HMO and Selective Licensing Fees and Other Issues

The High Court has given two judgements in a recent case involving a landlord and Richmond London Borough Council. In R(Gaskin) v LB Richmond Upon Thames (2018) EWHC 1996 (Admin) the High Court overturned a prosecution against Mr Gaskin and gave substantial guidance on fees and other points associated with HMO licensing, and by implication selective licensing, schemes under the Housing Act 2004.

Mr Gaskin had been prosecuted for not having a proper HMO licence for his property. He was of the view that he had made a proper application and that this had been unreasonably rejected by Richmond. Richmond took the position that the application was not properly completed because Mr Gaskin had not given the names of all the current occupiers and also because Mr Gaskin had not paid the proper fee.

Application Contents
Mr Gaskin was applying for a renewal of his licence. He refused to provide the full list of information that the local authority was seeking such as names of current tenants and the terms of their tenancy agreements. This he considered to be excessive. The requirements for a renewal licence were amended and simplified in 2012 by the Licensing and Management of Houses in Multiple Occupation and Other Houses (Miscellaneous Provisions) (Amendment) (England) Regulations 2012. The High Court agreed with Mr Gaskin and found that the only information that could be sought on a licence renewal application was that set out in the amended regulations.

Fees
This was the more complex and contentious area. Richmond were charging a fee per lettable unit which amounted in Mr Gaskin’s case to £1799. He considered this to be excessive and tendered a fee of £850. Richmond refused this and refused to licence the property.

This led to a complex argument about the EU’s Provision of Services Directive which is enshrined in UK law as the Provision of Services Regulations 2009. Mr gaskin argued that he was providing a service for the purpose of these regulations in that he was providing the service of letting and managing housing. The Court agreed with this. Accordingly, the local authority, as a regulatory body were obliged to treat him in accordance with the terms of this Directive and the UK implementation of it. The Directive and the UK regulations contain provision relating to fees for regulation which aim to keep those fees to the lowest reasonable level in order to keep the cost of regulation to businesses within limits. This has led to a ruling in relation to the licensing of sex shops that a fee for an application cannot include the cost of enforcement and management of the regime and can only include the cost of the application process itself. In the case of Mr Gaskin that meant that the fee he had paid was enough and the prosecution should not have been taken.

Wider Implications
This case has a large number of very serious implications:

1. Local authority licence renewals can only ask for the information set out in the relevant regulations, and nothing else. Not all local authorities have modified their renewal application forms to deal with this but those that have not should do so.
2. Local authorities normally include substantial elements of enforcement and management activity in their licence fees. This decision suggests that they cannot make these charges as part of an application fee. In other areas where the Provision of Services Directive applies local authorities have made charges in two tranches, a fee for the application and a further fee on approval. However, the Housing Act 2004 expressly states that the local authority can require applications to be accompanied by a fee, not that they can charge an application fee and a further separate fee. If this is correct then there are two possible outcomes. The first is that a local authority can charge a fee for applications which includes the management and enforcement elements but that they will then have to refund the enforcement and management components to those people who have not been granted a licence. In fact, people who have previously been refused licences are probably also entitled to have this money back. The second possibility is that local authorities are simply not able to make any charge in respect of the enforcement and general operation of licensing schemes at all. Given that most such schemes, especially additional and selective licensing are predicated on the most or all of the running cost coming from licensing fees this would mean that many of these schemes will be financially non-viable unless they are funded from other local authority funds. In the current circumstances with tight local authority budgets this is probably impossible and some of these schemes may be terminated early.
3. This is about much more than fees. The Gaskin case says that the Provision of Services Directive applies to licensing schemes in full. This does a lot more than just talk about fees. For example, the Directive states that the principle of tacit approval should apply where a regulator does not deal promptly with an application. The transposition of this into the UK law states that regulators should set out how long it will take to carry out a licensing approval process and if they do not meet that timeline then approval should happen automatically. This tacit approval should only not occur where there is an overriding public interest in it not occurring but the reasons for this need to be set out. Currently, there is no local authority which allows for tacit approval of licence applications and very few set out the timeline for licence processing. In general, local authorities cite public safety as a their rationale for not permitting tacit approval. However, this is a fairly weak justification. Given that the landlord can operate a property during the approval process and further that an authority can revoke a licence if an application contains serious inaccuracies, it seems unlikely that public safety is a strong justification for refusing to permit a tacit approval mechanism. This would have serious implications for the manner in which local authroities process licences.

Uncertainties
This is not an immediate reason for landlords to rejoice. First and foremost it is very likely that the fees element of the decision will be appealed. In practice, Richmond probably have no choice as their own licence scheme is likely to be uneconomic if they do not protect the income stream. Equally, there will be a collection of local authorities queuing up to encourage them to appeal to protect their own position. If such an appeal fails there will be tremendous pressure applied to the MHCLG to make urgent changes to the Housing Act 2004 to allow for fees to be charged in two phases to correspond with the Directive. Alternatively, we could of course simply decide that we do not wish to comply with this Directive, a potentially valid decision if we leave the EU, depending on the terms on which we do so.

Finally, there is a degree of uncertainty as to whether this applies to all landlords. Ms Gaskin managed his own properties, without the use of an agent and so could assert that he provided management services. It is unclear whether a landlord who provides management of his properties via an agent is then supplying a service under the meaning of the Directive or whether the agent is in fact doing so. If that was the case it may mean that landlords without agents would be entitled to pay lower fees for licensing schemes, a very odd outcome. However, it is probable that the Directive applies to all landlords, regardless of whether they use an agent.

Either way, for local authorities grappling with the upcoming change in the definition of mandatory HMO licensing and the increased cost of licensing many more properties this decision could not have come at a worse time.