HMO question

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    HMO question

    Are there any landlords here whose HMOs are in leased property? In other words, the property itself is held on a lease from another landlord (superior landlord) and underlet as an HMO.

    What I'd like to find out is how the rent review between landlord A and superior landlord B is calculated? I would assume that the rent review clause in lease contains various matters to be assumed and disregarded but my question relates primarily to the rental valuation itself.

    Assuming that the rent payable to the superior landlord B is based on the gross rental income received by landlord A Is there a standard rule-of-thumb for the percentage discount? Or would each review be considered on its merits?

    I have a couple more questions but will wait for any response first.

    Thank you.



    #2
    The ground rent payable on a leasehold property should be set out in the lease. Ive never heard of one where it was linked to the use of the property or the amount of rent received. What exactly does the clause in your lease say?

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      #3
      It is usual for a review to be linked to the use of the property, at least the use defined in the rent review clause.

      This review is not directly linked to the amount of rent received but to value the market rent (as defined by the lease which includes in this case an assumption of vacant possession) it is useful when considering what that market rent might be to have regard to the amount of rent received. My question is whether there is any standard rule-of-thumb for the percentage discount on the amount of rent received.

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        #4
        I had an association with such a property; but never had a rent review
        I would think there are two many variables regarding the number of bedrooms and the type of building and maintenance required and the demographic to give a rule of thumb
        The superior landlords ran the HMO at one stage between commercial tenancies ( which were on a FRI basis) and knew the costs involved (which were significant) and how profitable it was. When the tenant took over, the commercial rent was about the equivalent of the profit after all bills; approximately 1/3 of the gross rent fully let, for approx 14 rooms.
        At one time ( maybe for a valuation of the property) I remember that the agent had used leased care homes of similar size as a comparable.


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          #5
          I dont understand how the market rent for an AST tenant could have any bearing on the ground rent valuation for a leaseholder who has already paid a large lease premium. This might just be my lack of understanding here so I would be interested to learn of others experience too.

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            #6
            It is my understanding that the OP means a landlord owns a property, he lets it to a commercial tenant whose business is to let out rooms as an HMO and to manage the repairs of the building etc. This is not about ground rent in the leaseholder sense. The commercial tenancy may be for a period of 6 years with a rent review in the middle for example

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              #7
              Update on OP

              Concerning the property I'm dealing with, which is let by the superior landlord to the tenant who in turn sub-lets numerous flats in the property, the whole classed as an HMO, the arbitration award for the rent review (between superior landlord and tenant) indicates 60% discount on the notional gross rent roll from under-letting, the notional rent allowing for all other factors involved.

              For a standard shop and residential flat above, all let on a business tenancy, the rule-of-thumb for the discount on notional AST rent for the flat ranges in my experience from 30% to 45% depending upon the nature of the premises. Compared to the 60% indicated for the HMO property I'm dealing with suggests that around 20% more is applicable lo an HMO review.

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