Joanne Mills explains why landlords concerned about the Deregulation Act should be more worried about selective licensing schemes
While there has been much publicity over the implications of the Deregulation Act 2015, and specifically the impact of the new legislation on a landlord’s ability to regain possession of his property, there has been comparatively little reported about selective licensing in the private rented property sector. However, the implications of this licensing scheme are just as severe, if not more so.
Selective licensing was brought into force by Part 3 of the Housing Act 2004. The provisions consist of a mechanism to permit councils, after consultation and at their discretion, to introduce licensing schemes that regulate the letting, by private landlords, of residential properties. If properties meet select criteria, councils will grant a private rented property licence to landlords to let their properties in the private sector. The purpose of the legislation is to regulate the private rental market with the aim of improving housing stock, reducing crime and antisocial behaviour and limiting the number of rogue landlords. Selective licensing does not apply to commercial properties.
How selective licensing works
The difficulty with the scheme is that the requirements vary from council to council. However, the broad principles remain the same: if a landlord has a property in an area that is a designated licensing area, then in order to let that property the landlord requires a licence. Generally, although the terms vary, licences cost £500 per property and last for five years, after which time a further licence must be obtained at the full cost of £500. If a landlord owns a portfolio of properties in any particular council area, then there is generally a discount for licensing multiple properties.
To process an application, the council will want to see evidence of a valid gas safety certificate, a fire safety evaluation, an electrical safety certificate and an energy performance certificate. In the application process, the council is also likely to undertake an inspection of the property.
The sanctions for not applying for a licence in a designated area can be extreme: a landlord may not be permitted possession of his property following the service of a section 21 notice and may be fined up to £20,000. In addition, the council may apply for, and be granted, a management order to look after the property and a landlord may be required to repay rent to tenants.
There are exemptions, both full and temporary, available to landlords, where a licence will not be required. However, to benefit from the exemption, the landlord must make an application to the council. The full exemptions available are:
- where the property requires a house in multiple occupation (“HMO”) licence;
- where the landlord is a registered social landlord or housing provider;
- where the tenancy is subject to a prohibition order;
- university or college accommodation;
- where the property is held on a long leasehold interest;
- where the property is a holiday home;
- where the tenant is a family member.
Temporary exemptions, which are valid for three months, are:
- where the property is in the process of being sold;
- where the owner has given notice to the tenants that the property will be sold;
- where the owner of the property is moving into the property;
- where the property is in the process of being converted to commercial premises;
- where the licence holder has died.
What’s the problem?
What makes licensing difficult is the relatively small amount of information that is in the marketplace about the schemes. There is no central register that identifies which councils have designated licensing areas and, further, some councils have only designated certain streets or areas of a city as being a licensing area, but not others.
As it is a discretionary scheme and the designation of selective licensing areas is subject to those areas fulfilling statutory criteria, so far relatively few councils have introduced selective licensing. Some have consulted but have decided not to proceed with the scheme. However, the number of councils that are introducing such schemes, or where there is a consultation process in place, is on the rise, and the effects of such schemes are beginning to be felt in the private rental market.
Professionals in this area seem to be aware of the existence of the schemes, but not all seem to be aware of the requirements. Moreover, we are only now starting to see the results of not having the relevant private rented property licence in the courts.
The problem is that while judges seek to apply the strict sanctions of the law, there is, and has been, crossover when it comes to landlords who did not apply for a licence, served a section 21 notice and are now having the validity of that notice called into question due to the fact that no transitional provisions are in existence. This makes it difficult for a landlord to physically regain possession of a property, which may be required for genuine reasons. A landlord may end up having to retrospectively apply for a licence, delaying possession by months. Whether a landlord would be liable for a fine in such circumstances remains to be seen.
While the intention behind the selective licensing scheme is positive, there are bona fide landlords who are inadvertently being caught up in the process due to a lack of knowledge surrounding the scheme and the fact that there seems to be little publicity about the requirements or the areas to which schemes apply.
The cynical view is that licensing will not work to improve housing stock because those landlords who try to flout the law are unlikely to abide by the principles relating to unlawful eviction and so will not be affected by licensing. Those landlords who are bona fide and who do try to make a property a pleasant place for their tenants to live in are likely to be the ones most burdened by what are cumbersome and expensive legislative provisions.
Joanne Mills is a solicitor at Irwin Mitchell
