Part 4 Housing Act 2004 provides Local Housing Authorities (LA) with the power to make an Interim Management Order (IMO) in respect of residential property. A LA can exercise this power where a landlord (or their managing agent) fails to obtain a licence or where it is necessary due to the hazardous condition of the property. Upon the expiry of an IMO a LA can make an application to the Residential Property Tribunal to make a Final Management Order and take over the management of the property for a period of up to 5 years. This disables the landlord’s ability to manage the property and can also have a significant financial impact on its operation.
Interim Management Orders
A LA is under a statutory duty to make an IMO under s.102 Housing Act 2004 where:
- The property is a House in Multiple Occupation (HMO) or other licensable and the relevant person has failed to obtain a licence and the LA considers that there is no reasonable prospect of it being licensed in the near future;
- It is necessary for the purposes of protecting the health, safety or welfare of persons occupying the property. (This is defined under s.104 of the Act)
- An IMO can be in place for up to a period of 12 months upon which it ceases to have effect, unless it is revoked at sometime before the end of the period. The general effect of an IMO allows the LA to:
- Have the right to possession of the property;
- Have the right to do, in relation to the property, anything which a person having an estate or interest in the property would be entitled to do such as repairs and collection of rent etc.;
- To spend monies received through the collection of rent for carrying out its responsibilities of management and administration;
- To create new tenancies (with the consent of the landlord).
Final Management Orders
Upon the expiry of an Interim Management Order a LA has the power to make a Final Management Order under s.113 Housing Act 2004 by application to the RPT. Once an FMO is made it takes effect for a period of up to 5 years. This means that the landlord would not have control of the property for duration of that period.
The LA should manage the property in accordance with it’s management scheme which is a requirement under the legislation. The management scheme is divided into two parts. Part 1 of the scheme is to contain a plan giving details in which the LA propose to manage the property. It should also include: details of any works; an estimate of the capital and other expenditure; the amount of rent and other payment the LA will seek to obtain; the amount of compensation payable to any third party; and provisions of payments. Part 2 of the scheme is to describe in general terms how the LA is to address the matters which caused them to make the Final Management Order. Should the LA fail to follow their own management scheme then an application can be made to the RPT seeking an order for them to do so.
Through the duration of the FMO the LA must periodically review the operation of the order and the management scheme and consider whether keeping the order in force is the best alternative available to it. The general effects of an FMO are similar to those of an IMO.
The Financial Effects of an Order
The LA is entitled to collect rental income from the occupiers which means that a Landlord will not directly receive rental income derived from the property for that period. Rental monies can be used to subsidise the LA’s relevant expenditure which is reasonably incurred in connection to it performing its duties under the legislation. Any surplus of income over expenditure should be paid back to the landlord. The local authority is under a statutory duty to maintain full accounts of their income and expenditure which must be available for inspection by the relevant landlord upon request. If the relevant landlord is not satisfied that the expenditure does not constitute expenditure “reasonably” incurred then an application for an appeal can be made to the RPT.
On the termination of an Order if the total amount of rent collected is less than the authority’s relevant expenditure then the amount is recoverable from the landlord. Until the sum is recovered a charge can be placed on the property which takes effect as a local land charge.
Interim and Final management orders have far reaching consequences on the management of a landlord’s property but the most noticeable effect will be the financial consequences of an order.