The co-living sector in the United Kingdom has seen some rapid momentum since the COVID outbreak in March 2020. Compare national applications for 10,520 co-living beds between 2015 and 2020 with a further 12,150 bed applications being submitted within the last 3 years.
Here at Converse Law, we are seeing this approach develop in practice - acting for our client OX Living in building upon and expanding its existing portfolio of luxury house share accommodation across Oxfordshire.
Converse Law Founder/Property Partner, Imdaad Sulaiman explores this growing sector and how this can work in practice for developers and operators.
The Emergence of Co-Living
The housing crisis is showing no sign of abating and with rents in the UK at their highest since the Office for National Statistics began recording them in 2016 and the increasing standard of living costs, the younger generation is finding it harder than ever to find suitable properties to rent or buy as their first home.
Co-living emerged in response to the increasing urbanization and housing shortages in major UK cities. The concept offers young residents a more affordable and flexible way to live in the heart of the city.
Research according to Savills shows that activity in this sector has nearly trebled since 2019 with the number of co-living beds in the UK (existing or proposed) totalling 25,021.
Companies such as The Collective, WeLive, and The Student Hotel have entered the UK market, while local startups like Node and Common have gained prominence. These players have invested significantly in creating diverse co-living spaces that cater to different segments of the millennial population, ranging from students to working professionals.
The concept is filtering outside of London too - according to Cushman & Wakefield’s latest data, London, Manchester, and Edinburgh top the list of UK cities with the biggest growth potential for co-living accommodation.
Savills are also citing that smaller areas within Reading, Brighton, Guildford and Kingston are seeing an increase in co-living schemes.
Additional benefits of co-living enable residents to build relationships with like-minded people, and provide flexibility, as most co-living spaces offer lease terms ranging from 9/12 months but also up to 3 years.
Developments are often strategically located in city centres, providing residents with easy access to work, entertainment, and transportation, as well as offering many amenities, such as gyms, communal kitchens, and co-working spaces.
Co-Living – an enhanced form of HMO
Co-Living schemes are attractive not only to its target audience of potential residents, but also to investors looking at alternatives for their property portfolio.
We are well placed to guide clients through those parts of the conveyancing process in acquiring properties for the purpose of developing and offering co-living schemes in the market place.
As part of this process, investors need to be mindful of the difference between having a HMO licence and planning permission to develop and use a property as a HMO.
HMO licence requirements vary by local authority, so it’s a good idea to check the local authority’s specific regulations in the first instance.
To comply with legal regulations, there is a requirement to renew the licence before it expires as the licence is only valid for a maximum of five years. In some instances, a licence may be valid for less than five years and keeping track of the expiration dates is crucial in regularising your property’s HMO use.
A HMO licence cannot be transferred so, when purchasing a HMO property, an investor will need to submit a fresh application to the appropriate local authority. When applying for a HMO licence, you will need to ensure the property is suitable for the number of tenants and be a ‘fit and proper’ candidate. In addition to this, each local authority will require updated gas safety certificates, the installation and maintenance of smoke alarms, and electrical safety certificates.
Not having a valid HMO licence can lead to civil penalties, an unlimited fine and, in some instances, legal proceedings.
There is a common misconception that if a property has a HMO licence it must mean that it also has planning permission for such use.
This is not necessarily the case and there may be a legal obligation to apply for planning permission authorising the HMO use. If the property is being used as a HMO without an appropriate planning permission, this could give rise to enforcement action, even where the local authority has issued a valid HMO licence.
A change of use from a residential dwelling to a HMO is generally permitted without consent under permitted development rights.
However, a number of local authorities, especially in urban areas, have introduced Article 4 directions giving them the power to take away certain permitted development rights within a designated area.
Details of any Article 4 directions will be shown on a Local Search. Where the property is located within an area where permitted development rights have been removed, it will require a valid permission allowing the change of use to a HMO unless it can be established that the HMO use pre-dated the Article 4 direction.
HMO licensing and planning permissions are handled separately, so it is important that both are checked as part of any due diligence exercise and that you have good planning consultants on board as part of that process.
In summary, the co-living sector in the UK has made significant strides in addressing the housing crisis while redefining urban living. With its emphasis on affordability, community, and flexibility, co-living has become an appealing option for a wide range of individuals. However, challenges remain, and the future will depend on how the sector navigates regulatory issues and economic uncertainties. As the UK’s co-living sector continues to grow and evolve, it promises to play an increasingly important role in the country’s housing landscape.
For advice on acquiring HMO properties and co-living developments, get in touch, we'd be happy to help.
