me [email protected] — I’d be happy to chat.