Property licensing continues to be a massive pain point for landlords and property managers, maybe unsurprisingly so considering the uncertainty around who needs a licence, and who is responsible for obtaining it.
What properties need a licence?
Many people still believe licensing only applies to large HMOs such as student house-shares, but this is not the case. In fact, any property with three or more people, two of whom are unrelated (for example two friends and one of their partners) that shares facilities is an HMO – which usually requires a licence in an Additional Licensing scheme. In a similar way, in areas subject to Selective Licensing, all private landlords must obtain a licence, regardless of the number of tenants in the property.
In April 11 new discretionary licensing schemes were launched from Ealing to Liverpool, including 4 additional and 5 selective schemes. As of June 2022, there are over 118 active licensing schemes across the UK, with an additional three starting in the next month. But the schemes vary greatly between councils, and it’s therefore not surprising that many landlords and agents get unwittingly caught out and slapped with fines or worse still, rent repayment orders (RROs).
Many local authorities also operate multiple schemes at once adding layers of complexity for landlords and agents – especially ones with portfolios spanning different councils. Most landlords depend on their letting agents to support their licensing needs, and rightfully so as letting agents actually shares the landlord’s legal obligation to obtain the correct licence for the properties they manage. Yet this is often unknown, or overlooked by many agents and landlords.
Discretionary licensing: who is responsible for obtaining a licence?
Licensing application processes and costs differ between local authorities and depend on the size of the property, and whether it is an HMO or not – but it averages around £400-1,000 per property. Whilst the conditions and cost vary greatly between councils, what’s common for all licensing schemes is that it is the landlord’s as well as the managing agent’s legal obligation to obtain the correct licence. Even if a letting agent’s terms of business state that they don’t take on the responsibility for licensing, the Housing Act 2004 places responsibility for licensing a property on anyone who meets the statutory definition of person having control or person managing the property. Failing to do so could result in heavy-handed penalties and rent repayment orders.
Under a rent repayment order, landlords may have to pay back to a tenant any rent they have received, up to a maximum of 12 months. Whilst letting agents do not directly have to repay tenants their rent in the same way as landlords do, they too stand to lose out on vital income and landlord relationships if their landlord customer is faced with a RRO.
When it comes to property licensing, letting agents also stand to face fines for leasing unlicensed properties in the same way as landlords do. In fact, according to Kamma’s data, the average amount for fines imposed on agents (for all types of offences) is £4,440 compared to £4,223 for landlords. This means that although landlords get slapped with fines more regularly, agents get fined more (on average).
Agents that fail to comply with local licensing regulations do not only face fines of non-compliance, but also reputational damage which is especially important in such a competitive marketplace like lettings.
What are tenants’ roles?
Tenants are essentially the only ones that are relieved of all responsibilities when it comes to obtaining a licence for the property they are renting. And as we’ve recently seen in East London, asking tenants to pay for the licence application can result in heavy-handed penalties and RROs.
This May, property management company ‘Churchill Estates’ received heavy criticism from a Tribunal judge after asking four of its tenants to pay for their HMO licence for the flat they were renting. The criticism has been made after the firm’s handling of the HMO tenancy caused the landlord to be issued with an £18,159 rent repayment order. The judge of the RRO case commented: “It is somewhat surprising that the [landlord] through Churchill Estates sought to obtain the cost of obtaining a licence from the tenants. This is very unorthodox and questionable”.
This is a great example of a case where both the confusion around responsibility for licensing becomes evident and has resulted in huge financial consequences for both parties. Yet the complexity of the property licensing landscape does not have to be disadvantageous. Instead, agents that can learn to better understand and manage that risk stand to differentiate themselves and win more instructions by offering more value to their customers – all whilst simultaneously protecting themselves against fines of non-compliance.
Agents that apply for a property licence on behalf of their landlord customers hold it for five years, which is another reason why licensing complexity can work in agents favour and help them maintain relationships and customers for longer than the regular 12-month term.
How Kamma can help
Kamma automatically monitors the UK’s property licensing landscape and can help letting agents and landlords identify what licence is required for their property as well as to help with the licensing application process.
Get in touch with the team at hello@kammadata.com or book a demo to learn more about Kamma’s services
