19 May 2022 by Bradley Ali

Licensing for landlords – get a licence or face the penalties

It is unsurprising that Houses in Multiple Occupation (HMOs) have always been a popular investment choice for landlords and investors given the high yields, minimal void periods and ever-increasing tenant demand.

Mandatory HMO licensing applies throughout England to certain larger properties that meet the criteria in the Housing Act 2004. Additional and selective licensing apply only in certain areas. Given that more local authorities have expanded the use of these additional and selective licensing schemes in recent years, they are being encountered with increasing frequency in practice (especially when buying tenanted properties).

It is important that landlords check with their local authority if their property is in an area that has – or will have in the foreseeable future – a form of licensing scheme for the letting of their property. Even if you think your property does not need a mandatory licence, it may be that your property is caught by the local authority’s additional and selective licensing schemes.

There are significant financial penalties for managing an unlicensed property (even if you have complied with all your other obligations as a landlord) and ignorance is not an excuse. For example, you could get a criminal record if prosecuted and found guilty, be fined an unlimited amount and ordered to pay court costs etc. Alternatively, the local authority can issue you with a civil penalty of up to £30,000 and you could be subject to a Rent Repayment Order and may have to repay up to 12 months rental income. In addition, you also cannot repossess the property under Section 21 Housing Act 1988 to evict your tenant until a licensing application has been made. It is simply going to make life much easier to comply with the relevant licensing scheme at the earliest opportunity.

If you realise you are already operating an unlicensed property that requires a licence, you should apply as soon as possible to minimise the risk. You may be able to apply for a temporary exemption from licensing if you want to reduce the number of occupants below the licensing threshold (e.g. to revert to a single family use or to obtain vacant possession in order to sell the property).

To assist landlords with their applications, some local authorities have developed online application systems and others are even offering discounts. For example, Ealing Council, which introduced its new additional HMO and selective licensing schemes on 1 April 2022, offer a 25% discount on their licensing fee if landlords submit applications at the very start of the schemes.

We would therefore urge all landlords and their property managers to check whether a licence is needed for their residential tenanted properties, especially given the local authority schemes are expanding rapidly from region to region. Any investors buying tenanted properties will now need to bear in mind that mandatory HMO licensing is not the only licensing scheme on which they need to do their due diligence before buying a tenanted property.

For advice about buying tenanted properties and other commercial real estate matters please contact Bradley Ali in our Commercial Real Estate team.

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