Will the Renters’ Rights Bill make freeholders liable for HMO licensing breaches in blocks of flats?

The Renters’ Rights Bill will widen the scope of offences relating to unlicensed HMOs (and houses subject to selective licensing) by making it an offence to be a superior landlord of an unlicensed property. Amendments to the Housing Act 2004 will simplify the law so that an offence can be committed by both the immediate landlord or licensor of tenants in an unlicensed property, and any  ‘superior landlord’ (the landlord of the ‘immediate landlord’ and, in more complex arrangements, any other landlords above them).

The current law makes it an offence to be a ‘person having control’ or ‘person managing’ in respect of unlicensed properties. These are technical terms, defined in section 263 of the Housing Act 2004, which in most cases would encompass the immediate landlord of the tenants in an unlicensed property, but not necessarily superior landlords higher up in the chain.

Currently, freeholders of blocks of flats are only normally liable in respect of unlicensed properties in certain circumstances:

• If there is no leaseholder and the block owner is also the direct landlord in respect of tenants in a flat, that freehold block owner will be liable for any failure to obtain a  licence.
• If a block is an HMO as a whole (such as a section 257 HMO) the block itself may require a licence.

The current law provides that such a landlord will have a defence to prosecution if they have a reasonable excuse for managing or being in control of the unlicensed property. The Renters Rights Bill will supplement that defence by specifying that a landlord will also have a defence if they prove that (in the case of unlicensed HMOs):

• They have a reasonable excuse for being the landlord or licensor in the circumstances,
• They did not know, and had a reasonable excuse for not knowing, that the building or part of the building concerned was an HMO,
• They took all reasonably practicable steps to ensure that the HMO was licensed under this Part, or
• They had some other reasonable excuse for failing to ensure that the HMO was so licensed.

Similar defences will apply to properties which require a selective licence.

What does this mean for freeholders and block managers?

A freeholder who receives only a ground rent, or even no rent at all, is a superior landlord and will be capable of committing an offence. Whether or not they are also a ‘person managing’ or ‘person having control’ will become irrelevant. Freeholders will therefore need to consider what actions they need to take to be confident of establishing a defence of reasonable excuse, and how they will go about documenting their actions to create evidence to prove that defence if necessary.

Reasonable excuse

It will be risky for freeholders to ignore unlicensed properties in their blocks after this part of the Renters’ Rights Bill is in force.

Freeholders are likely to argue that it is not their job to ‘police’ licensing rules in flats they have let to leaseholders. Some support can be drawn for that proposition from the Upper Tribunal’s judgment in Kumar v Kolev [2024] UKUT 255 (LC) where the Upper Tribunal held that the superior landlord Mr Kumar had a reasonable excuse in circumstances where his tenant LML had permitted more sub-tenants into the Property than terms of the tenancy agreement allowed, resulting in the property becoming an unlicensed HMO.

The Upper Tribunal found that Mr Kumar was not required to ‘supervise’ his tenant’s use of the property. But this was in a context where if the terms of the lease granted by Mr Kumar had been complied with, there would not have been an unlicensed HMO. It remains to be seen whether judges will interpret the amended law as effectively placing a duty on freeholders to supervise the licensing of flats which are let to leaseholders.  Freeholders should be mindful that under the amended law, it will certainly not be possible to establish a reasonable excuse defence entirely on the basis of a provision in a contract – this will be ruled out by amended section 72(4C) of the Housing Act 2004, which will specify that a term of a tenancy agreement relating to the occupation of the property in question will not in itself amount to a reasonable excuse defence.

What should freeholders do?

Freeholders should review whether their leases prohibit the use of flats as unlicensed HMOs and unlicensed houses. Although for the reason explained above this will not be sufficient in itself to establish a defence, it is a useful starting point.

Freeholders should consider what steps to take when granting consent to leaseholders for sub-letting or HMO use which might result in a licence being required. We expect at a bare minimum they would want to remind leaseholders of their legal obligations regarding licensing.

Additionally, freeholders should consider what action they will take when they do become aware of a property being unlicensed. Will informing the leaseholder of their obligations be enough on its own, or does the freeholder need to step in to resolve the issue?

Finally, freeholders should consider what, if any, proactive steps to detect and deal with unlicensed properties it would be reasonable for them to take. We expect there will be a wide divergence of views on this question.

It is important for freeholders to get these questions right because tenants will be able to apply for rent repayment orders against both their immediate landlords and any superior landlords who have committed an offence. Further, where a landlord is a company, directors and other managers of the company will also be potentially liable for fines and rent repayment orders if they are personally culpable.

We can give advice on how Renters’ Rights Bill and other recent legislation affects freeholders, right to manage companies and other block managers. You can contact our solicitors by email or make an enquiry using our contact form. You can keep up to date with the progress of the Bill by signing up for news about our upcoming events.

If you have any queries and would like specific advice and guidance, contact our expert Housing Team at mail@anthonygold.co.uk or on 020 7940 4060.