Mandatory and Selective Licensing Schemes
One of the most complex sides to life as a landlord is the controversial subject of Licensing.
Firstly, this is because there is no consistency in the rules across different locations meaning there are so many different schemes to navigate. Plus, the fines can be as high as £30,000 and this means that if landlords fail to comply with this complex and ever-changing legislation, then they could be seriously out of pocket.
We’ve taken a look at the key facts around the two different types of license requirements:
Mandatory licenses for HMOs (Houses of Multiple Occupation)
Landlords with certain types of shared homes have been required to comply with licensing since 2006, which was when the legislation was introduced to replace a registration scheme that was originally part of the 2004 Housing Act.
The fundamental rule is that where a property is classed as an HMO it needs to be licensed by the Local Authority. In the majority of cases, the landlord must pay a fee and the property has to be inspected to ensure there are no health and safety risks before the license is granted. An ongoing requirement is that the landlord must provide the Local Authority with copies of annual gas safety certificates, conduct electrical safety tests and install smoke alarms on each floor. Additionally, if any rooms have a coal fire or wood burning stove they must have a carbon monoxide alarm.
However, on 1st October 2018 the definition of an HMO changed.
Until this date, a property was classed HMO if it was let by five or more tenants that form two or more households; who share a kitchen, bathroom or toilet; in a building that is more than two storeys high.
But the definition changed and landlords who rent a property to five or more residents from two or more separate households - regardless of how many floors the property has – are now subject to mandatory licensing. The Government has estimated some 160,000 properties have been impacted.
Not only must newly-affected landlords comply with the licensing obligations, but this change could add an extra layer of complexity for some landlords. If the property is either a leasehold, or has a mortgage against it, then the landlord is required to seek permission from the leasehold owner and/or mortgage provider.
The landlord will also need to provide information about the license to the tenant. Plus, where a landlord has failed to comply with the new licensing regulations, then they will be unable to serve a Section 21 notice should they wish to regain possession of the property.
As with the Mandatory HMO licensing, Selective Licensing was introduced in 2006. Selective Licensing was aimed at providing Local Authorities greater powers to address the impact of poor-quality private landlords, and anti-social tenants. These licenses were initially believed to be positive as they were aimed at raising standards so that tenants could enjoy living in quality homes.
Indeed, the rationale for not having a nation-wide licensing scheme was that it intended that those councils in areas that were particularly badly impacted by persistently low housing standards had the power to take enforcement action, without adding any unnecessary burden on the majority of landlords in the rest of the UK.
As with HMO licenses, landlords with properties in areas with selective licenses need to apply for a license before they are able to rent out a property, and this grants the Local Authority the powers to check if the property is up to scratch and that the landlord is appropriately managing the let property.
It was always expected that the number of Local Authorities with a selective licensing scheme would be limited, however the number of councils opting to have a licensing scheme has grown substantially.
Because the financial penalties could prove crippling to a landlord, it’s vital that landlords find out whether they are in an area that currently has - or is considering launching - a licensing scheme. However this information isn’t necessarily easy to find out. There is no publicly available central database and so for many landlords it is a very time-consuming process to understand the risk they face.
haart is able to provide a proactive and highly cost-effective solution for landlords which tracks schemes and consultations, checks registered properties against the current legislation and registers the property with the relevant Local Authority. The service is provided nationally, which is particularly useful as many investment landlords have properties across several geographic locations, and with the rapid increase in new licensing schemes there is a real risk that landlords may not be aware of a looming change in regulations.
If you would like to discuss any of the licensing solutions we can provide, please contact our team on InvestorServicesTeam@spicerhaart.co.uk Our highly experienced property experts can help you to proactively manage and grow your investment portfolio. We provide specialist advice and a bespoke portfolio management service that’s tailored to your needs.