On 1 April 2015, an estimated 5,000 private landlords across Liverpool were affected by the implementation of a city-wide selective licensing scheme. Whilst Liverpool is the first major city to introduce the scheme city-wide, several local authorities have adopted selective licensing for their boroughs including the London Boroughs of Newham, Hackney, Croydon and Brent.
On appointment, Joint Fixed Charge Receivers stand in the shoes of the landlord, and as such must abide by any duties which bind the landlord, including the duty to license Houses of Multiple Occupancy (HMOs) under Part 2 of the Housing Act 2004 (the Act)and properties which are captured by the ever increasing presence of selective licensing schemes.
There are three main types of licensing; mandatory and selective HMO licensing and selective licensing for private landlords:
- mandatory licensing applies to all HMOs with at least three storeys that are occupied by five or more people who form more than one household (i.e. are not just one family)
- selective licensing for private landlords introduced by section 80 of the Housing Act 2004, which allows local authorities to designate areas to be subject to licensing
- additional licensing is imposed at the discretion of local authorities for properties let to three or more people, who comprise more than one household. These properties will not qualify as a HMO for the purposes of mandatory licensing (for example, they may not have at least three storeys).
The fee for obtaining a HMO licence is set by each local authority depending on a number of factors (such as how many tenants reside in the property). In some London boroughs the fee can be as much as £2,000. Receivers looking to sell a property with vacant possession may consider the application and fee for a HMO licence to amount to unnecessary expense and delay. However, there are financial and practical penalties involved if the property remains unlicensed.
Penalties for failing to obtain a licence
It is a criminal offence to control or manage a property where a licence is required (by virtue of the property being a HMO or in an area of selective licensing) but has not been obtained. A fine of up to £20,000 may be imposed (section 72(1) of the Housing Act 2004) and Receivers may be liable to repay any rent paid by the tenants under a Rent Repayment Order (RRO) for the period during which the property was unlicensed (up to a maximum of 12 months). If the landlord is found guilty of controlling or managing an unlicensed HMO, the tenant (or the local authority if they have contributed housing benefit towards the rent for the property) can make an application to the Residential Property Tribunal for a RRO.
Further, Receivers in control of an unlicensed property will be unable serve a valid section 21 notice under the Housing Act 1988 to seek possession from any tenants of the property pursuant to section 75 of the Act. However, a property is not deemed to be unlicensed if there is an effective application pending for the requisite HMO licence when the section 21 notice is served (section 98(1) of the Act).
Receivers should be aware of their duties when they are appointed over a property which may be subject to HMO or selective licensing. If the property is unlicensed despite a licence being required, the Receivers should apply for a licence immediately to avoid financial penalties and to facilitate service of a valid section 21 notice if the same is needed to seek possession from any tenants. Unfortunately, there is currently no central database of local authorities who have adopted selective licensing schemes. It would therefore be prudent for Receivers to check the licensing position in respect of every property they are appointed over.
It is important to note that HMO and selective licences expire after a specified period (usually no longer than a maximum of five years) and therefore Receivers may need to apply for a new licence