Over the last 3 years there has been a rise in fines from local authorities to landlords directly over an array of breaches of terms regarding their rental properties.
Cases range from landlords who own multiple properties and have converted them into overcrowded unsafe HMOs, to illegal multiple bedsit and studio conversions without local authority planning approval. Our previous article covers a few examples in more detail. Financial penalties in some cases can reach in excess of £1million for a landlord. This article will highlight some examples of recent landlord fines that can put mortgage lenders at risk due to void periods and high penalties. These licensing issues can ultimately impact the landlord’s ability to repay a mortgage.
The rise of landlord fines from property licensing issues
One such highly public case was that of landlord, Vispasp Sarkari, who converted properties without planning permission into cramped and dangerous flats, while charging tenants ‘extortionate’ rent. A single house in Brent was converted into eight tiny bedsits, with four more similarly converted in Harrow.
Over five years, Sarkari ignored planning laws and profited handsomely from illegal tenants crammed into tiny flats across Brent and Harrow in north west London. He has now been ordered to pay a £1.5m penalty or face nine years in prison, for taking advantage of vulnerable tenants ‘desperate for a roof over their head’. The judge also froze all his accounts and assets until the fine is paid, giving Harrow and Brent council the right to sell his properties if he does not comply. He has six months to find the money.
Harrow and Brent were represented by Counsel Mr Edmund Robb of Prospect Law:
‘The Confiscation Order of almost £1.5m which has been made in this case represents major recognition by the Crown Court of the personal misery and amenity damage which is caused by blatant and longstanding failures by developers to comply with planning enforcement notices issued by local authorities in London.’
HMO conversion without licence compliance or planning consent
An example here includes a fine of £250,000 under Proceed of Crime Act on an Illegal HMO in the London Borough of Brent, without relevant licensing compliance or planning consent – with 31 tenants found living in a four-bed house. Some tenants were made to sleep in a “shed built in the back garden made from wood off-cuts, pallets and tarpaulin”.
Councillor Eleanor Southwood, the cabinet member for housing and welfare reform, said:
“Every house in multiple occupation needs a licence, which helps to create decent living standards…. We will track down landlords who do not licence their properties and rip off tenants by housing them in miserable conditions.”
This is one of several examples where landlords are exploiting vulnerable tenants.
The impact of cases such as these on mortgaged properties are clear. While the ethical consequences of lending to landlords such as these should give serious pause for thought, the financial consequences are also significant. The ability of borrowers to service their mortgages after prosecutions such as these are massively reduced, potentially resulting in enforcement action being required by a lender and resulting in serious capital losses.
Kamma (formerly GetRentr) has been collating and managing UK wide property licensing data since 2015 to ensure that mortgage lenders fully understand the risk of their BTL lending whilst helping risk management of their capital adequacy. We will explore Capital Adequacy in more detail in our future articles. Having the ability to search the Kamma platform to find out whether fines have been issued on the property prior to securing a loan against it for the borrower is a good additional indicator of risk for the lender.
Kamma is also speaking at the 2019 Westminster Business Forum sharing views on how the mortgage market is changing and how access to information on properties mortgages are loaned too is becoming more crucial.
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