Housing Licensing Myth-busting

At a recent landlords forum meeting at Hastings Football Club, I was approached by a number of landlords regarding the councils property licensing schemes. In particular, the landlords were asking about the relationship between selective licenses and HMO licences and the councils fee regime for the schemes.

During the conversation, I explained how the three property licensing schemes the council operates inter-relate. The Housing Act 2004 (the law under which property licensing is administered) is not the most accessible of laws; indeed in order that the council applied it correctly we required a formal opinion from a specialist barrister. At the end of my conversation with the landlords I undertook to provide my explanation for use with other local landlords.

Before I continue, I will say this blog post does not cover the rights and wrongs of property licensing, both nationally and locally here in Hastings; neither is this a formal legal opinion and landlords who are unsure of their responsibilities should take independent legal advice.

In Hastings we operate 3 types of property licensing: Mandatory HMO licensing, Additional HMO licensing and Selective licensing. We often refer to Mandatory HMO and Additional HMO licensing collectively as just HMO licensing, which sometimes confuses the issue. Indeed, the application process (and fees) are the same for both Mandatory HMO and Additional HMO licensing.

What is an HMO?

Before I cover the three licensing schemes, it is worth explaining what an HMO actually is. Under the Part 2 of the Housing Act 2004 there two main types of HMOs:

Section 254 HMOs (after the section in the Housing Act 2004 that describes them) are buildings where there are the sharing of some basic amenities. These are the types of properties that people most associate with HMOs, such as shared student houses or bedsit accommodation, where the bedsits share kitchens and / or bathrooms, etc.

Section 257 HMOs (after the section in the Housing Act 2004 that describes them) are buildings which have been converted into self-contained blocks of flats. Such buildings are only considered HMOs if the conversion to flats does not comply with the 1991 Building Regulations, or later (or was done without Building Regulations approval), and more than one third of the flats in the building are privately rented.

It is important to note these are only the definitions in the Housing Act and those that we apply to licensing. Just to cloud the issue, planning law has a different definition again!

Mandatory HMO Licensing

Previously, all large (buildings of three storeys or more) section 254 HMOs were required by the Act to be licensed, regardless of where they were in the country. In October 2018, this changed and one of the criteria that was used to define 'large' was removed.  Now all section 254 HMOs, which are occupied by more than five persons forming two or more households, regardless of the number of storeys now need to be licensed.

Additional HMO Licensing

The Housing Act 2004 allows councils to declare areas where certain types of HMOs (not covered by Mandatory HMO licensing) need to be licensed In 2018, Hastings declared an Additional HMO licensing scheme covering most section 257 HMOs and some Section 254 HMOs that are not covered by mandatory licensing in the four town centre wards (Braybrooke, Gensing, Castle, Central St Leonards).

Selective Licensing

Away from HMO licensing, part 3 of the Housing Act 2004 allows councils to declare areas where all private rented accommodation in that area are required to be licensed. Hastings declared a Selective licensing scheme in 2015, whereby all private rented accommodation in the wards of Braybrooke, Gensing, Castle, Central St Leonards, Ore, Tressell and Old Hastings are required to be licensed.

Property Ownership Scenarios

Probably the best way to explain the way the various licence schemes inter-relate is through a series of scenarios based on the ownership of properties and where they are in the borough.

1. A section 254 HMO anywhere in the borough with five or more persons

Since the change in mandatory licensing removing the size element of what type of section 254 HMO is licensable, as long as the HMO has five or more people living in it is required to be mandatorily licensed. There is no need to worry about any selective licences as the HMO licensing in this case covers the whole building.

Scenario one above is probably the easiest scenario to explain however there are still some situations which can cloud this, such as 'if the HMO is owned by a school'. As with all these scenarios, they are only meant as an indication and landlords should always seek their own advice on management of their properties.

2. A section 257 HMO (i.e. a building containing self-contained flats) located in the wards of Braybrooke, Gensing, Castle or Central St Leonards where the freeholder owns all the flats (the leaseholds) in the building and rents all or some of them out.

In this scenario, the property is in the area covered by the Additional HMO licensing scheme. Therefore the owner of the building is required to apply for an Additional HMO licence. Due to the fact that the Additional HMO and Selective licensing schemes were introduced at different times, there is sometimes confusion in scenarios such as this when the licence fee is calculated, but I will discuss that later on.

3. A section 257 HMO (i.e. a building containing self-contained flats) located in the wards of Ore, Tressell or Old Hastings where the freeholder owns all the flats (the leaseholds) in the building and rents all or some of them out.

Here the HMO is not required to be licensed as an Additional HMO as it is outside of the wards covered by that scheme. The property is however still in the area covered by Selective licensing. In this case a Selective licence is required for each of the flats which are let out.

4. A section 257 HMO (i.e. a building containing self-contained flats) located in the wards of Ashdown, Baird, Conquest, Hollington, Maze Hill, Silverhill, St Helens, West St Leonards or Wishing Tree.

This property is outside of any of the areas that require licensing.

5. A section 257 HMO (i.e. a building containing self-contained flats), located in the wards of Braybrooke, Gensing, Castle or Central St Leonards, where the freeholder owns some (or none) of the flats (leaseholds) but separate leaseholders own some (or all) of the flats and let them out.

The freeholder in this case will need to apply for an Additional HMO licence. This licence will also cover any of the flats they own; again this does affect the licence fee. Any leaseholders (who are not the freeholder) who rent out their flats will need to apply for a Selective licence for their flat.

6. A section 257 HMO (i.e. a building containing self-contained flats) located in the wards of Ore, Tressell or Old Hastings where the freeholder owns some (or none) of the flats (leaseholds) but separate leaseholders own some (or all) of the flats and let them out.

This building is not in the Additional HMO licensing area so no HMO licence is needed. However it is in the Selective licensing area. All the flats that are let out require a selective licence regardless of whether the leaseholder of the flat is also the freeholder.

Licence Fees

In discussing licensing with landlords and with the landlord associations, many support the principle of licensing. It is an important tool to prevent rogue landlords operating in the area and to ensure all landlords are able to run their businesses on an equal footing with one another. The issue that pretty much all landlords object to is the fees charged for licensing.

I can understand landlords views on licence fees; that they can negatively affect the day to day profit (or surplus) of the business. In most cases, much like other business expenses (such as tax) landlords do not see any material benefit to their paying the fee. The benefits of licensing for individual landlords are in the main intangible and seek more to improve the borough as a whole (with regards to reducing anti-social behaviour for example) which has a longer term effect on landlords businesses; as an area improves, this will see the landlords assets increase in value.

Housing licensing is required by councillors to operate at no overall cost to the wider council tax payer in the borough. The principle is shared with other types of licensing the council operates. For instance, if you are a resident of Hastings and never use taxis, should your council tax contribute to ensuring those taxis are safe for everybody else? If you are an owner occupier in Hastings should you pay for ensuring the properties in the private rented sector are safe for tenants?

The present fee for a Selective licence is £ 665. This was increased in 2017 from £ 460 (the fee when the scheme was first introduced). More information on the increase is included in the Cabinet report on the second anniversary review of the scheme (9th October 2017). This is available on the Councils website - https://hastings.moderngov.co.uk/ieListDocuments.aspx?CId=130&MId=2547&Ver=4 It is worth commenting that the increase was as a direct result of an audit of the scheme undertaken by outside independent auditors.

I am often asked about how the fee was calculated. The calculation for the setting for the original fee was included in the report to the councils Cabinet which first set out the Selective licensing scheme on the 30 March 2015 - https://hastings.moderngov.co.uk/ieListDocuments.aspx?CId=130&MId=1278&Ver=4

The fees for HMO licensing are different than those for Selective licensing, to reflect the resource needed to administer this scheme. HMO licensing is also different to Selective licensing in that it recognises the additional effort it takes for the council to chase unlicensed HMOs compared to those landlords that come forward themselves. Hence the fees for HMO licensing are £ 414 for renewals but rise to £ 980 for unlicensed properties or renewals that are not renewed within 3 months of the licence expiring.

Similar to Selective licensing, full details of how the fee is calculated is included in the original report to the councils Cabinet on 9 October 2017 on the introduction of the new Additional HMO licensing scheme - https://hastings.moderngov.co.uk/ieListDocuments.aspx?CId=130&MId=2547&Ver=4

As I mentioned in scenario 2 above, the fees for Additional HMO licensing are not always straightforward. Prior to the present Additional HMO licensing scheme, the council had a previous scheme which ran from 2011 to 2016 (a scheme cannot run for longer than 5 years). This previous scheme was administered differently to the present scheme in that all the licences were granted with an expiry date of the end of the scheme. As such, all the HMOs licensed under the 2011 Additional HMO licensing scheme expired on the 18 September 2016. As the Selective licensing scheme was already in existence at this time, all the flats rented out by landlords who previously held an HMO licence were then required to be licensed under the Selective licensing scheme.

A large number of landlords applied for Selective licenses in their HMOs following the end of the old Additional HMO licensing scheme. When we consulted on the new scheme (the one which is now in operation) many landlords (and landlord associations) commented on the unfairness that when the new scheme was to come in (and scenario 2 or 5 becomes relevant again) those landlords who avoided applying for a Selective licence for their flats after 18 September 2016 would end up avoiding paying the Selective licensing fee and gain a financial advantage over good landlords who had applied. As such when the fees for the present Additional HMO licensing scheme were set, a 'surcharge' was introduced.

When the present Additional HMO licensing scheme was introduced, all those landlords who had applied for Selective licences had their Selective licences passported into their new Additional HMO licence. If a freeholder of a Section 257 HMO has one or more flats that should have been Selectively licensed, they will be required to pay the equivalent of the Selective licence fee for each of these flats when they apply for their HMO licence, in addition to the HMO licence fee.