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Licensing lottery: Some councils unprepared for changes to mandatory HMO licensing

Too many local authorities are unprepared for the changes to mandatory licensing that are due to come into force in less than two weeks’ time, the RLA can reveal.

The changes will require landlords who let a property to five or more tenants forming two or more households to apply to their local authority for a licence, irrespective of building size. A licence is valid for up to five years, and each HMO property requires a separate licence.

Despite the legislation change set to affect over 177,000 properties, the RLA is concerned that there are still many councils unprepared for this change, and has now written to MHCLG about this.

A lottery

While some councils, for example Birmingham City Council, Newcastle City Council and Havering Council ARE prepared for the change to mandatory licensing, the RLA has discovered that many councils are completely unprepared.

Examples include Manchester City Council, which does not yet have an online system up and running for landlords to apply for a licence, and Hackney Council, which does not yet have the necessary forms available on its website for landlords.

Out of date information

Some councils also have out of date information around mandatory licensing on their websites. For example, in the definition of a HMO, they state the current ‘three storey rule’ – this is that HMOs compromise of 3 or more storeys, occupied by 5 or more persons from two or more households. However, the websites fail to state that as of 1st October 2018, this will change, with the three storey rule set to be phased out.

Yet others are issuing licences for a much shorter period than the standard 5-year licence.  All new HMO licences issued by Norwich will be for just one year, meaning a vastly increased amount of paperwork both the council and landlords have to deal with.

The RLA is therefore reminding landlords that if they have a HMO property that will fall into the extended scope of mandatory licensing which does not already have a licence, they MUST apply for one BEFORE the 1st October. There is no grace period, so it is imperative for landlords to apply for a licence, or else they could face a fine or prosecution and a rent repayment order.

What the RLA has been doing

In ongoing preparation for the changes, the RLA has written to over two hundred local authorities reminding them of the changes to mandatory HMO licensing. You can read the letter we have been sending to councils here

In addition to this, the RLA has also written to some local authorities in relation to licence fees. For example, Cheshire East Council has been increasing the cost of licences-which they say will ensure that they can respond to increased demand of properties which will soon fall into the scope of mandatory licensing.  You can read more about this here. 

What you need to do

If your property requires a mandatory licence, and you have not yet applied, you must get in touch with your local authority about this. Each local authority will have different communication strategies. As there is no grace period for the new law, you need to act now so that you are not in breach and at risk of being fined.

Source: RLA

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City landlord licensing charges set to increase

The price of a landlords’ licence in Nottingham is set to go up after plans were approved today.

For houses with more than four tenants, landlords in most areas must obtain a Houses in Multiple Occupation (HMO) licence.

For ‘less compliant’ landlords, the price of a licence will go up by £810, from £910 for a new licence to £1,720.

‘Standard’ landlords will pay an extra £420 for their HMO licence – up from £910 to £1,330.

Landlords with accreditation will pay an additional £80, up to £990.

Previously, there was a flat fee for HMO licences, but from January next year, those who will pay the most will be those deemed ‘less compliant’, meaning those who are ‘consistently non-compliant or provide a poor application.’

It is the first change in the price of a licence since 2014. As with selective licensing, the council cannot make a profit from the scheme.

A leading Nottingham property expert said the cost will have to be passed on to tenants and would hit those at the bottom of the ladder hardest.

Giles Inman is from East Midland Property Owners, which represents around 600 landlords and 150 agents in the city.

He said: “The cost of it all is just getting silly. We weren’t kept in the loop or given any advance warning. There was just a consultation and we didn’t hear anything back, and then all of a sudden we’re informed that they’re going up. We never expected it to go up by this much.

“From a landlord’s perspective it’s just crazy and it’s come out of the blue.

“It’s just them raking in the cash. They already have the powers to deal with the less-compliant landlords without charging them more for an HMO.

“The costs will be passed on. We’re a business at the end of the day. I know the council thinks we should take the cost ourselves, but no business does that.

“So it will be passed on one way or another, and it’s the tenants on housing benefit and at the bottom of the ladder who will be most impacted by that.”

The revised licence fee will now be made up of two payments – one at application and one when the licence is issued.

Each licence can last up to five years, as long as the conditions of the licence are met and no other offences occur.

Councillor Jane Urquhart is the city council’s portfolio holder for planning and housing, and represents the Wollaton East and Lenton Abbey ward for Labour.

She said: “This scheme, along with others, is a major part of our plans to improve all types of private rented housing in the city.

“We believe something as important as providing decent and safe housing should be monitored and kept in check via a licensing scheme in the same way as taxis, pet shops and some beauty treatments.

“Not only does the scheme help to improve poorer standards of accommodation, it means tenants know what is expected of their landlord in terms of the management of their home.

“It also helps us to tackle rogue and bad landlords by providing a clear set of guidelines which all landlords need to meet, and helps prevent bad landlords cutting corners or ‘undercutting’ good ones, creating a level playing field for all.”

Source: West Bridgford Wire

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Cheshire East Encouraging HMO Licensing

Cheshire East Council is reminding buy to let investors that new legislation is set to come into effect in October requiring that all houses in multiple occupation (HMOs) with over five occupants must be licensed.

From 1 October 2018, HMOs must be licensed if there are five or more occupants who are living in two or more separate households. This is regardless of how many storeys the home is. This means that around 500 of the approximately 600-650 HMOs in Cheshire East will require a compulsory licence. This is in stark contrast to the 51 who currently need it.

Landlords are being advised to ensure that they have completed their licence application ahead of the deadline. Operating without a licence is a criminal offence and any landlords who do so will face an unlimited fine.

Cheshire East Council cabinet member for housing, planning and regeneration, Councillor Ainsley Arnold said: ‘The changes in government legislation will allow us to bring HMOs under closer scrutiny and help ensure better management standards and living conditions for tenants. Our housing standards team is currently processing more than 40 licence applications from landlords and carrying out the necessary inspection visits. However, we know that there are many more properties that will require a licence and we urge landlords, who have not already done so, to submit their applications as soon as possible.’

The council is also aiming to encourage people to report any properties in their local area that they believe to be HMOs.

Councillor Arnold added: ‘Thank you to everyone so far who has reported the location of a HMO to us via our website. Our online reporting form takes just a couple of minutes to fill in and the information received allows our officers to investigate whether the properties are licensed and check that they are safe for people to live in.’

Source: Residential Landlord

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​Deadline to new HMO licensing approaches

Agents and landlords are reminded that new rules about the licensing of Houses in Multiple Occupation (HMO) are set to come into force next month.

All properties housing five or more people from two or more separate households will be required to have an HMO licence, from Monday October 1.

At the moment, a property with five or more tenants from separate households only requires an HMO licence if it has three or more floors.

The new legislation – which was first announced in December – will also see minimum space requirements updated.

From October, the minimum bedroom space will be 6.51 square metres for a single bedroom and 10.22 square metres for rooms occupied by two adults. Rooms housing children aged ten or below will need to be a minimum size of 4.64 square metres.

Landlords will also be required to provide an adequate number of bins for their properties.

The cost of HMO licences varies depending on the local authority, with some charging a few hundred pounds and others charging more than £1,000.

An HMO licence is valid for five years and landlords need a separate licence for each HMO they let.

The Ministry of Housing, Communities and Local Government has said that the new rules are being introduced to minimise rogue landlords taking advantage of increased demand for HMOs.

It says that the previous system meant that it was ‘pot luck’ whether a vulnerable tenant ends up renting from a rogue or good landlord.

The aim of the new rules is to reduce consistent rental property problems, including overcrowding, failure to meet health and safety standards and housing illegal migrants.

Fines for non-compliance with HMO licensing rules are unlimited, while failure to comply with minimum bedroom sizes could see a landlord fined up to £30,000.

Source: Simple Landlords Insurance

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Understanding HMOs…

If you have at least three tenants living in a property and they share a toilet, bathroom or kitchen facility, then the property is a House in Multiple Occupation (HMO). This means that special rules will apply to the property and it may need to be licensed by the council if it has three storeys or more with five or more occupants. Though it should be noted that local authorities do have the power to impose additional HMO Licensing on other, smaller types of HMOs.

THERE ARE SOME EXCEPTIONS, THOUGH…

Certain types of properties are exempt from licensing. Examples include:

• Two-person flat shares, which is a property that is lived in by no more than two ‘households’ each of which consists of one person.
• A property where the landlord and their household lives with up to two tenants
• Buildings occupied entirely by freeholders or long leaseholders

WHAT IF I HAVE A FLAT?

Flats have special provisions and a block of converted self-contained flats will not require an HMO licence, and a block of purpose-built flats can’t be an HMO as a block, but as individual flats can fall into the HMO category.

DOES IT MATTER HOW MANY OCCUPANTS LIVE IN THE PROPERTY?

Yes, any part of a building that is occupied by two people cannot be an HMO. For the property to meet HMO requirements, there must be at least three people involved.

IS THERE A SIMPLE WAY OF IDENTIFYING AN HMO?

In short, if your property includes the sharing of a toilet, washing and cooking facilities by three or more unrelated people in two or more separate ‘households’, which can be formed by just one person, then it’s likely that the property is an HMO.

If your property is in a block of converted self-contained flats, or mixed accommodation, and there are three unrelated people living there, it can still be an HMO despite there not always being a sharing of the washing and cooking facilities.

NEW RULES FOR HMO PROPERTIES

From October 2018, professional landlords investing in HMOs will need their properties to meet a new level of standards:

The new HMO rules are covered by The Licensing of Houses in Multiple Occupation (England) and can be read here. This was agreed by parliament on February 23rd and will come into effect across England this year on the 1 October 2018.

Under the new rules, bedrooms must be a certain size, with double bedrooms being at least 10.22m2 and bedrooms for under 10s at least 4.64m2. If the bedrooms are smaller than this, they cannot be used as sleeping accommodation.

The new rules will also see the definition of an HMO changing, with more landlords needing HMO licences and smaller properties also needing a licence.

Don’t let this put you off if you are thinking of investing into this market – HMOs can still attract higher yields than other types of buy-to-let investment properties and, if you are considering entering the market, using a mortgage broker that has access to a wide panel of specialist lenders is imperative.

Source: Property Forum

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HMO landlords: prepare for new rules

The government is cracking down on overcrowded house shares. If you’re an HMO landlord, make sure you’re up to date.

Landlords have just weeks to ensure they’re ready for new “houses in multiple occupation” (HMO) rules, which come into effect in England on 1 October.

The new regulations will bring more properties into the category of “multiple occupation housing” – this is where five or more people from two or more separate households live in one property (house shares, in other words). While at present a property is only classed as an HMO if it has three or more storeys, according to the new rules an HMO is a building or a converted flat where tenants share toilet, bathroom or kitchen facilities. This will mean roughly 160,000 additional properties will require an HMO licence, reckons the Residential Landlords Association. The new rules form part of the government’s attempt to crack down on landlords letting out overcrowded, sub-standard properties.

As well as widening the scope of what constitutes an HMO, the updated legislation adds some new conditions. The first sets out minimum space requirements. Landlords will be prohibited from letting rooms to a single adult where the usable floor space is less than 6.51 square metres (sq m). Rooms occupied by two adults will need to be at least 10.22 sq m, while rooms slept in by children aged ten and below will need to be at least 4.64 sq m. Local councils will have the discretion to require larger room sizes, but they won’t have the power to allow smaller rooms to be occupied.

Where a landlord is found to be letting a room that doesn’t meet the minimum size, local authorities will be able to grant a period of up to 18 months to rectify the situation. If no action is taken in this time, the landlord will be in breach of their licence and could either be prosecuted by the local authority or receive a financial penalty of up to £30,000. Another update is that landlords are now required to provide an “adequate” number of bins. Failure to do so is a breach of the licence and a criminal offence.

In terms of current HMO requirements, landlords must ensure that the manager of the house – either the landlord or an agent – is “fit and proper”, which means no criminal record or history of breaching landlord laws. Landlords must also send the council a copy of their gas-safety certificate each year, install and maintain smoke alarms, and provide safety certificates for all electrical appliances.

To apply for an HMO licence, contact your local council. Licences are valid for five years and you need a separate licence for each HMO you run. Landlords who already hold an HMO licence can continue to let their property until it expires; they will then have to apply for a new licence and make changes to their property so that it meets the new rules.

Licence costs vary from council to council. For example, Cambridge City Council currently charges £580 for a licence for an HMO of up to nine rooms, and £470 for renewing a licence. Croydon Council charges £250 per habitable room, so a licence for a five-bed HMO would cost £1,250.

Landlords face unlimited fines for renting out unlicensed HMOs. Even if the council takes no action, the tenants could apply for a rent-repayment order to reclaim up to 12 months’ rent, and while the property is unlicensed, the landlord cannot use a Section-21 notice to seek possession of the property. Note too that local councils can add other conditions to licences, such as improving facilities.

Source: Money Week

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Is this the next property scandal brewing – and are investors being sold too many HMOs?

Are developers selling a dream with HMOs or a future nightmare?

As an agent with 15 years in the letting industry, I used to find that when there was a manageable amount of this type of accommodation on the market you could fill the rooms with decent tenants for a reasonable rent.

Over the last few years, companies have sprung up everywhere offering to source, renovate and manage HMOs – with promises of huge returns and future riches.

The reality we are seeing is very different. In my area thousands of rooms have been created, but for a market of maybe just hundreds of people.

This has resulted in:

  • Room rates plummeting.
  • Many unfilled rooms.
  • Lots of problems due to these houses not being built to home this amount of people.
  • High maintenance and annual refurbishment costs.
  • Anti-social issues.
  • High level of maintenance and tenant issues.
  • Quality tenants shunning HMOs due to bad experiences with shared houses.
  • The quality of the HMO tenants is dropping in line with the prices.
  • Many landlords saying that for the first time they are really struggling to find tenants for their HMOs.

This has had a knock-on effect meaning that apartment/flat prices are tumbling due to lack of demand as HMOs have flooded the market and lured in tenants who would otherwise have had their own apartment.

In turn, apartment prices have had to drop to try and compete with HMO prices.

It is the same with the student market as shared houses have taken a real bashing this summer.

The only winners here are the developers who are selling a dream that is not a reality.

They get paid handsomely for sourcing and renovating, so tenanting and managing is just a nice little bonus.

I worry for landlords who have sunk all their money into HMOs, as if the rent does not cover the mortgage you will find an HMO very difficult to sell.

The Government’s attack on landlords financially has created this market as developers have seen the opportunity to sell a dream – but that is what it is – of making thousands of pounds each month in rent from converted terraces.

HMOs have created an over-supply of rental accommodation in our area, with the level of demand not having risen to match it.

To me, this has the feel of the property clubs of 15 years ago that were selling similar dreams with promises of sky-high rental returns that in reality were unachievable.

The end result was that thousands of investors had their properties repossessed and ended up going bankrupt. I have a bad feeling we are going to see this again in the next few years.

The only winner I see in the long run is the developer.

As always, the freehold family homes have performed well in the rental market and this is the property type we advise all of our investors to look at.

I would be intrigued to see what other agents’ thoughts are on this.

I am sure that in places like London, demand will always outstrip supply, but I do not think this is the case for the rest of the country.

* Bill Rockett owns Rockett Home Rentals, in Newcastle-under-Lyme

Source: Property Industry Eye

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Southampton could see 10,000 HMO homes by 2023

SOUTHAMPTON is expected to see more than 10,000 HMO licensed homes in the city by 2023, after civic chiefs gave the go-ahead to extend the scheme by another five years.

Since its inception in 2013, the legislation, which covers homes in Bevois, Bargate, Portswood, and Swaythling wards, has resulted in 4,800 licences being issued.

Now, the authority estimates up to 5,500 more homes will require licensing over the next five years.

Council leaders have branded the HMO (House in Multiple Occupation) legislation, which allows three or more occupants from different families to live together, “much needed” and a “huge success”.

Student houses are one of the main users of the licence.

The council also says the scheme has dealt with issues of poor property conditions, bad management and anti-social behaviour.

Steven Hayes-Arter, HMO licensing manager at the council, said: “This ensures safe, good quality private rented accommodation is available to meet housing needs in the city.

“The scheme has enabled that concerns and complaints about conditions and the impact of the property on the local community can be addressed effectively and promptly, such as noise nuisance and anti-social behaviour.

“The numbers of complaints about HMOs have fallen since the additional scheme was introduced in 2013.”

When it was first proposed in 2013, the plans were hit with heavy resistance from opposition councillors.

But civic chiefs pushed them through regardless, which they say was the “right thing to do”.

Former housing chief at the council, Councillor Warwick Payne, said: “At the time, it seemed quite a radical idea. Now it is seen as the norm.

“We had resistance to it in 2013, but this time around we have seen much less, which shows that it has been successful.”

Council leader Chris Hammond added: “Despite changes to the way HMOs are regarded, this is still needed in these areas.

“The impact it has had on these neighbourhoods has helped our communities for the better.”

It is estimated that there are between 6000-7000 HMOs in the city but not all HMOs require licensing.

Source: Daily Mail

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Court Case Legal Precedent For Landlord Challenges To HMO Licensing Cost

A recent court case may have set a legal precedent enabling landlords to challenge the cost of HMO licences set by their local authorities.

The court case of Mr Peter Gaskin v LB Richmond Upon Thames [2018] EWHC 1996 (Admin) has called into question the validity of certain licensing costs. Currently, by law local authorities are able to set the cost of HMO licences at their own discretion. The topic has gained traction recently as new rules for HMO licensing will come into effect from October 1st. It is estimated that a further 177,000 more landlords will need to obtain a licence.

However, in the recent court case it was ruled that licence fees can only cover the cost of the licensing scheme and not other costs such as enforcement. This was due to the fact that the Administrative Court decided that Mr Gaskin, a HMO landlord, was providing a service within the meaning of EU law, by the private letting of accommodation. As Mr Gaskin had met the requirements for providing a service, the court determined that the fee charged by the local authority had to be structured in such a way which complied with EU law.

The property in question is situated in Richmond Upon Thames in London. Under the Housing Act 2004 Mr Gaskin was required to obtain a HMO licence from the London Borough of Richmond before he was permitted to let out rooms in the property. HMO licences need to be renewed every five years and when the time came for Mr Gaskin to renew his he was told by the council that he would need to pay a fee which covered the costs of processing his application but also contributing towards the authority’s costs of running the HMO licensing scheme. Mr Gaskin refused to pay the amount requested, instead offering a lower sum.

The landlord was prosecuted in the Magistrates’ Court for operating an HMO without a licence. However, under EU Directive 2006/123/EC (“the Services Directive), there is a provision in its article 13(2), that where a charge is imposed for someone to apply to have access to a service activity, the charge is not permitted to exceed the cost of the authorisation procedures. The Administrative Court handed down judgment on July 31st, 2018, and stated that Mr Gaskin was providing a service within the meaning of EU law. Which therefore deemed that the London Borough of Richmond Upon Thames’s fee for an HMO licence was unlawful as the charge covered costs beyond the cost of processing the licence application. The council was therefore not entitled to demand the fee which it had demanded.

Chief executive at Commercial Trust Limited, Andrew Turner, said: ‘This is an interesting case which may set a precedent for some landlords and could have the potential to save HMO landlords hundreds of pounds, if some local authorities have been charging more than they were legally entitled to, for HMO licences. This is a matter of law and I would urge any HMO landlords that believe they may have been overcharged, to seek professional legal advice.’

Source: Residential Landlord

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What does the future look like for HMOs?

On top of the punishing stamp duty and section 24 changes of 2017, HMO landlords are now being clobbered with a national extension of HMO licensing, navigating a proposal to introduce three-year tenancy agreement. Is the future bright? Is the future still HMO?

Proposed three year tenancies

 Cities up and down the country have bid their student cohorts farewell for the summer and left (some) landlords picking up the rubbish or the one-year-only appliances slapped with the post-it note “works fine but we don’t want it!” – another toaster is added to the tip collection.

And it’s a busy time for student landlords to say the least. I recently drove down the street in Sheffield where we own several HMO’s and it looked apocalyptic! The strewn rubbish of hastily vacated digs of now ex-occupiers heading off to Ibiza, festivals and a break from university.But new government proposals aim to force landlords to offer tenants a minimum three years contract – with tenants able to leave earlier (break clause) should they wish.

The proposal comes at a time when home ownership is at its lowest in 30 years, some 14.3m households (of a total 22.8m) are owner occupied in England (62.9%), according to the English Housing Survey, produced by the Department for Communities and Local Government (DCLG). According to the same report, the private rented sector now accounts for 4.5m households, double the 2.3m in 2004, or 20% of total households as opposed to 10% of total households back in 2004.

While home ownership levels have remained relatively unchanged in the last three years, the private rented sector is a different story, particularly when paired with the latest demographics seeking entry to the current property market.

In 2005-06, 24% of 25-34 year olds were privately renting, that figure is now 46% in 2017. In the same period, 25-34 year olds buying a home with a mortgage dropped from 53% to 35%.

The proposal, which seeks to lengthen the common six-month to 1 year tenancy agreements (currently thought to be around 80% of all contract lengths), looks to give tenants more control, security and longevity in their houses.

Extensions to mandatory HMO licencing scheme – October 2018

 While the UK housing market depends on the private sector investing in houses, it is also bumping up price inflation with knock on economic effects. As a measure, the government has sought to curtail the tax relief that BTL investors have enjoyed, forcing many out of the market and reducing the sector to a sustainable size. But there’s more to come. Long in the cross-hairs of government, the HMO sector has seen particularly heavy regulation with an extension to mandatory licensing requirements, tightening up on the number of storeys loophole as well as new minimum room sizes (see below).

That could be as many as 177,000 HMOs becoming subject to mandatory licensing in England, according Residential Landlords Association research.

From October 2018, the main change to HMO legislation will be the removal of the three storey rule. In the majority of cases, a property occupied by 5 or more individuals forming two or more households will become licensable, irrespective of the number of floors in the property. Landlords will also have to adhere to a new minimum room size standard. Especially for landlords with attic rooms, it’s important to note the ‘size’ will only be considered where there is 1.5m in celling height.

  • Minimum double room size: 10.22sqm
  • Minimum single room size: 6.51sqm

There will also be a mandatory requirement for landlords to adhere to council refuse schemes to ensure that HMO properties have adequate waste management facilities.

Will the three year tenancy proposal affect HMO landlords?

There shouldn’t be a direct effect. The proposal is considering making student accommodation exempt as the sector clearly follows academic turnover and, indeed, the higher education sector relies more heavily on private accommodation than many others – this is already the case in Scotland. There is less clarity around the young professional house share market though.

Of more concern is what it does to other BTL landlords. Those who have not already sold off part of their portfolios to afford mortgage repayments following the newly introduced tax pressures, could now face even greater reluctance from lenders.

David Smith of the Residential Landlords Association responded cautiously to the new proposal: “We would warn against making it a statutory requirement to introduce three year tenancies. Many tenants simply do not want to be tied to a property long term.

“It is vital that the market is able to provide the flexibility that many need in order to swiftly access new work and educational opportunities.” says Smith.

While the proposal allows landlords to increase rent once a year to reflect interest rate changes, it does not however provide a repossession clause. This may make many lenders reluctant to shoulder the added risk (should the landlord default and the property not repossessed for three years) and may lead to even higher interest rates on Buy-To-Let mortgages.

This could mean more BTL landlords dropping out of the market altogether or, more landlords turning to the exempt sectors, such as student accommodation, actually making the HMO market more competitive.

Source: Property118