How Will The HMO Changes Affect Landlords?

Published: 21/08/2018

Article by Lynne McCaffrey, Head of Property at GWlegal

If you are a HMO (houses in multiple occupation) landlord, you will pleased to hear that in the future you may have the option of paying fewer fees to your local council.

Well, that’s if the latest comments by specialist buy-to-let mortgage broker Commercial Trust Limited are anything to go by - and here at GWlegal, we certainly hope so!

Buy-to-let landlords could have grounds to challenge HMO licensing fees paid to councils, the broker has said.

This could save landlords hundreds of pounds each year.

In making the statement, Commercial Trust referred to a recent court case that has challenged the often very expensive fees set by local authorities.

The changes to HMO licensing

October 1st is the deadline for the new HMO licensing rules, expected to impact around 177,000 landlords across the country.

The changes to the scope of mandatory HMO licensing were announced by the Government back in May of this year. In plan terms, what these mean is that HMO landlords will now be under stricter terms and probably need special licences to operate their rental business. Before, some landlords would not have required a licence.

The price of these licences are set by local authorities and could cost landlords hundreds of extra pounds annually.

For many landlords, the price of the licence is not the only cost. Further expenditure may be required to make changes to the property in question, to ensure that it meets licensing standards.

GWlegal firmly stands by the regulation of all types of buy-to-let properties, especially those with multiple occupants, to safeguard the rights and safety of tenants. However, we think most would agree with us that unnecessarily high prices set by local authorities are not fun for anyone involved!

The buy-to-let market significantly props up the housing market and UK economy in general, so discouraging landlords from investing isn’t such a positive move.

The court case

In the recent case of Mr Peter Gaskin v LB Richmond Upon Thames [2018] EWHC 1996 (Admin), the validity of some licensing fees costs set by local authorities was questioned.

In this particular instance, Mr Gaskin, who owns BTL property in London’s Richmond area, was renewing his HMO licence with the local council, who asked him to pay a fee covering not only the costs of processing his application, but also contributing towards the authority’s costs of running the HMO licensing scheme, and that eventually led to him being prosecuted in the Magistrates’ Court for operating an HMO without a licence.

The issue went to court.

In ruling, the High Court stated that licence fees can only cover the cost of the licensing scheme, not other costs such as enforcement.

The Administrative Court decided that the claimant, Peter Gaskin, an HMO landlord, was providing a service within the meaning of EU law, by the private letting of accommodation.

Because Gaskin had met the EU requirements for providing a service, the court determined that the fee charged by the local authority for an HMO licence, had to be structured in a way which complied with EU law.

Under EU Directive 2006/123/EC (“the Services Directive), there is a provision in its article 13(2), that where a charge is imposed for a person to apply to have access to a service activity, the charge must not exceed the cost of the authorisation procedures.

As such, the London Borough of Richmond’s fee was unlawful.

What all this means

The case of Mr Peter Gaskin v LB Richmond Upon Thames opens the floodgates for landlords to question the fees they are being charged by their local authorities.

I would advise anyone who believes they are being charged unfairly by their council to seek professional advice from a legal practitioner as soon as possible.

In general however, given how complex the new HMO rules and regulations are, landlords should seek professional advice regardlessly.

HMO FAQs

What is a HMO?

Properties are defined as a HMO if:

• It is rented with five or more people who form more than one household
• It is at least three storeys high
• Tenants share toilet, bathroom or kitchen facilities (although this criteria can vary from council to council)

What are the benefits of a HMO?

The main advantage of HMO properties is their potential for higher rental yields. In popular university cities such as Manchester and Liverpool, where it is increasingly difficult to find shared rental accommodation, rental prices are on the rise and as such, landlords can enjoy a corresponding increase in rental profit. Furthermore, HMOs are a significantly lower risk investment for landlords. If a single payment is late or a tenant moves out and cannot be immediately replaced, a landlord won’t be in too much financial strife. Likewise, maintenance costs are lower or can be staggered - unlike a normal rental property, only one room will need to be maintained and re-decorated if a tenant moves out, for instance.

What are the new rules for HMO landlords?

1. Landlord will need a special HMO licence for certain HMOs occupied by five or more persons, or two or more households, regardless of the number of storeys. This includes any HMO which is a building or a converted flat where such householders lack or share basic amenities such as a toilet, personal washing facilities or cooking facilities. It also applies to purpose built flats where there are up to two flats in the block and one or both are occupied as an HMO.
2. There will be new Government-regulated rules in relation to the size and use of rooms used for sleeping accommodation in licensed HMOs e.g. a bedroom must be a certain size and there will a maximum amount of people allowed in said room.
3. The Government will introduce a mandatory condition in HMO licences requiring the licence holder to comply with their local authority scheme (if any) for the provision of facilities for the proper disposal and storage of domestic refuse. Or, in plain terms, rubbish and refuse must be stored and disposed of properly, otherwise landlords could face punishment.

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Content correct at time of publication.