HMO licensing scheme – what you need to know

Upcoming Mandatory HMO legislation changes

Since the 2004 Housing Act came into force, any landlord with a property containing more than 5 unrelated occupants or which has 3 or more storeys is required to acquire a license from their local authority for a maximum of 5 years.

The prescribed description has not been updated since 2006, when the act came into force. This license lays out strict rules on health and safety regulations and includes bedsits and shared houses as well as self-contained flats which have been converted. Currently there is a category which does not need a license – those buildings with 2 storeys or less or a property where the landlord and their household live with up to two tenants.

The Housing Act 2004 allows the Secretary of State to prescribe the type of HMO (House in Multiple Occupation) that falls within the definition of mandatory licensing. The government has now decided to extend the scope of mandatory licensing to bring smaller HMOs within the scheme. This can cover a vast scope of properties but is most commonly used for student housing (i.e. two storeys or less which has 3 or more unrelated occupiers, commonly known as a house share). As of April 2018 however, it will affect all properties containing five or more persons if at least two of them are unrelated (from different households), regardless of property size or stories, with the introduction of Section 24. These types of tenancies are likely to be subject to much tougher licensing rules and may require a considerable amount of work from landlords to bring their properties up to standard. Repeat offenders may also be subject to a banning order prohibiting them from letting property once these are brought into force. This is expected to happen in April 2018.

While currently mandatory licensing applies to around 60,000 properties, the new rules could affect around 160,000 properties – nearly tripling the number of properties it applies to. While the regulations are mostly aimed at rogue landlords, it should generally improve overall living standards by regulating minimum room sizes and how refuse is disposed. This drive to improve living conditions stems from a desire to tackle bad press involving landlords and to tackle the housing crisis by improving conditions.

It will likely affect shared homes with five or more occupants including flats above shops, and any landlord applying for a license will need to prove they are a “fit and proper person” and be subject criminal checks. There is also a chance that failing to obtain a license may result in an unlimited fine.

There is likely to be a grace period for landlords to catch up and ensure that their property meets the criteria and while these landlords will end up paying more to the local authority the bonus is that it will have a favourable impact on their mortgage applications.

Previous Housing and Planning Minister Alok Sharmsa, during the announcement of new measures to improve standards for those renting in the private sector in December 2017, said:
“Every tenant has a right to a safe, secure and decent home. But some are being exploited by unscrupulous landlords who profit from providing overcrowded, squalid and sometimes dangerous homes.”

The new rules extending mandatory licensing are expected to come into force in October 2018. Landlords should start reviewing their properties now in preparation for the changes. There are serious consequences for landlords and letting agents who do not obtain licences for licensable properties.

The sole purpose of this article is to provide guidance on the issues covered. This article is not intended to give legal advice, and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. We make no claims as to the completeness or accuracy of the information contained herein or in the links which were live at the date of publication. You should not act upon (or should refrain from acting upon) information in this publication without first seeking specific legal and/or specialist advice. Arthur J. Gallagher Insurance Brokers Limited trading as Intasure accepts no liability for any inaccuracy, omission or mistake in this publication, nor will we be responsible for any loss which may be suffered as a result of any person relying on the information contained herein.

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