The real story behind the risk of Licensing for Freeholders and Building Managers
As is often the case, regulation sneaks up on us when we least expect it: mostly when we aren’t prepared and at our busiest. So here we are, lifting the covers of complexity behind licensing and what it means for us as freeholders and building managers.
This article is not for the faint hearted, it is rather complex and a little dry at times…I am sure you will make it to the end…just about.
Where it all started
From the beginning of time, well since the 2004 Housing Act was brought into place, there was a definition of a building called a 257 HMO. The definition was brought into place for properties that have been converted into self contained flats to address the risk of fire compartmentation and escape routes in converted buildings.
The standard definition of a section 257 HMO refers to buildings that:
have been converted into self-contained flats;
the conversion did not comply with the relevant Building Regulations in force at that time and still does not comply,
and less than two-thirds of the flats are owner-occupied.
To determine which are the relevant Building Regulations for your property you need to know the date of the conversation. If the building conversion was completed before the 1st of June 1992 it must comply with the Building Regulations in force from that point onwards . If the conversion took place post 1st June 1992, it must comply with the Building Regulations in force at the time of conversion.
To simplify further, if you have a building control certificate for the conversion into flats then you will not be a 257 HMO. You will be surprised at the kind of certificates that arrive at the council, including building certificates for chimneys, so make sure it’s in reference to the building’s conversion into flats.
If you meet this definition you have a whole new law to worry about, the HMO Management Regulations 2007, which applies to all buildings falling into the S257 HMO definition.
There is a chance buildings could meet the definition of a 254 HMO too if it has
3 or more tenants;
from more than one household,
and share facilities.
‘Sharing facilities’ is a simplification. The Housing Act 2004 defines it as buildings that meet the Standard test, Self-contained flat test or Converted building test. For the full HMO definition consult the Housing Act 2004 parts 254 to 260.
Of course all the usual rules apply. For Example, if it has a common part, then a Fire Safety Risk Assessment is a requirement under the RRO 2005 to be held by the freeholder.
Before we move on, it is worth noting the above applies whether licensing affects your building or not.
The wonderful world of Licensing…
Property and HMO licensing is the Local Authority’s process of improving living standards in rental accommodation and proving that landlords are ‘fit and proper’ persons to operate these properties. The type of licence a property requires varies depending on a number of different factors, including the type of property, how it is tenanted and the council your property is located in.
There are 3 different types of property/HMO licence:
- Mandatory affecting most 254 HMOs with 5 or more tenants.
- Additional affecting most 254 HMOs that don’t fall into mandatory licensing and 257 HMOs.
- Selective affecting anything from families to one or two people sharing and can affect all 254 HMOs that don’t fall into Additional and Mandatory
Each council has its own rules and regulations governing HMOs and licensable properties in their area and it is important that you are aware of both the national and local authority regulations as these can vary wildly.
For additional licensing of 257 HMOs this covers the parts of the building under freeholder/s control and, of course, is the freeholders responsibility.
To ramp up the confusion one last time, most local councils tend to create strange rules on top of the 257 HMO definition before you know if you need a licence or not. Here are some examples;
A licence is only required if all the flats within the building are privately rented.
A licence is only required where at least half the flats are tenanted or occupied by a resident landlord.
A licence only applies to buildings comprising three or more storeys; has been converted into and consist of four or more self-contained flats; and where both the building and self-contained flats it contains are owned by the same person ie. none of the individual flats within the building being under separate ownership.
A licence only applies when the HMO is above a commercial premises.
Only where the number of dwellings exceeds the number of storeys in the building, and where the building and all of the dwellings in the building are either in the same ownership or considered by the housing authority to be effectively in the same control. (this restriction on the number of flats exceeding the number of storeys does not apply in mixed use developments, or above commercial premises)
This all comes from deep within the council’s scheme designation, therefore needs a keen eye to make sure whether it applies to your buildings or not.
This is a complex area of property licensing legislation, and you should take advice if you are unsure. The best experts to look out for are Environmental Health Officers accredited by the The Chartered Institute of Environmental Health and have experience in housing for local councils.
Knowing whether you are in or out of the scheme is the next problem.
A growing number of property managers are getting caught out by the location of properties due to inconsistent data sets. Postcode lockups just won’t cut it I am afraid, so try using URPNs for the highest chance of getting the long/lat location right.
UPRN stands for Unique Property Reference Number and was created by the Ordnance Survey (OS). Local governments in the UK have allocated a unique number for each land or property.
Once you have the exact location you then have the complexity behind the mapping of council schemes, here is an example of a council issued map.
How big is this issue?
A rapidly growing number of councils, Lambeth being the latest, are including 257 HMOs in their Additional Licensing schemes and it’s happening all over the country.
Currently there are about 40 schemes in the UK affecting 257 HMOs, with more on the way. Additionally, there are around 446 licensing schemes that can affect all privately rented property, from properties let to one or two people, families and HMOs. Remember that there may be some planning concerns too, so keep an eye out for this as well.
When can this change and affect more buildings?
Well, anytime really. Licensing on average changes around every 8 days throughout the UK so things can move fast and catch people out.
What else is there to think about?
As touched upon, licensing largely affects flats and houses. If the flats in your building are privately let then the individual flats may need Selective, Additional or Mandatory licensing. So you can have a licence on the building and separate licences on each of the flats too and the responsibility is on leaseholder, or freeholder if it is them letting the flat out.
The risks are high with a myriad of rules and regulations…
Who is responsible, and therefore who is at risk of fines, is defined under 263 of the Housing Act 2004 stating that the ‘person managing’ or the ‘person having control’ is responsible for ensuring that the building meets the HMO Management Regulations 2007 and meets the licensing requirements too. You become liable when you collect the ‘rack rent’ or ‘other payments’.
Frequency of fines and penalties are on the rise and the numbers are staggering, with the largest property manager fine reaching £167,000 and the highest landlord’s fine being even higher. Legally the council can fine up to £30,000 per offence. Offences can also become criminal and you can end up on the Rogue Landlord and Agent database.
One more thing to consider is that tenants can claim back up to 12 months rent in some cases of licensing, under Rent Repayment Order, from landlords breaking rules so ensure you run a tight ship and get your paperwork in order ASAP.
Finance and Leaseholders
One more thing to watch out for is that some lenders won’t lend on buildings that are 257 HMOs and leaseholders may struggle to get finance too.
Of course leaseholders may have their own licensing worries within blocks, though it’s worth looking through the Freeholder and Leaseholder terms to see if this is restricted in any way.
Be sure to notify leaseholders of any changes or licensing requirements that may affect them.
What to do about all of this confusion?
The key here is understanding exactly what you are looking out for and what licensing schemes apply to which parts of your portfolio. This takes time, though there are data solutions out there to make scanning and monitoring your database of properties for ever changing regulations easy.
Again if you are looking for experts ensure you use someone accredited,such as Environmental Health Officers, accredited by the CIEH, with experience in local councils. When applying the key is to get it right the first time to avoid further risk and expensive headaches.
Want to learn more, you can check out some of our training videos here or get in touch at firstname.lastname@example.org and 020 3848 2205.
CEO and Founder of Yuno