From 6 April, licences will become mandatory for Houses in Multiple Occupation (HMOs), and the new Housing Health and Safety Rating System (HHSRS) will be implemented, as the 2004 Housing Act comes into force. The HMO licensing system is aimed at improving conditions in the private rented sector, and is to be administered by Local Housing Authorities (LHA).
A recent study by Mortgage Trust revealed that a worrying 46 per cent of landlords were unaware of the changes that are about to occur. After 6 April, there is a three-month grace period. This means that there is still time for landlords and agents to get up to speed with licensing and the action they need to take, so there’s no need to panic yet.
Financial implications
The financial implications of HMO licensing could be significant; in order to qualify for the five-year licences, properties need to meet standards on various health and safety criteria. Each HMO let by a landlord will require a separate five-year licence, the fee for which is to be set by each LHA and could exceed £1,000. For example, the London Borough of Wandsworth’s standard fee is reported to be £1,100, with discounts for those who apply early. However, the fee collected by the LHA must only be sufficient to fund the administration of the licensing system and must not be used to supplement other local authority activities. Inevitably, many landlords will seek to recover the cost of the licences from tenants via higher rents. Indeed, Mortgage Trust’s survey found that 48 per cent of those landlords with HMOs in their property portfolios said they would consider increasing rents to cover the costs of the regulation.
Selective licensing
HMO licensing requirements will apply to all properties that are let to five or more people, considered as separate households, living on three floors or more. However, matters are further complicated because, subject to approval by the Secretary of State, LHAs can introduce additional selective licensing requirements. Selective licensing can be introduced for all properties in a certain area, or on properties meeting additional criteria. Thus, landlords with multiple properties that fall under the jurisdiction of different LHAs, or that are based in different areas, could be subject to different licensing requirements, fees and procedures.
Failure to comply through not being licensed, exceeding the licensed number of tenants, or breaking the terms of the licence could leave property owners subject to fines of up to £20,000, as well as rent repayment orders.
These penalties and the variation in licensing requirements are designed to encourage all those involved in the private rented sector to take a proactive approach. Landlords and agents should contact their LHAs now to find out which properties will be eligible for licences, and start assessing their portfolios to decide whether they need to make any improvements or changes to tenancy agreements.
Requirements
To bring properties up to standard, for every five unrelated tenants, there should be one bath or shower, one lavatory and one kitchen. The property needs to adhere to fire regulations, according to the HHSRS, and should be deemed suitable for the number of tenants. Mortgage Trust’s survey found that 40 per cent of those landlords, whose portfolios contained properties classified as HMOs, were already compliant with the new regulation. In addition, to qualify for a licence, the landlord, agent, or alternative licence holder who manages the HMO should be able to prove that they are ‘fit and proper’, the most appropriate person to hold the licence, and also that the management arrangements in place are appropriate.
Like Wandsworth, many LHAs are offering discounts for prompt applications, as an incentive to early action, while reduced fees and fast-tracked applications are often available for members of local accreditation schemes and professional organisations or trade bodies like the Association of Residential Letting Agents (ARLA) and the National Association of Estate Agents (NAEA).
Be prepared
HMO licensing is not universally welcomed, although we can only applaud initiatives which aim to improve service provision within the private rented sector and enhance the professional image of landlords. In some quarters, concerns have been expressed that the cost of HMO licensing may discourage first-time landlords from buying properties or, established landlords from continuing to expand their buy-to-let (BTL) businesses.
This undoubtedly overstates the issue, and now that licensing is certain to happen, it is up to the industry to make it work. Both intermediaries and lenders can play their part in ensuring that this important legislative change is brought to the attention of landlords, to ensure they are suitably prepared for the new regime – if not on 6 April, then at least by the end of the three-month grace period.
