AML: HMRC flexes enforcement muscle to the tune of £7.8 million
The Government has announced significant changes to the rules relating to the licensing of Houses in Multiple Occupation (‘HMOs’), which will take effect from 1 October 2018.
The changes to the legislation ultimately mean that more properties are captured under the HMO scheme in an era of increased prosecutions; obtaining specialist advice at an early stage is therefore paramount.
Under the Housing Act 2005 (“the Act”), a building, or part of a building is an HMO if any of the following applies:
Under section 55(2) of the Act and Article 3, the Licensing of Houses in Multiple Occupation (Prescribed Descriptions) (England) Order 2006, local authorities have a duty to license an HMO (save for section 257 HMOs) that:
This is known as “mandatory licensing”.
A ‘household’ can consist of a single person or any members of the same family. It covers people who are married or living together, as well as unrelated occupiers living with a family, such as a carer. However, friends occupying a house on a shared tenancy basis are viewed as multiple households.
In addition to mandatory licensing, local authorities have a discretion to extend the licensing regime to other HMOs who do not fall subject to mandatory licensing - known as “additional licensing”. This could include, for example section 257 HMOs or properties of less than 3 stories.
Section 80 of the Act also allows a local authority to require properties that fall within a district or area to be subject to selective licensing. The decision could be made, for example, because the area suffers with significant and persistent problems caused by anti-social behaviour by tenants whose private landlords are not taking action to improve the situation.
You can read more about selective licensing in our previous blogs:
On 1 October 2018, The Licensing of Houses in Multiple Occupation (England) Order 2018 will revoke the previous 2006 Order. This will have the effect of extending the scope of section 55 (2)(a) of the Act, making mandatory HMO licensing applicable to smaller HMO properties which are only one or two storeys high.
This effectively removes the storey requirement within the current 2006 Order. Therefore, under the new rules, mandatory licensing will include all HMOs with five or more people who form two or more separate households regardless of the number of storeys where the HMO meets the either the “standard test”, “the converted building test” or “the self-contained flat” save for purpose built flats in blocks comprising three or more self-contained flats.
The Licensing of Houses in Multiple Occupation (Mandatory Conditions of Licences) (England) Regulations 2018 (“the Regulations”) also come into force on 1 October 2018. These regulations will introduce minimum bedroom sizes and waste disposal provision requirements in licensable HMOs.
The mandatory minimum bedroom size for individuals sleeping in an HMO will be:
If a room is smaller than the specified size, it must not be used as sleeping accommodation.
Additionally, the new licence conditions permit the local authority to specify the maximum number (if any) of individuals aged 10 or over, alternatively under 10, who may occupy specified rooms provided in HMOs for sleeping accommodation.
The Regulations can be read in full here.
If a license holder fails to comply with the sleeping room standards by letting a room to or permitting it to be occupied by more individuals than permitted with the condition of the licence, they will commit an offence. If convicted, they are at risk of an unlimited fine. As an alternative to prosecution, the local housing authority also has the power to impose a financial penalty of up to £30,000,
Similarly, failure to hold the relevant license under the mandatory or additional licensing regimes is a criminal offence under section 72(1) of the Act and under section 95(1) of the Act in respect of a selective licensing regime.
In addition to facing an unlimited fine, the proceeds of any rental income derived from the let can be seized by way of a Rent Repayment Order or a Confiscation Order.
Landlords or landlord’s agents who manage HMOs must ensure that they apply for an appropriate licence and abide by all licensing conditions.
This can be a confusing and fast-moving area of law and expert advice should be sought at an early stage to avoid falling foul of an increasingly complex regulatory regime applicable to private lets.
The private rented sector comprises 4.7 million households in England, of which approximately 500,000 are HMOs. It is estimated that at least a further 160,000 properties will fall within the new mandatory licensing rules.
Whilst the changes in the law will assist the Government in its aim of raising safety standards within the private rental sector, it will undoubtedly place private landlords under increasing pressure.
There has been a real effort to crack down on rogue landlords in recent years with the local authority prosecution of landlords steadily on the increase. For example, 18 landlords were prosecuted in Sheffield alone between 2016 and 2017 for various property offences, and were fined a combined total of around £40,000. They were also forced to pay a total of over £72,000 in legal costs. The offences included that of failing to licence a HMO and poor management of HMOs.
Furthermore, there has been a steady increase in the levels of fines being imposed and the number of prosecutions by local authorities, greater use of Rent Repayment Orders and the effective use of the Proceeds of Crime Act 2002 to confiscate rental income.
Given the potential consequences of failing to licence and appropriately manage an HMO coupled with the increase of criminal prosecutions, private landlords and their agents need to ensure they understand and comply with their obligations under the new rules.
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