Purpose-Built Student Accommodation providers and HMO licensing

A recent rent repayment order (“RRO”) tribunal case has again highlighted the importance of purpose-built student accommodation (“PBSA”) providers being aware of their obligations in respect of licensing houses in multiple occupation (“HMOs”). In the decision of LDC (Ferry Lane) GP3 Ltd v Garro & Ors, the Upper Tribunal dismissed the PBSA provider’s appeal against rent repayment orders made on the basis of having control of two unlicensed HMOs,  an offence contrary to s72 Housing Act 2004 (“the Act”).

The facts of the case

The appellant landlord was part of the Unite Group and the respondents were students who had occupied rooms in ‘cluster flats’ in a PBSA block. The cluster flats contained three to ten bedrooms where occupants shared facilities.

Since 2019, the London Borough of Haringey, where the block was situated, had an additional licensing designation covering all HMOs in the borough not already covered by mandatory licensing (see further below for the distinction between the two licensing schemes).

The appellant did not apply for licences until several years later as it asserted it did not become aware of the licensing scheme until in or around July 2022.

At first instance, the First-Tier Tribunal (FTT) made RROs in favour of the 6 applicants. The landlord had sought to argue that it had a reasonable excuse defence, asserting that Haringey had not consulted with it before the scheme was introduced. The FTT rejected this argument concluding that that Haringey had satisfied its obligations with regards to publicising the designation.

The FTT, deciding that an offence had been committed, ordered repayment of 50% of rent (net of a sum for utilities paid by the landlord). The landlord’s appeal and the respondents’ cross-appeal on the amount of the RRO were all dismissed by Martin Rodger KC, the Deputy Chamber President in the Upper Tribunal.

The FTT and UT decisions both highlight the importance of providers keeping themselves informed of requirements in their areas and taking an active approach to their licensing responsibilities to ensure compliance.

The rest of this blogpost examines key questions PBSA providers should be asking themselves when considering their licensing obligations.

Is the property an HMO?

The first question that PBSA providers need to consider is whether the building or part of a building is an HMO. Section 254 Housing Act 2004 sets out a number of tests for determining this question including the ‘standard test’ and ‘self-contained flat test.’

For cluster flats the likely relevant test will be the self-contained flat test but the whole building should be considered as the different statutory tests can apply to different parts of the building as well as the building as a whole.

A cluster flat in a block could be an HMO under the ‘self-contained flat test’ if:

• It consists of a self-contained flat. This is defined at s254(8) of the Act as a separate set of premises, whether or not on the same floor, which forms part of a building, either the whole or a material part of which lies above or below some other part of the building and in which all three basic amenities are available for exclusive use of its occupants. Basic amenities is defined at s254(8) of the Act and means a toilet, personal washing facilities or cooking facilities;
• The flat is occupied by persons who do not form a single household (Household is defined in s258 of the Act and is centred around families. Friends who are unrelated form separate households);
• The flat is occupied by those persons as their only or main residence or they are to be treated as so occupying it. (Under s259 of the Act, students undertaking a full-time course of further or higher education are deemed to be occupying as their only or main residence);
• Their occupation of the flat constitutes the only use of the accommodation;
• Rents are payable or other consideration is provided in respect of at least one of those persons’ occupation of the flat; and
• Two or more households who occupying the flat share one or more basic amenities.

A property occupied by two persons is not an HMO (see the exemptions at Schedule 14 of the Act). A flat occupied by three or more unrelated individuals sharing facilities would be an HMO if the above definition is met.

This has a number of consequences:

1. The landlord must comply with The Management of Houses in Multiple Occupation (England) Regulations 2006 (“the Management Regulations”) which impose various duties on persons managing HMOs.
2. The property may need to be licensed with the local authority. It should be noted that the Management Regulations still apply even if the property does not require a licence and PBSA providers should familiarise themselves with the duties set out in these regulations.

Is a licence required?

This is where things get complicated firstly because there are different types of licensing schemes, some of which depend on the location of the property, and secondly because there is a divergence in how the law treats student buildings managed by specified educational establishments such as universities and those that are managed by private providers.

There are three types of licensing schemes under the Housing Act 2004:

1. Mandatory Licensing
2. Additional Licensing
3. Selective Licensing.

What is mandatory licensing?

Mandatory licensing applies nationwide to large HMOs occupied by 5 or more persons living in 2 or more separate households. HMOs which fall within a prescribed description of HMO set out in The Licensing of Houses in Multiple Occupation (Prescribed Description) (England) Order 2018 are required to be licensed under mandatory licensing.

Previously there was a requirement that the HMO had to comprise 3 or more storeys but this requirement was removed in 2018 so that a flat on one level can fall within mandatory licensing.

There is an important exception for HMOs that meet the self-contained flat test: a purpose-built flat is not required to be licensed under mandatory licensing where it is situated in a block comprising three of more self-contained flats.

Many cluster flats in large purpose-built student blocks will therefore fall within this exception and outside mandatory licensing.

What is additional licensing?

Additional licensing is where PBSA providers need to take extra care. Local authorities can introduce additional licensing designations that apply licensing to specific types of HMOs that fall outside mandatory licensing, for example, HMOs with 3 of 4 persons.

The designations can apply to the whole or parts of the local authority’s area.

Local authorities are required to publish designations on their website and these should be reviewed regularly.

What is selective licensing?

Selective licensing also varies depending on area. These schemes are again introduced by the local authority. Selective licensing apply to all privately rented accommodation (with some exceptions). Therefore, they can cover HMO accommodation that does not fall to be licensed under an additional licensing scheme (for example, because a local authority has not introduced an additional licensing scheme) as well as non-HMO accommodation such as flats occupied by a single individual.

Are there any exemptions for student buildings?

The Act does contain, in Schedule 14, a list of exemptions setting out buildings (or parts of a building) which are not HMOs for the purposes of licensing (note this exemption does not extend to Part 1 of the Act that deals with the enforcement of housing standards). One of the exemptions is “Buildings occupied by students”.

However, this is narrower than it sounds and the exemption only applies to a building:

1. Which is occupied solely or principally by persons who occupy it for the purpose of undertaking a full-time course of further or higher education at a specified educational establishment or educational establishment of a specified description; and
2. W the person managing or having control of it is the educational establishment in question or a specified person or a person of a specified description.

At present, under regulations made by the Secretary of State, only specified educational establishments benefit from this exemption. The educational establishment has to listed in the Schedule to the regulations and subscribe to one of the approved codes of practice. Therefore, as the law currently stands, accommodation providers who are not themselves specified educational establishment cannot rely on this exemption.

What are the potential risks for PBSA providers over HMO and licensing law?

It is important to take advice early to ensure compliance with HMO and licensing law. Failure to license a licensable property can lead to significant and costly consequences, such as:

• Students blocks can accommodate hundreds of students which could result in a large volume of RRO applications if the landlord gets things wrong.
• Tenants and licensees can seek repayment of up to 12 months’ rent paid during the period their landlord was committing an offence.

Consequences being in control of or managing an unlicensed HMO or in breach of the Management Regulations:

• The local authority can bring a prosecution for relevant offences in the magistrates’ court resulting in unlimited fines or,
• As an alternative, issue a civil penalty notice of up to £30,000.
• The provider could also be placed on the Rogue Landlord Database and, in London, be added to the Mayor’s Rogue Landlord and Agent Checker.
• If the student is occupying on an assured shorthold tenancy the landlord cannot serve a valid s.21 notice seeking possession if they have not applied for a licence or a temporary exemption from licensing. This could result in delays regaining possession at the end of a tenancy.

Contact Us

At Anthony Gold we have a team of solicitors who are experts in HMO law and who understand the student accommodation sector. Contact us for advice if you are managing purpose-built student accommodation and have HMO concerns. You can call us on 020 7940 4060 or email us your query at mail@anthonygold.co.uk.