Considering an HMO? There's a lot to think about, especially when it comes to compliance. Foxtons Director of Legal and Compliance, Manjit Kataora, summarises it for you in the following article:
Key takeaways
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- 1 Local rules apply. Each London borough has its own specific HMO licensing rules you must follow.
- 2 Budget for compliance. Contact your local council early to understand potential costs for safety upgrades.
- 3 Applying promptly matters. While a pending application is a defence, don't risk operating without a full licence.
- 4 Managers are liable too. If you collect rent, you share responsibility for HMO licensing compliance.
- 5 Compliance protects your income. Breaching HMO rules can lead to hefty fines and rent repayment.
Each of London’s 32 boroughs operates its own set of licensing conditions governing safety standards of HMOs within their designated area. Though each borough imposes its own individual conditions (meaning there’s no single set of conditions that govern all HMOs), most HMO licences are broadly similar in terms of the obligations they impose on the landlord (or manager).
Invariably, they will contain a condition to place a notice in a prominent area of the property (usually a common part, e.g. the kitchen) informing the occupants of the landlord or property manager’s identity and contact details e.g. in the event of a disrepair issue, or emergency. Other conditions typically include specific fire safety systems (including the grade of alarm system); fire doors; intumescent strips; escape routes, and other safety-related details such as the number of sockets (so as not to overload wiring circuits). What this means for landlords considering setting up HMOs is that they would be well-advised to contact their local authorities for sample licence conditions and cost the likely outlay these works will require so that they can budget accordingly, and so that they can decide whether such works are even compatible with their property.
The quirks of local authority licensing procedure means that it is a defence against having no licence provided an application has been submitted and is pending. That, however, is not a defence on which it is wise to rely. This is because in the event the application is refused, a landlord who had by then set up an HMO, would be guilty of an offence. Even where a licence is granted, the conditions might require invasive (not to mention expensive) works to the property that require the decanting of tenants to alternative accommodation, hence might be unworkable in practice for single property landlords. The refusal of a licence leaves such landlords open to the offence of operating an HMO without a licence and brings them within scope of a fine. Fines are usually issued by fixed penalty notices of up to £30,000, although local authorities can choose to prosecute and where they do this the fines can be unlimited. Penalties can be publicised, and an entry can be made on the rogue landlords (and agents) database.
Where a local authority suspects a breach of licensing law, there are a few tools in their armoury they can use to prove an offence. Among these are written requests for information. These have the same weight and effect as a police interview; they are issued under caution. Councils can also choose to visit the property and take evidence from the occupants as to living arrangements, at which time they’re also likely to inspect the property to see whether it actually complies with the appropriate licensing conditions. Suspected breaches will be itemised and documented, the date of the inspection recorded, and where the local authority is satisfied an offence has been committed (to the criminal standard of proof, i.e. beyond reasonable doubt) their enforcement department will issue a notice of fine.
The only defence against a fine is that of ‘reasonable excuse’. There is no single definition of what constitutes a reasonable excuse, whether it can be established usually means looking at the particular facts of any given case and trawling through previous case history and/or getting (specialist) legal advice. The facts may be obvious; for example, the property was not in fact being used as an HMO at the time, or that the property was unlawfully (and without the landlord or manager knowing) sub-let to multiple occupants by a non-HMO tenant such that licensing conditions were then engaged. Where a defence is established, it will mean the HMO offence has not in fact been committed and no fine can be imposed.
The licensing regime doesn’t apply to all HMOs but only certain HMOs that are subject what’s called the mandatory licensing regime. This covers three specific types of HMO: (i) Those meeting the ‘standard test’ (at least two households sharing a basic amenity); (ii) self-contained flats that are not purpose-built (occupied by 5 or more people forming one or more household); and (iii) HMOs in converted buildings – essentially buildings originally constructed for single use but which have been converted into separate living accommodation, - e.g. bedsits. Where the HMO meets these tests, it will require a licence.
Not all HMOs, however, meet these tests. Those that do not meet the test remain subject to the Licensing and Management of Houses in Multiple Occupation (Additional Provisions) (England) Regulations 2007. These regulations impose requirements which in practical terms are not wholly dissimilar to most local authority licensing conditions. Concerned with the same issues, fire safety, means of escape, etc. a landlord whose HMO is not within scope of the licensing regime can still be fined for breaching these regulations.
Regardless of which regime is breached, penalties don’t just fix against the landlord. The property manager can also be held liable alongside the landlord. The term ‘property manager’ means whoever collects the rent, even where this is on behalf of the landlord. There are some circumstances where a property manager may not be held liable for a licensing breach however, this involves technical (and legal) points outside the scope of this blog and independent advice should be sought.
What this means in practice is that landlords and agents must be aware of the licensing regime, and the regulations. This will necessarily involve a lot of work in checking conditions, and that works required by those conditions have been undertaken (licence conditions usually impose time limits by which recommended works must be completed and may refuse to renew licenses where works have not been done in time or at all). Landlords and agents will also need to ensure – and be able to prove – that they have kept on top of inspections so that condition of the property is kept in check, alarm systems are tested, and that escape routes remain clear and unblocked, etc.
Regular inspections can be used to demonstrate where required, that you are on top of your HMO and any issues that arises can be dealt with by reference to a system of checking as opposed to there being no such system in place at all that ensures the safety of occupants, which is when enforcement action is particularly liable to follow.
Any landlord found to have breached HMO requirements is also liable to repay their tenants the rent under what is known as a rent repayment order. Here, tenants can apply to the relevant tribunal for reimbursement of up to 12 months’ rent provided they do so within 12 months of the last date on which the offence was committed.
HMOs then, are not to be treated as ordinary lets. They are much more complex and attract significant fines for non-compliance. The rewards are there – not only in terms of yield but in providing housing accommodation for those who otherwise may be unable to access the property market. Good preparation, and management, is the key.
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Landlord Essentials is a series of articles where our experts delve into the big questions for London landlords. If you have a question on letting your property in London, or you want help making your property a success, get in touch with Foxtons lettings team.
Source: This piece was authored by Foxtons Director – Legal & Compliance, Manjit Kataora, who has been working with Foxtons on the intricacies of legislation affecting London landlords for more than 16 years. If you have a question on the article, ask a Foxtons expert.
