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More action needed to tackle impact of HMOs in town centre

More action needs to be taken to tackle the impact of houses in multiple occupation (HMOs), according to an opposition leader in Wrexham.

Poor living conditions and rubbish being dumped in the street are among the issues which have been raised in recent years amid an influx of applications to convert properties in the town into shared homes.

Cllr Alun Jenkins, who is the leader of the Liberal Democrat group on Wrexham Council, said some landlords were failing in their duty to look after tenants.
He said there were almost 100 in his ward of Offa, which covers part of the town centre, some of which were causing problems for the community.

Cllr Jenkins made his comments as leading councillors met to make minor tweaks to the authority’s policy on HMO licences and fees.

The report’s main aim was to reflect the outcome of recent landmark court rulings, which require licence fees to be paid in two parts.
However, he said he would have liked to see a greater overhaul of how licences are monitored.

Speaking at the Executive Board meeting at the Guildhall, Cllr Jenkins said: “For those of us that have town centre wards, HMOs are a big issue.

“I could take you round my ward, where I’ve got approaching 100 HMOs.

“The majority of those you wouldn’t know were HMOs because they’re well run, but it’s the same ones at the bottom of the pile which keep coming up and causing problems.

“There is a need to be certain that we’re doing all we can to make sure the conditions in which people are living in HMOs are satisfactory and that we’ve got enforcement ways of dealing with all of that.”

The changes outlined included revised charges for HMO licensing fees.

The report asked members to agree to proposed payments of £100 for the recovery of costs incurred by immigration inspections and £35 per hour to landlords for providing advice on a prospective HMO.

It also requested them to remove the current enforcement charge of about £415 for hazard awareness notices from 1 April 2019.

But Cllr Jenkins questioned whether the council had enough staff to enforce against landlords who do not act responsibly.

He said: “We know the constraints there are on the department. You’re under resourced and you’ve got fewer officers than are needed to do all the enforcement that’s needed.

“There are huge issues there about how we enforce and police all of this.

“You are revising the document and it would have been nice to have the opportunity to be able to comment and suggest some other tweaks.”

In response, the authority’s deputy leader said he sympathised with the difficulties mentioned by Cllr Jenkins.

Cllr Hugh Jones (Con), who is also lead member for people, told the meeting efforts were being made to improve the quality of HMOs in the area.

He said: “Can I just say that Cllr Jenkins and I have had long discussions over the problems of HMOs in Wrexham and I’m fully aware of what they are.

“I’m fully aware of the frustrations that all of us as members have faced over the years in trying to improve the standards, because it affects people’s quality of life and it affects the whole character of wards.

“It is a hugely important and significant problem for mainly town centre, but not entirely town centre wards and members.

“All I can say to you Alun is that had there been any significant change in policy other than bringing the document up-to-date, we would have gone through a different process.”

By Liam Randall – BBC Local Democracy Reporter

Source: Wrexham

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HMO Property Investments Booming

Many buy to let property investors are moving over to HMO property investments as they battle increasing regulation and taxation changes.

HMO property investments can offer a higher yielding option when compared to standard buy to let, and many lenders are now recognising this and offering finance products for HMO property investments.

Leeds Building Society recently announced that it is now including five-year products in its bespoke HMO mortgage range. This move came on the back of intermediary feedback that landlord clients were looking for additional five-year options for small and large HMO property investments, as growing numbers sought to diversify their portfolios and move into this sector.

Houses in multiple occupation (HMOs) are nothing new, but with affordability issues continuing to impact first-time buyers and rents sitting at high levels, it’s evident that more people are staying in accommodation such as house shares for longer, well beyond their student years.

A study into HMO property investments by broadband and utilities provider Glide looked further into house shares, highlighting that London remained the best location in terms of the variety of house share opportunities, with over 19,000 rooms available. However, with the average monthly rent six times higher than the most affordable city to live in (average rent in London was suggested to be £3,278 pcm, compared to £499 in Bradford), the capital ranked 17th overall as the best city for house sharers.

Ranking the biggest UK cities on a range of measures – including the number of house shares in the city, number of job opportunities advertised, the cost of rent, university rankings and broadband speed – Bristol came out on top. The rest of the top 10 consisted of: Nottingham, Birmingham, Manchester, Liverpool, Derby, Southampton, Brighton and Hove, Leicester, and Portsmouth.

Landlords looking to venture into HMO property investments need to be fully aware of wider legislation changes as well as local licencing requirements when operating within this space. But, with increasing numbers of lending options becoming available, this is certainly an area worth considering.

Source: Residential Landlord

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FOI shows how little councils know about unlicensed HMOs

Government plans to protect tenants from poor living conditions through the expansion of mandatory HMO licensing look set to fall way short of their ambition.

Figures obtained by Simple Landlords Insurance reveal the majority of local authorities don’t know how many unlicensed HMOs are in their area – let alone where they are – leaving them ill-equipped to seek those who break the rules or take advantage of new enforcement powers.

The findings reveal that the rules are “practically unenforceable”, according to one HMO licensing expert, with the government’s recent commitment of £2m of additional funding to help implement the scheme unlikely to have any real impact.

The freedom of information requests returned by 90 local authorities reveal:

  • Two thirds (65/90) of local authorities have no idea how many landlords are breaking HMO licensing rules
  • Nearly one third (29/90) have no idea how many properties should come in under the new regulatory scheme
  • Over a third (31/90) did not prosecute any landlords for infractions of existing rules in the last two years
  • There were only 103 HMO licences rejected at application over the last 12 months, versus a total of 18,881 licenses granted.

Houses in Multiple Occupation (HMOs) containing five or more people in two or more households with shared facilities such as a kitchen, bathroom or toilet must be licensed.

To gain a license, landlords must now pass a ‘fit and proper’ test as well as providing proof of compliance with fire safety regulations and provide tenants with a written statement of the terms of their occupancy.  The rules were widened on 1 October, removing a minimum three storeys high requirement whilst new conditions on minimum room size and waste collection were imposed.

The known unknowns

The government’s Housing Minister Heather Wheeler MP claimed the new rules would increase the number of mandatory HMO licenced properties in England from 60,000 to an estimated 220,000 properties.

However, this new research shows local authorities are hamstrung in their efforts to apply the new legislation – due to a combination of poor intelligence about housing stock and stretched resources.

Carl Agar, founder of The Home Safe Scheme and managing director of property management company Big Red House, says: “It’s a big worry that local authorities don’t seem to have the resources available to manage this new workload. And the new rules are going to be practically impossible to enforce. The government is essentially relying on honest landlords coming forward to apply for a licence – leaving the so-called rogue or down-right criminal landlords that really need to be identified – out of scope. The £2m promised support is literally a drop in the ocean.”

Cities overwhelmed

Amongst the local authorities that have the intelligence and data to make a prediction about how many more HMOs would need a license, cities unsurprisingly show a major hike.

Liverpool City Council had 1,195 HMOs with a mandatory license before 1 October, and expects that 5,000 will require licensing. Birmingham expects numbers to swell from 1,853 to 4,000 and Southampton expects the numbers will increase from 551 to 2500.

Many London boroughs had no idea at all how many additional HMOs would come under scope, whilst those that did are expecting a huge jump – in Greenwich from 147 to 3,250 HMOs under scope.

66% of the local authorities who responded were able to estimate how many HMOs were likely to require a mandatory license from 1 October, and the average increase recorded was 227%.

Carl Agar adds: “Many local authorities are now faced with at least twice as many licences to process and check with the same amount of human resource – leaving even less time for enforcement. The major conurbations will be swamped.”

Mystery housing stock

Environmental Health Officer and Chair of the National HMO Network Paul Fitzgerald, explains: “Most local authorities simply do not fully understand the housing stock in their area, and they are kidding themselves if they claim that they do.

“Trying to identify an HMO from scratch is an incredibly challenging job, made harder by the failure to join up systems like council tax and benefits registers, and immigration databases. Those who are determined to break the law do not apply for a licence in the first place.

“Once they have been identified, dealing with criminal HMO landlords will be yet another problem. Pursuing a prosecution – or applying for a banning order – takes time, stretches resources and is not guaranteed. Many local authorities will opt for issuing fines, but there’s no guarantee that these will be paid without going to court, and that’s another resource and cost-heavy process.”

“The bottom line” sums up Carl Agar “is that the Housing Act, in its current form, is no longer fit for purpose and the government need to prioritise helping local authorities know who is renting property in their areas and what type of properties are being let. A central government funded national register would be a major step forward.”

Richard Truman, Head of Operations at Simple Landlords Insurance commented: “Earlier this year, we found that 85% of landlords we spoke to weren’t aware of the looming HMO regulations. A month on from their implementation, we wanted to find out exactly what those landlords are facing on the ground.

“The changes may be well-meaning, but a failure to support local authorities to communicate about them and enforce them is bad news – for good landlords and for tenants.

“We want to see the emerging class of professional landlords supported by central government and local authorities, and that can clearly only be achieved with more effective regulation and resource.”

Source: Property118

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Tighter regulation makes HMO investment an area for specialists

The Licensing of Houses in Multiple Occupation Order 2018 came into effect on 1 October, changing which residential properties will be categorised as houses in multiple occupation (HMO) for mandatory licensing purposes. From now on, properties occupied by five or more people, forming two or more separate households, will be classified as HMOs. The Residential Landlords Association estimates that this will affect 160,000 properties that didn’t require a licence before.

Many houses and some flats will now be required to have mains-powered fire alarms, fire check doors and fire escape areas that could result in considerable expenditure. Also, the penalty for not obtaining a licence can be a criminal conviction, a £30,000 fine as well as being required to refund rent received.

This long-awaited extension will offer greater clarity of minimum standards, including specified minimum room sizes deemed suitable in HMOs for occupation. Prior to this, many councils interpreted the definition for licencing differently.

The new rules allow a valuer, investor or lender to accurately establish if accommodation meets minimum standards. It should enhance the stock in this sector, which until now has included HMOs with substandard living accommodation.

Many in this sector have welcomed the minimum standards, including valuers and lenders, with the legislation further professionalising the market. With many councils unable to police HMOs due to limited resources, the roll of chartered surveyors and lenders inspecting and deeming properties fit for purpose and suitable security can’t be underestimated.

However, the cost burden for investors and property owners may increase, and where rooms are excluded from letting when minimum room requirements are not met, landlords’ rental income will fall. This could affect capital values and loan-to-value covenants of properties held as security for bank lending.

Some investors may withdraw from the market. This new order is likely to result in a reduction in the supply of HMO accommodation, creating upward pressure on rents at a time when there is a need to increase affordable accommodation.

The legislation is likely to further increase the specialist nature of HMO ownership, requiring a much more professional approach from landlords. The times of amateur investors buying HMO properties for possible high returns has passed. The need to understand and comply with the licensing requirements, as well planning legislation, means HMO ownership is now best suited to those with specialist knowledge of this sector.

Source: Property Week

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Small landlords will dwindle away

The private rental sector of the future will be dominated by larger institutional landlords as the number of hobbyist landlords decreases.

This prediction is from Roma Finance, the specialist bridging finance and development lender, who reports that more and more landlords are using limited companies to maximise tax efficiencies on their investments – and this is set to continue.

Those landlords with fewer than five properties will disappear as the cost of managing their properties and keeping up with ever-changing legislation will prove to be prohibitive.

However, with the number of landlords reducing this won’t affect the number of buy-to-let properties available for rent, but extra administration costs could ultimately increase the rents charged to tenants.

Roma says that landlords are evolving in many different ways, from the legal structure of their holdings, the make-up of their portfolios, the quality requirements they will have to adhere to and the way they will finance properties going forward.

New HMO rules

An area of concern is the impact of the new Houses in Multiple Occupation (HMO) regulations coming into force on 1 October. The number of storeys will be removed from the definition of HMO and minimum room sizes will be set.

Those landlords with one or two storey HMOs will be subject to mandatory licencing requirements by their local council. The Residential Landlords Association estimates that in the UK this will affect an extra 177,000 properties.

EPC ratings

The new EPC ratings which came into force on 1 April mean that rental properties need to be rated as E or above, those rated F and G can’t be let to new tenants or have tenancies extended.

Roma says this provides bridging lenders with a new opportunity to back professional landlords to acquire ‘un-rentable’ properties with a view to improving their EPC rating, which in turn will make them eligible for longer term buy-to-let mortgages.

Opportunities for lenders

From a lending perspective, Roma predicts that more lenders will opt for unique or tailored rates and criteria for each transaction. There are big opportunities for innovative lenders willing to look at how they can provide funding for more complex cases and update their underwriting requirements to take the new legislation requirements into account.

Scott Marshall, managing director of Roma Finance, commented: “Clearly a barrage of regulation and legislation is moulding a new breed of landlords. The days of the hobbyist landlord are numbered as the upkeep and management of rental properties becomes more onerous.

“The private rental sector is due for another shake up in 2018, and beyond, and only the larger players will be able to cope, as they can benefit from their scale of operation.  With the HMO rules coming into force in October, maybe more affordable housing is needed more than ever as an alternative.

“However, as a lender we’re still experiencing a high level of finance demand for rental property, and in the wider market there are many product updates being introduced as lenders seek to adjust criteria to keep pace with a changing market. But it seems clear that the future will be driven by professional landlords rather than the armchair investors of the past.”

Source: Mortgage Finance Gazette

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Harrow Council Leader Speaks Out About Landlord Rogues

The leader of Harrow Council has spoken out again against irresponsible buy to let investment landlords following another inappropriate property discovered by enforcement officers.

Enforcers came across a second poorly maintained property, noting a ‘sea of mattresses’ and makeshift bunkbeds at the two-bedroom house in Wealdstone. It was thought that the home could house as many as 18 people, including children. However, the landlord claimed that everything was as it should be with the house.

The property was an unlicensed house in multiple occupation (HMO) and had no smoke detectors, faulty electrics, and was covered in mould. This led to the leader of Harrow Council reiterating his pledge to weed out irresponsible landlords from the sector. Rogue landlords can pose a danger to tenants’ lives by letting out unsafe and worrying properties. They also pose a danger to the sector in general, with the action of a small minority of landlords bringing the buy to let market in general into disrepute.

Councillor Graham Henson, leader of Harrow Council, said: ‘What kind of monster would profit from housing children in filthy and dangerous conditions like these? What if these faulty electrics caught fire? Or the rotten ceilings collapsed? It’s a nightmare that belongs in the Victorian era, not today. It keeps me awake at night, worrying about illegal HMOs like these and the criminals that rent them out.’

He asserted: ‘We will never, ever stop uncovering properties like these and punishing those responsible.’

In a particularly worrying turn of events, enforcement officers were forced to make a swift escape as the bathroom floor began to fall from underneath them.

Councillor Henson insisted that formal action will be taken against the landlord and an emergency order has been put in place. An emergency order will prevent anyone from living in the house until it is made safe for human habitation.

Source: Residential Landlord

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Wirral Rogue Landlord Guilty Of 45 Charges

A rogue landlord has pleaded guilty to 45 charges relating to poorly maintained properties in Wirral.

Gary Fixter from Chester was prosecuted by Wirral Council under the Housing Act 2004. He was fined £32,000 and told that he must pay £13,611 in costs after he admitted to the offences at a hearing at Liverpool Crown Court.

Fixter was accused of failing to comply with improvement notices as well as breaches of Houses in Multiple Occupation (HMO) management regulations. He also failed to produce necessary documents upon request.

The documents in question related to his ownership and management of two HMOs. One was located on on Alexandra Road in Birkenhead, the other on Rake Lane in Wallasey. Fixter also owned a self-contained flat on Grange Road, West Kirby.

The improvement notices were served when Wirral Council’s Housing Standards Team carried out inspections. The inspections found that each property was in serious disrepair. There was also evidence of inadequate property management which had seriously endangered the health of tenants putting them at risk.

The council officers also discovered various defects or hazards which rendered most of the living conditions unacceptable. This also posed a risk to the health and safety of the tenants.

The inspection also revealed serious hazards such as long term penetrating dampness. There were also defective fire alarm systems which endangered the lives of the tenants in the property through compromising their abilities to escape the building in the event of a fire. There were also dangerous and untested electrical installations which required substantial work to make them safe, something the landlord had thus far failed to do to the standard expected.

This was not Fixter’s first brush with the law through a local authority. He was first prosecuted at Scarborough Magistrates Court due to previous breaches of HMO regulations.

Source: Residential Landlord

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Help for residential tenants is on the way

The pace of change for residential landlords and tenants shows no sign of abating. Several recent press announcements herald new changes to the law in England, which will benefit tenants.

Houses in multiple occupation (HMOs)

Mandatory licensing of HMOs came into force in 2006. Licensing is mandatory for properties of three storeys or more and lived in by at least five people in two or more separate households. It was introduced with the intention of driving up standards and making larger HMOs safer places to live.

In October 2016, following expansion of the HMO market, the government published consultation paper “Houses in Multiple Occupation and residential property licensing reforms” which sought views on a number of proposed measures. The issues these sought to tackle included overcrowding, poor management of tenant behaviour, failure to meet required health and safety standards, housing of illegal migrants and intimidation of tenants.

In January 2018, the government issued its response to the replies received to its consultation. It proposes to:

  • extend the scope of mandatory HMO licensing to cover certain HMOs occupied by five persons or more in two or more households, regardless of the number of storeys. This includes any HMO which is a building or a converted flat where the householders lack or share basic amenities such as a toilet, personal washing facilities or cooking facilities. It also applies to purpose-built flats where there are up to two flats in the block and one or both are occupied as an HMO;
  • introduce mandatory conditions to regulate the size and use of rooms as sleeping accommodation in licensed HMOs. The proposal is that this will done by prescribing the minimum sizes of rooms that may be used for sleeping and by introducing a mandatory licencing condition requiring local authorities to specify which rooms in an HMO are suitable for sleeping accommodation, and by how many adults and children;
  • introduce a mandatory condition requiring the licence holder to comply with their local authority scheme (if any) for the provision of facilities for the proper disposal and storage of domestic refuse.

The government intends to bring these new measures into force later this year.

The government will not at this time:

  • introduce legislation to mandate criminal record certificates to be provided in connection with applications for licences under the Housing Act 2004. It says local authorities already have discretion to do this should they so choose and the new powers on banning orders and a rogue landlord database will help strengthen this provision (see below); or
  • require local authorities to provide discounts for licences issued to certain private providers of purpose-built student housing.

However, these matters will be kept under review.

Banning orders

The Housing and Planning Act 2016, introduced a power for the First-tier Tribunal to serve a banning order on a landlord or property agent. Where someone is convicted of a banning order offence, their details can be listed in a planned database of rogue landlords and property agents. Our previous article A ban on unfair letting fees: the draft Tenant Fees Bill 2017 explains how breaches of the draft Tenant Fees Bill 2017 can constitute offences and result in a landlord/letting agent being added to the database. This database will initially only be available to central government and local authorities to check for previous offences, but it is hoped that in due course it will be made available to the public to enable more informed decisions to be made about renting.

Following a consultation paper issued in 2016, the government has now announced that it will make regulations specifying that a range of existing criminal offences will constitute banning order as well as some other offences for the purposes of the act. The full list of offences is contained in the consultation response which can be found at:

Consultation on proposed banning order offences under the Housing and Planning Act 2016.

They include:

  • Unlawful eviction and harassment of occupiers;
  • Violence for securing entry;
  • Failing to comply with an improvement notice;
  • Offences in relation to licensing HMOs;
  • Fire safety and gas safety offences;
  • Offence of harassment and stalking;
  • Theft, burglary, blackmail and handling stolen goods;
  • Production, possession of supply of illegal drugs;
  • Violent and sexual offences.

Register of landlords

A Private Member’s Bill to require all private landlords in England to be registered was introduced to Parliament on Wednesday 17 January 2018 under the Ten Minute Rule. This bill is expected to have its second reading debate on Friday 27 April 2018. For further information and to access the bill documents click Parliamentary website.

The Bill was introduced as a precursor to greater regulation of private landlords, the intention being that more transparency about the identity of private landlords should help to tackle issues like long-term empty properties and absentee landlords which lead to increased crime and other social problems.

Homes fit for habitation

Another Private Member’s Bill is also making progress. Karen Buck’s Homes (Fitness for Human Habitation and Liability for Housing Standards) Bill 2017-19 seeks to amend the Landlord and Tenant Act 1985 by extending its obligations to cover almost all landlords and to modernise the fitness for habitation test.

The bill seeks to ensure that:

  • all landlords (both social and private sector) must ensure that their property is fit for human habitation at the beginning of and throughout the tenancy; and
  • where a landlord fails to do so, the tenant has the right to take legal action in the courts for breach of contract on the grounds that the property is unfit for human habitation.

The new section 8 of the Landlord and Tenant Act 1985 substituted by the bill will apply in England only. Relevant documents on the Bill can be found on the Parliament website.

On 14 January 2018 housing secretary Sajid Javid confirmed government support for the bill, saying that it wiould help to ensure rented homes are safe and give tenants the right to take legal action when landlords fail in their duties.

Introduced by the Housing Act 2004, the Housing Health and Safety Rating System is already used by local authorities to assess whether a property contains potentially serious risks to its occupants’ health and safety. However the new bill will give tenants an alternative remedy through court if these powers are not effective.

The current housing shortage leaves many tenants with limited housing options. Any measures to reduce the scope for exploitation are to be welcomed and if brought into effect, these proposed changes will be a welcome means of helping tenants live in properties that can properly be described as habitable and free from fear of errant landlord behaviour.

Source: Lexology

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High yields still await savvy landlords

Landlords who let out property on a room-by-room basis last year enjoyed yields of 8.9 per cent on average, research from specialist buy-to-let mortgage broker Mortgages for Business shows .

This compares to a much lower, though still healthy, 5.6 per cent yield on ‘vanilla’ buy-to-lets where the whole property is let on one tenancy agreement.

Profit margins in the buy-to-let sector remain significant, and the firm attributes this  to landlords buying lower cost properties and renting them out for more.

The research found that the average value of a buy-to-let property in 2017 was £305,283 – a 19 per cent decrease on the average in 2016 when it was £375,409.

Jeni Browne, of Mortgages for Business, said: “These results suggest that landlords are seeking lower value properties and, anecdotally, we hear that they have been looking further north for their acquisitions where prices are cheaper.

“The benefits of this strategy include less stamp duty, future capital growth, and scope for rental increases which thus allow for slightly higher yields.”

The findings tally with separate research out last week revealing Nottingham and Liverpool as the best cities in the UK in which to be a landlord.

The Mortgages for Business research also showed the rising popularity of purchasing buy-to-lets through a limited company.

According to the firm, limited companies accounted for 49 per cent of all buy-to-let mortgage completions in the final three months of last year, compared to 31 per cent in Q4 2016.

Houses in multiple occupation – or HMOs – have become an increasingly popular option for landlords on the hunt for better returns after tax changes began to push up their costs.

Ms Browne said: “The attractiveness of HMOs as a buy-to-let investment has increased in recent years not only because of the higher yields on offer but because serious investors are keener to diversify their portfolios.

“With more landlords vying for these properties, prices have been pushed up more quickly than the rents which, I would suggest, is one of the main reasons we are seeing their yields drop.

“Although, I suspect that the granting of fewer new HMO licences is also having an impact.

“Savvy landlords like to have a good mix of properties. They like the consistency of vanilla buy-to-lets and the higher returns of more complex property types.

“Although lower than previously, 8.9 per cent is still an excellent return for HMOs, not only when compared to vanilla buy-to-lets but also other, non-property assets.”

Source: Simple Landlords Insurance

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Changes to Mandatory HMO Licensing Expected October 2018

In December 2017 the government announced that it would proceed with extending mandatory property licensing of houses in multiple occupations (HMOs). On 23 January 2018, Housing Minister, Dominic Raab, responded to a written question from Wera Hobhouse MP stating that, subject to Parliamentary approval, the necessary regulations would be brought into force in October 2018.

What is mandatory licensing?

Since the Housing Act 2004 came into force it has been a requirement that large HMOs are licensed under mandatory licensing. Currently mandatory licensing applies nationwide to HMOs that:

  1. Comprise 3 or more storeys;
  2. Are occupied by 5 or more people living in two or more single households; and
  3. The occupiers share basic amenities such as washing and cooking facilities.

As these large HMOs are deemed high risk they are all required to be licensed regardless of where the HMO is located. Recent years have seen local authorities implement additional licensing schemes to cover smaller HMOs in an attempt to tackle poor housing conditions in the private rented sector. For example, in some areas, HMOs comprising one or two storeys need to be licensed.

What are the proposed changes?

The Housing Act 2004 allows the Secretary of State to prescribe the type of HMO that falls within the definition of mandatory licensing. The prescribed description has not been updated since 2006 when licensing under the Housing Act 2004 came into force.

The government has now decided to extend the scope of mandatory licensing to bring smaller HMOs within the scheme. Mandatory licensing will include:

  • All HMOs with 5 or more occupiers living in 2 or more households regardless of the number of storeys. Effectively this means the storey requirement will be removed from the current definition.
  • Purpose built flats where there are up to two flats in the block and one or both of the flats are occupied by 5 or more persons in 2 or more separate households. This will apply regardless of whether the block is above or below commercial premises. This will bring certain flats above shops on high streets within mandatory licensing as well as small blocks of flats which are not connected to commercial premises.

As is the case now, it is the individual HMO that is required to be licensed and not the building within which the HMO is situated. This means that where a building has two flats and each is occupied by 5 persons living in 2 or more households, each flat will require a separate HMO licence.

What are the proposals for implementing the changes?

The government proposes to implement the extension of mandatory licensing in two phases.

Phase one will last for 6 months. During this time local authorities will publicise the new licensing regime, process applications and issue licences. Landlords that did not require a HMO licence before the change in the rules will not be prosecuted during phase one for failure to license a licensable HMO and will not be exposed to rent repayment orders (RROs).

However, landlords will be expected to apply for a licence during the 6 month grace period and they are encouraged to do so because they will not be able to serve valid section 21 notices seeking possession until an application for a licence has been duly made (unless the landlord has instead applied for a temporary exemption in order to remove their property from licensing).

The government’s response is clear that the 6 month grace period does not mean that applying for a licence is optional. It just means that the criminal sanctions for not having a licence will be put on hold. Once the 6 month period is over and phase two begins any landlord without a licence will be subject to the full range of penalties for failing to comply.

It is also important to point out that landlords who currently require a licence under a local authority additional or selective licensing scheme and who are not licensed will not be able to benefit from the 6 month grace period just because their property has fallen within the new mandatory licensing category. These landlords could face enforcement action at any time.

What happens if I already have a licence under the local authority’s additional or selective licensing schemes?

The response paper confirms that properties already licensed under local authority additional licensing schemes will be passported into the mandatory licensing scheme without any cost to the landlord or alterations to the licence conditions for the remaining period of the licence. The distinction between mandatory HMO licences and additional HMO licences is largely artificial as both licences are granted pursuant to Part 2 of the Housing Act 2004. Passporting these existing licences into mandatory licensing should not be too problematic because they both fall within the HMO licensing scheme.

Some local authorities also have selective licensing schemes requiring all privately rented properties to be licensed whether they are HMOs or not. Selective licensing is governed by Part 3 of the Housing Act 2004. Some HMOs are only caught by selective licensing schemes, for example, where they do not fall within the current definition of mandatory licensing or the local authority has no additional licensing designation. In these circumstances, the government proposes to issue converted licences at no additional charge to the landlord. Converting Part 3 licences to Part 2 licences will require more consideration as there are differences between the two licensing schemes. Part 2 of the Housing Act, for example, requires the local authority to be satisfied that the property is suitable for multiple occupation and this includes assessing whether the property meets prescribed HMO standards.

What happens if I don’t get a licence?

There are serious consequences for landlords and letting agents who do not obtain licences for licensable properties. The local authority can bring a prosecution against the landlord in the magistrates’ court and fines for Housing Act 2004 offences have been unlimited since March 2015. Local authorities are also able to issue landlords with civil penalty notices of up to £30,000 per offence as an alternative to prosecution. Tenants and local authorities have additional remedies in the form of RROs where rent or housing benefit can be claimed back from the landlord by order of the First-Tier Tribunal.

Repeat offenders may also be subject to a banning order prohibiting them from letting property once these are brought into force. This is expected to happen in April 2018.

The new rules extending mandatory licensing are expected to come into force in October 2018. Landlords should start reviewing their properties now in preparation for the changes.

Source: Lexology