Block of flats, or a Section 257 HMO?

The short answer

Section 257 of the Housing Act 2004 creates a category most people have never heard of: the converted block of flats that counts as an HMO even though every flat in it is self-contained, with its own front door, its own kitchen and its own bathroom. Nobody shares anything. It is still an HMO.

It only bites when all three of the following are true at once. Two out of three is not a Section 257 HMO. Get any one of them wrong and you will reach the wrong answer about your own building.

1. The building has been converted, and consists of self-contained flats. A converted Victorian townhouse or a former commercial building, not a purpose-built block that was flats from the day it was drawn.
2. The conversion did not meet the appropriate building standard. For work done before 1 June 1992, the benchmark is the standard imposed by the Building Regulations as they stood on 1 June 1992. For later work, it is the standard that applied at the time the work was done. So an old conversion is caught, and so is a more recent one that was never done to the standard of its day.
3. Fewer than two thirds of the flats are owner-occupied. Owner-occupied has a specific meaning here: occupied by the freeholder, by somebody holding a lease granted for a term of more than 21 years, or by a member of either person's household.

Which means the classic Section 257 HMO is exactly the sort of building a lot of investors buy on purpose: a period property split into four or six flats decades ago, all of them let, all of them sitting under one freehold title.

The two consequences that catch people out

1. Outside mandatory licensing, inside additional licensing

Mandatory HMO licensing is keyed to the tests in section 254 of the Act, so a Section 257 converted block falls outside it. That is where most people stop reading, and it is where the problem starts.

A council can bring converted blocks into an additional licensing scheme under section 56, and several have. Three worth knowing about:

• Birmingham. A Section 257 additional licensing scheme running from 5 June 2023 to 4 June 2028. It bites where two thirds or more of the flats are let. The council excludes some cases, including buildings of only two flats with neither above or below commercial premises, and buildings where the flats share no common parts and are no more than two storeys.
• Portsmouth. A city-wide additional scheme from 1 September 2023 covering 2023 to 2028, applying to Section 257 buildings where two thirds or more of the flats are let, resident landlords included.
• Ealing. Section 257 HMOs sit inside its borough-wide additional scheme, which began on 1 April 2022 and runs for five years. Ealing narrows it to buildings of three or more flats where all the flats are privately let and the building and flats are in the same ownership or effective control.

Two things follow from that list. Every scheme is local, so the answer in Birmingham tells you nothing about the borough next door. And every scheme has a start and an end date, with consultations on renewals running in the background, so a scheme that did not exist when you bought can exist by the time you refinance. Check the council's current designation for the specific address, in writing, rather than relying on a rule of thumb.

2. The status changes as flats are sold off, but not the way people assume

The third test is about occupation, and occupation changes. Sell enough flats to people who move into them and the building stops meeting the two thirds test, so it stops being a Section 257 HMO.

Here is the part that trips people up. Owner-occupied means somebody is actually living there. Granting a 999 year lease to an investor who then lets the flat out does not make that flat owner-occupied. If you split a block of six and sell five of them to landlords, all five are still let, and your building is still a Section 257 HMO. The title changed shape and the licensing position did not move an inch.

The other direction is just as real. A block that comfortably passes the owner occupier test today can fail it later, without you doing anything at all, simply because resident leaseholders moved out and let their flats. Nobody sends you a letter when that happens.

Why this matters on a title split specifically

If you are splitting a block, you own the whole thing and every flat is let. That is the exact profile the third test is written for. So on the day you buy, and all the way through the split, the building is more likely to be a Section 257 HMO than at any other point in its life. Three practical consequences:

• It belongs in your due diligence, before you exchange. The cost of a licence, and of the works a council attaches as conditions, is a line in the appraisal, not a surprise in month four.
• It does not disappear when the split completes. Creating leases changes the title. It does not change who is living in the flats.
• Fire safety is the usual sting. The whole reason this category exists is that the conversion never met the standard, which in practice means compartmentation, fire doors and alarm coverage. Those are the conditions a council is most likely to impose, and they are the works most likely to move your numbers.

Related reading

• What is a title split? The strategy explained from scratch, including when it is worth doing and when it is not.
• What does a title splitting course actually cost? Prices, what changes them, and five questions to ask any educator.
• Deals & Analysis. What the group coaching covers, session by session.