Houses in Multiple Occupation (HMO)

HMO Licencing will benefit both landlords and tenants. 

Commenting on the start of Part 2 of the Housing Act 2004, the Daily Telegraph’s property page (11 March 2006) described Part 2 as “the little-noticed provisions of the 2004 Housing Act”, which it dubbed “the landlord tax” – its implementation would drive up rents and become a costly scheme.

In fact, the Office of the Deputy Prime Minister (ODPM), through the Central Office of Information, appointed a public relations agency to run a campaign up until the end of March 2006 to promote awareness to tenants and landlords of the licensing system, at the cost of £44,000.

Given the raft of provisions in the Act, one may, however, be forgiven for missing the impact of certain provisions. The Act consists of seven parts and includes diverse property related matters, ranging from a new housing health and safety rating system to the regulations for houses in multiple occupation (HMO). The provisions in Part 2 (licensing of HMO) along with Part 3 (selective licensing of other accommodation) and Part 4 (management orders in respect of empty homes and provisions of overcrowding notices in respect of HMO) form a formidable piece of legislation designed to protect the vulnerable in society and to help create a fair and better housing market. This article highlights the impact of Part 2 of the Act on landlords and tenants.

New law
Part 2 of the Act introduces a national mandatory system of licensing of houses in multiple occupation. An HMO is any house or flat that is not a self-contained flat, which is occupied by more than one household, and where more than one household share an amenity, such as bathroom, toilet or cooking facilities. The new law introduces mandatory licensing fees payable by landlords who rent HMO that are three or more storeys high, and have five or more people in occupation who are not members of the same family. These dwellings are considered high risks in terms of health and safety to their occupants. The aim is to enable local authorities to enhance the standards of HMO by being able to introduce conditions relating to the building through a registered licensing scheme. The register of licensed HMO must be available for the public to view.

Certain buildings are exempt from mandatory licensing, such as two-person flat shares, buildings occupied with a resident landlord with up to two tenants, and student halls of residence where the education establishment has signed an approved code of practice.

An end to Rachmanism
Undoubtedly, most landlords do not want to be tainted with the reputation of Peter Rachman, whose name in the 1950s and 1960s became synonymous with bad housing. ‘Rachmanism’ has entered the English dictionary as meaning a landlord who buys up slums usually for renting as an HMO at extortionate rents. Such images of notorious, racketeering landlords continued into the 1970s with an equally controversial character, Nicholas Van Hoogstraten, dominating the private rented sector in Brighton and Hove. While such landlords are in the minority, it is unfortunately all too often the case
that it is such a minority who owns large stocks of HMOs. Landlords who gain notoriety for being bad may therefore be in small numbers, but nevertheless their influence in the community can have devastating effects. Local authorities now have more armoury to try and combat the bad landlords, including anti-social behaviour orders (ASBOs). Reputable landlords have therefore largely welcomed the new licensing provisions as a means of distinguishing themselves from bad press.

Extent of the scheme
Mandatory licensing does not apply if the building is less than three storeys high and where there are fewer than five occupants. In effect, this means that the licensing scheme will really only affect a minority of the HMO stock. The number of smaller HMOs, such as shared flats and houses in less than three storey buildings that may contain inadequate facilities, will therefore not require licensing.

A local authority can, however, decide to extend licensing beyond the scope of mandatory licensing through the ‘additional’ licensing powers (s 56 of the Act). This discretionary power enables a local authority to designate an area where all private landlords of HMO that do not fall within the mandatory provisions must be licensed.

Additional licensing may apply to an area where a substantial number of HMOs are identified as giving rise to problems for their occupants or the public. For instance, in areas where there are proven problems of antisocial behaviour in HMOs that are affecting the community creating potential to destabilise the area. Additional licensing is not, however, an automatic provision that can be brought in at the local authority’s own instigation.

Approval from the Secretary of State is required, following consultation with relevant organisations. It is also a condition that selective licensing will be coordinated with wider strategies which a local authority is operating to deal with antisocial behaviour and regeneration. It remains to be seen to what degree this power will be used given limited resources. The criticism from landlord organisations is that the impact of the new law on the unscrupulous landlord may be marginal, if the take-up on additional licensing is not widespread. Early indications are that certain local authorities will embrace the use of selective licensing, should it prove necessary, as the scheme is expected to be self financing from the fees levied.

Since 1 October 2000, by the Civic Government (Scotland) Act 1982, all Scottish councils are required to run a HMO licensing scheme. Experiences from the Scottish scheme have revealed some implementation difficulties arising from inconsistent application forms and the fees charged for licensing.

In England and Wales, about a third of local authorities have piloted HMO registration schemes which have been in operation in areas such as Southampton, Herefordshire and Brighton and Hove, where reports of its operation are positive.

Licence fees
On application by a landlord or their agent, a license fee is payable to cover the administration cost of the procedures. The fee is set by each council. Local authorities are expected to make the scheme self-financing. This has prompted concerns by landlords that fees will be unreasonably high, or that council tax will increase to cover the cost.

Shortly after 6 April 2006, some local authorities have yet to fix their fees. Currently fees range on average from £300 to £500 per property, with some local authorities also charging a tiered payment for the number of permitted occupants, or depending on the number of storeys.

Wandsworth Council is charging £1,100 as a standard fee for a three-storey HMO, which the ODPM has remarked would not be a reasonable charge. Any challenges as to the level of the licence fee is said by the ODPM to be a matter which could be dealt with by complaint to the Local Government Ombudsman.

What is in a licence?
If a licence is issued it will specify the maximum number of people who may live in the HMO. It will require the landlord to have:
(a) a valid current gas safety certificate, renewed annually;
(b) proof that all electrical appliances and furniture are kept in a safe condition;
(c) that smoke alarms are maintained and correctly positioned;
(d) a written statement of terms for every occupier, for, e.g., a tenancy agreement.

On an application for a licence, the authority must:
• Consider whether the applicant is a ‘fit and proper’ person to be a licence holder; and
• Must approve management arrangements for the house (ss 63 – 66).

Local authorities will need to share information about matters such as evidence of a landlord’s contravention of landlord and tenant law in order to implement such checks effectively. Once the licence is granted it runs for five years, unless revoked due to poor management and conditions.

Enforcement
A failure to obtain a licence without a reasonable excuse will be a criminal offence that could result in a fine of up to £20,000 (s 72). A landlord can also be fined for failing to comply with any condition in their licence.

From 6 April 2006, landlords of HMO that are subject to mandatory licensing will have a period of three months to file their applications for a licence. If no application is filed by 5 July 2006, the local authority will in theory, be able to prosecute. The filing of an application will, however, be a defence to any prosecution.

This has led sceptics to say that it may lead some landlords to seek to circumvent having to obtain a licence, unless threatened with prosecution.

However, there are good reasons why a landlord would not want to be unlicensed, as it could actually affect the revenue receivable through rent and the general management of the premises if possession is required. A landlord operating an unlicensed HMO cannot seek rent from a tenant during any period when they are unlicensed. The tenant can recover any amount of rent that has been paid during a period when there is no licence. An application can be made to the Residential Property Tribunal which can order repayment to the local authority of any housing benefit received where an HMO has been operated unlawfully, and/or repayment to an occupier of rent paid (ss 73-74).

Moreover, a landlord will not be able to rely on serving a notice under s 21 of the Housing Act 1998 to an assured shorthold tenant, if seeking to recover possession at the end of the tenancy, while an HMO remains unlicensed (s 75).

Furthermore, a local authority can take over the management of the property if required to protect the health and safety or welfare of the occupants, or others in the locality, by making an interim or final management order (Part 4 Chapter 1 of The Act).

The local authority has a duty to do so where a mandatory licence is required for premises. This is potentially a significant provision for occupiers of HMO and members of the public who are the victims of say, noise, nuisance or other anti-social behaviour, as they may now expect more from the local authority in the way of positive action. By reference to Art 8(1) of the European Convention on Human Rights the authorities are obliged to take action to prevent third party acts that have a sufficiently serious effect upon a citizen’s enjoyment of their homes (Moreno Gomez v Spain (ECHR application no 4143/02, 16 November 2004). It is already clear that if a local authority has a power to tackle nuisance behaviour, it must be exercised to avoid a breach of the rights protected by the Human Rights Act 1988 (see R (J) v Enfield Borough Council [2002] 2 FLR 1. A failure to act to obtain a management order under Part 4 of The Act could in principle, give rise to an award of damages under the Human Rights Act 1988. Awards made in other similar cases in Europe however, indicate that damages are likely to be modest.

Debra Wilson is a partner in the landlord and tenant department at Anthony Gold Solicitors. For further information email Debra or call 020 7940 4060.

*Disclaimer: The information on the Anthony Gold website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties, express or implied.*