Mandatory and Selective Licensing Schemes: A guide for Landlords
One of the most complex sides to life as a landlord is the controversial subject of licensing. Landlords with certain types of shared homes have been required to comply with licensing since 2006, when legislation replaced a registration scheme that formed part of the 2004 Housing Act.
However, the lack of consistency in the rules across different locations means there are many different schemes to navigate. The fines can be as high as £30,000 meaning if landlords fail to comply with this complex and ever-changing legislation, they could be seriously out of pocket.
We’ve taken a look at the key facts around the two different types of license requirements to help you understand them:
Mandatory Licenses for HMOs (Houses of Multiple Occupation)
What is an HMO?
Until 1st October 2018, a property was classed HMO if it was let by five or more tenants that form two or more households; who share a kitchen, bathroom or toilet; in a building that is more than two storeys high.
What is a Mandatory License for an HMO?
The rule is that where a property is classed as an HMO it needs to be licensed by the local authority. In most cases, the landlord must pay a fee and the property must be inspected to ensure there are no health and safety risks before the license is granted. The landlord must provide the Local authority annually with copies of gas safety certificates, conduct electrical safety tests and install smoke alarms on each floor. Additionally, if any rooms have a coal fire or wood burning stove, they must have a carbon monoxide alarm.
But the definition of an HMO changed and landlords who rent a property to five or more residents from two or more separate households, regardless of how many floors the property has, are now subject to mandatory licensing. This change could add an extra layer of complexity for some landlords. If the property is either a leasehold, or has a mortgage against it, then the landlord is required to seek permission from the leasehold owner and/or mortgage provider.
The landlord must also provide information about the license to the tenant. Where a landlord has failed to comply with licensing regulations, then they will be unable to serve a Section 21 notice should they wish to regain possession of the property.
What are Selective Licence Schemes?
Selective Licensing was also introduced in 2006. Aimed at providing Local Authorities greater powers to address the impact of poor-quality private landlords, and anti-social tenants, these licenses were initially believed to be positive as they were aimed at raising standards so that tenants could enjoy living in quality homes.
Where are Selective Licensing Schemes in place?
These schemes don’t operate nationwide (as the name suggests) they are only applicable in selected regions. When the legislation was rolled out, the primary reason not to make it a nationally applied policy was to make sure that measures could be carefully targeted towards problem areas, without adding any unnecessary burden to landlords across the rest of the country.
As with Mandatory HMO Licenses, landlords with properties in areas with selective licenses need to apply for a license before they are able to rent out a property. This grants the Local authority the powers to check if the property is up to scratch and that the landlord is appropriately managing the let property.
It was expected that the number of local authorities with a Selective Licensing Scheme would be limited, however the number of councils opting to have one has grown substantially. It is estimated there are in excess of 100 different licensing schemes now in place. The result is a variety of different schemes across England, and the possibility of many landlords feeling confused.
How does a council decide whether to introduce a licensing scheme?
A Local authority cannot simply decide they’d like to introduce Selective Licensing. It must be in response to certain conditions. These conditions are:
- The area has low demand for housing
- Anti-social behaviour is causing a significant and persistent problem
- The area has an issue with poor property conditions
- There are high levels of migration
- High levels of deprivation and/or crime blight the area
This means that the local authority should be able to demonstrate how the introduction of a licensing scheme will improve local outcomes.
Crucially, a local authority should not simply expect to be able to rely on the introduction of a licensing scheme to solve local issues but should instead use the full range of existing enforcement powers to tackle the identified problems.
What to do if your local council proposes intruding such a scheme?
Where issues of anti-social behaviour need to be addressed, or there are high levels of crimes being committed, the authorities should work together to tackle these issues rather than imposing additional costs and bureaucracy onto private landlords.
We would urge landlords to get involved in the consultation if their local authority or council proposes introducing a Selective Licensing Scheme.
How can landlords make sure they comply with local licensing requirements?
To help landlords feel confident they are complying with any local licensing requirements, haart recommends appointing a professional and qualified agent. An agent can provide support and will be aware of the latest developments in licencing and legislation that affects the private renting sector and landlords.
Not only will they be aware of the different schemes across the UK, but they should also know if and when any new schemes are introduced. They can then inform their landlords of any that affect them and help them put the correct licensing in place.
Do Selective Licensing Schemes work?
While in theory introducing these schemes should drive up standards, in practice, we still have a huge variation across the country and a minefield of regulation that most landlords are utterly perplexed by.
Unfortunately, haart believe that Selective Licensing has created unnecessary additional costs for landlords, possibly without actually raising standards. To improve standards in the private rental sector, we believe this scheme could be replaced with a template that forces all local authorities to work to a standard model, enforcing the existing legislation designed to tackle sub-standard housing.
How can haart help?
haart can provide a proactive and highly cost-effective solution for landlords which tracks schemes and consultations, checks registered properties against the current legislation and registers the property with the relevant Local authority.
The service is provided nationally, which is particularly useful as many investment landlords have properties across several geographic locations. With the rapid increase in new licensing schemes there is a real risk that landlords may not be aware of a looming change in regulations.
Have questions? Get in touch. Why not pop in to one of our branches (we have over 100 nationwide) and talk through your options with a member of our team? If you would like to discuss any of the licensing solutions haart can provide you can also email: InvestorServicesTeam@spicerhaart.co.uk