Small HMO vs Large HMO — Licensing Differences Explained

The Two Tiers of HMO Licensing

Not all HMOs require the same licence, and the difference matters both financially and operationally. Understanding exactly which tier applies to your property — and whether your local council has overlaid further requirements — is essential before you buy or convert.

Defining an HMO

A property is a House in Multiple Occupation if it is occupied by **three or more people** from **two or more separate households** who share at least one facility (kitchen, bathroom, or toilet). A household is defined as a single person or members of the same family.

This means two friends sharing a two-bedroom flat are not technically an HMO (two people from two households, below the three-person threshold). Three friends sharing a house are an HMO. The law focuses on the number of occupants and the number of households, not the number of bedrooms.

Small HMOs: Three to Four Occupants

A property occupied by three or four people from two or more households is an HMO for legal purposes, but it does not automatically require a **mandatory** licence. Under the national scheme, mandatory licensing only applies at five or more occupants.

However, small HMOs may still require a licence if:

1. The local council has introduced an **additional licensing scheme** covering smaller HMOs in the area

2. The property is a bedsit-type HMO where individual rooms lack self-contained facilities (a separate licensing category in some council schemes)

In areas without additional licensing, a three- or four-person HMO is still subject to all other landlord obligations — fitness for habitation, gas and electrical safety, deposit protection, right to rent checks, and fire safety — but does not require a formal HMO licence.

Large HMOs: Five or More Occupants (Mandatory Licensing)

Any HMO in England occupied by **five or more people** from **two or more households** is subject to mandatory licensing under the Housing Act 2004 as amended. This applies regardless of:

• The number of storeys (the pre-2018 three-storey rule no longer applies)
• Whether the property is a converted house, a purpose-built block, or a flat
• Whether the landlord is new to HMOs or an experienced operator

Mandatory licence conditions typically include:

• Minimum bedroom sizes (6.51 m² for a single adult, 10.22 m² for two adults)
• Adequate kitchen and bathroom facilities for the number of occupants
• Working smoke and heat detection systems
• Fire doors and escape routes as specified by the licence
• Annual gas safety certificate
• Five-yearly electrical installation condition report (EICR)

The licence must be displayed in the property and renewed every five years. Any material change — additional occupants, change of use, change of managing agent — may require notification to the council.

The Additional Licensing Overlap

The most complex scenario arises where a council has introduced an additional licensing scheme that covers three- and four-person HMOs in addition to the nationally mandated five-plus rule.

In such areas:

• A three-bed shared house with three unrelated tenants requires a licence
• All the same standards (room sizes, fire safety, facility ratios) apply
• Fees are similar to mandatory licence fees
• The same enforcement powers and rent repayment order risks apply

Before acquiring any property intended for multiple occupation — even a modest three-bedroom terrace — always confirm with the local planning and housing authority what licensing schemes are currently active and whether any new schemes are being consulted on.

Practical Differences in Running Each Tier

Which Delivers Better Returns?

The economics of a four-person versus five-person HMO are often close, but the compliance burden of mandatory licensing adds cost and administrative overhead. Some landlords deliberately target four-person configurations in areas without additional licensing to retain the HMO income premium while avoiding mandatory licensing.

This strategy is legitimate where additional licensing does not apply, but carries the risk that a new scheme is introduced — at which point the landlord must apply promptly or face enforcement.

Use our [HMO calculator](/hmo-calculator) to model returns at different occupancy levels and licensing cost assumptions.