Unlicenced HMOs

RESIDENTIAL LANDLORDS ASSOCIATION LIMITED

Summary:
The RLA would reiterate the overriding concern of those landlords who have applied in relation to those who have not.  Both Central Government and LAs must, however, bear in mind that it is unfair to expect compliant landlords to shoulder huge costs through licence fees in respect of seeking out those who have not. 

• It is not the fault of those responsible landlords who have applied that the system has been set up in such a cumbersome way with such strong disincentives (such as unnecessarily high standards) which put off others from applying. 
  
  
• They should not have to bear the costs of this problem through paying increased licence fees.  If they do, then there is the danger that they disengage from the sector creating a vacuum which will suck in more rogues.  Furthermore, it will drive up rents and make accommodation scarcer where it is most needed.  
  
• It is vital that the Government and LAs understand the pressure that the sector is under as interest rates rise.  These properties have often been bought with a low margin of return (if any at all) after allowing for mortgage repayments, insurance and basic maintenance costs.  This has resulted from the latest influx of buy to let investors. 
  Landlords should not be expected to foot this bill for enforcing compliance - March 2007

DEALING WITH UNLICENSED HMOS

1. This response follows a request from LACORS to the RLA for their views in respect of dealing with unlicensed licensable HMOs.
2. RLA research, already presented to the Government, shows that as at middle of August 2006 (some six weeks after the cut off date for applications) only 25% of anticipated applications for mandatory HMO licences had been received by local authorities. So far as is known, the RLA is the only body which has carried out any research in this field. Local authorities were asked to state the HMO licence applications which they had received for mandatory licences as at 15th August 2006 with anticipated numbers. The request was made under the Freedom of Information Act and some two thirds of local authorities had responded. As an aside, local authorities expect landlords to comply with the statutory duty to register but some one third do not respond to their own statutory obligations to provide information! Increasingly complex and onerous laws are more and more treated with contempt by the very bodies who are meant to be law enforcement authorities! This is hardly leading by example. Some local authorities could not give an estimated number but some gave a number in a range. To compensate for those who could not give an estimate where a range was given the top number in the range was taken. Whilst authorities report applications still coming in it is very much doubted that the overall picture has changed significantly. Some landlords have undoubtedly reduced occupancy from 5 to 4 and some will have converted bedsit accommodation to self contained flats (257 HMOs). Nevertheless, the overall picture is that only 25/30% have complied by now which gives a NON COMPLIANCE rate of as much as 75%.
3. Clearly, therefore, many landlords have failed in their obligations not withstanding the risk of draconian fines and rent repayment orders.
4. Any project to deal with this should firstly establish the current rate of NON COMPLIANCE as estimated by local authorities. Secondly, it needs to look at possible causes. Thirdly, it needs to think about the level of compliance which may be possible. Fourthly, it needs to consider whether there are underlying flaws with the legislation/arrangements for its implementation. Fifthly, it needs to look at possible remedies and whether they will succeed. Sixthly, it needs to consider who is capable of implementing those remedies. The view of the RLA is that much of the problem is down to the underlying legislation and asking local authorities to conduct campaigns to enforce the legislation, whilst undoubtedly it will provide some improvement, it will not put right the inherent problems afflicting the licensing regime.
5. Modern Governments frequently delude themselves into thinking that by passing a piece of legislation all the world’s wrongs can be put right. Legislation has to be practical and workable and have sufficient resources devoted to its implementation if it is to work. Unfortunately, the Government has a tendency to introduce grandiose plans and then fail to provide the necessary resources. HMO licensing is just another case in point.
6. The Child Support Agency has been another recent example. It has limped along under successive Governments. It has been an analogous situation to what is now happening with HMO licensing. It had a percentage of parents who were happy to pay their maintenance to bring up their children. It had another percentage who begrudged having to pay maintenance but, nevertheless, were willing to comply. It then had a very significant hard core who ignored/flouted their obligations. What happened? The first two categories were swept up in the scheme and as a result because of the huge bureaucracy involved, not least in dealing with those who complained, those who did not want to pay simply by and large got away with it. The Government has now recognised that it is pointless in incorporating the first two categories because generally speaking they would pay anyway.
7. The same situation is now developing with HMO licensing, as landlords feared and said so at the time. The efforts of Environmental Health Officers will be concentrated on those who have “joined the club” and applied to licence their HMOs. Often, they will be members of accreditation schemes and by and large will be co-operative and responsible. What is now going to happen? Their properties will be inspected, often minutely. It is the culture of the Environmental Health Officer. The EHO (at heart) is scared witless that once he/she knows about a property if they do not inspect it in great detail and something happens later then the opprobrium of the red topped newspapers will be dropped upon them from a great height. On the other hand, if he/she knows nothing about a property, because a landlord has stayed underground, then ignorance can be bliss. All the blame instead can be pushed on to the landlord for failing to apply to licence if the worst were to happen. There is, therefore, a fundamental psychological problem. Human nature being what it is the EHO would prefer to deal with the responsible landlord who, at least, would be civil to him rather than give him the run around.
8. At this juncture, it might be worthwhile pausing to look at the statutory framework as laid down on the Housing Act 2004. Essentially, local authorities are placed under four duties:

   (i) To make effective arrangements to implement HMO licensing (this will include pursuing the defaulters).
   
   (ii) To deal with licensing applications as soon as reasonably practicable.
   
   (iii) To review licensed HMOs within five years to ensure that there are no Category 1 hazards for the purposes of HHSRS.
   
   (iv) To make interim management orders in the case of unlicensed HMOs where there is no prospect of them becoming licensed in the near future.

9. The LACORS project is essentially concerned with Item (i). However, Items (ii) and (iii) and the way in which they are implemented will have a profound effect on the current problems, as could item (iv) because of the resource implications.
   
10. Landlords are very concerned and becoming increasingly angry (some already being very angry) at the fact that they have complied with the law but others are, as they see it, flouting the law. The Government and LACORS should in no way under-estimate the extremely strong feelings on the part of those landlords who have applied in relation to those who have not. In this segment of the private rented sector, it is currently the uppermost concern. The seriousness of this issue must not be played down. The RLA has repeatedly lobbied Government and individual LAs expressing its concerns. The RLA view is landlords should comply with their legal obligations. This is made plain to members. The RLA is supportive of professional landlords who comply with their legal duties.
11. Those landlords who have applied are concerned because those who have not are securing an unfair business advantage. It is very likely that properties belonging to those who have not applied will be in poorer condition. They will pose the bigger risk to the health and safety of residents. They bring down the image of the private rented sector and this reflects adversely on responsible landlords. Landlords who have applied want a level playing field. They are irate because they have to meet the costs of licensing including the cost of finding those who have not complied. The cost of licensing is already seen as burdensome but, in addition, there are much more significant costs of compliance. Those who have not complied are seen as getting away with it. Hence, the ground swell of anger. We cannot understate the situation and as time goes on those landlords who have applied are becoming increasingly angry at what is happening.
12. Surely the proper approach is “worst first”. This is simply not happening. The RLA was deeply cynical about what would happen once licensing was rolled out and, surprise surprise, all its fears are proving correct.
13. An emerging concern as the financial year for LAs draws to a close is that current activities by LAs are revenue driven. LAs were hopelessly under-prepared for licensing. Only in the last few weeks have authorities in many cases started to issue out licences. This all goes back to expecting each LA to draft its own licence application and draft up its own licence conditions. As usual everything was rushed in without proper preparation and no doubt we shall see the same fiasco with the implementation of the Tenancy Deposit Scheme. We saw it with liquor licensing.
14. The first question posed at the outset is being addressed by the current LACORS survey of take up which the RLA welcome.
15. The second question posed at the beginning was why there had been such a low take up. It is a combination of things. It is partly ignorance; partly an ostrich attitude and partly defiance.
16. The very phrase House in Multiple Occupation does not assist. The fearsome complexity of the legislation means that neither landlords nor tenants understand the obligations under the legislation. The publicity campaign at the outset was under resourced and woefully bad. Central Government is not prepared to meet the significant start up costs where required. As always the Government try to do it on the cheap. If all the effort expended by LAs on preparing application forms and drafting model licence conditions had been taken care of separately then Officers on the ground could have spent their time much more profitably in identifying potentially licensable properties and conducting local campaigns to ensure compliance.
17. LACORS should look at the experience in Leeds, the largest licensing authority. Compliance in the North West area of Leeds, which is the student area, is high compared with the national average for a large city. Leeds did not have any registration schemes. It did, however, have two relatively successful accreditation schemes and at a local level much was done to educate landlords as to their responsibilities in conjunction with the local landlord organisations. However, one should look at the other wards in Leeds outside the North West area where compliance has been extremely poor. Interestingly, North West Leeds comprises mainly student lets which are generally acknowledged to be, in the main, much better accommodation whereas in the other areas where there has been low compliance one will find the worst properties, the older traditional bedsits and the like. Potentially, what has happened is that the responsible landlords have been educated relatively painlessly as to their responsibilities but the LA has not had the time and resources to go out and “round up” the less responsible landlords. Partly, this has resulted from pressure in North West Leeds because of the local residents anti HMO lobby which means that in Leeds matters are inevitably skewed towards what are the better properties. This results as the articulate middle class are putting pressure on the local politicians to do something about student housing, which they perceive as a threat to their lifestyles. Student landlords are often a lot easier to deal with since they advertise through educational institutions, Agents etc and generally have a higher profile. Students, or at least their parents, are more educated and aware of landlord’s legal responsibilities. This means that again the effort is concentrated on those properties which actually raise the least concerns.
18. At the moment the pressure is on LAs, for reasons already stated above, to “get the cash in”, to process pending applications and to collect the fees because licensing generally speaking is being implemented on a self funding basis. This is another reason to ignore those who have not applied. They are not going to generate any cash at the moment.
19. The next disincentive for applying for a licence is that one is having to join a club with a high entrance fee, and high costs of compliance. As always, we have another example of a British Government who wants to adopt a Rolls Royce approach. Whilst small children are dying in African villages with one dirty well for their drinking water, every resident in an English HMO must have his own wash hand basin. Amenity standards have been set absurdly high. Why does a house with six need three compartments for wash basins or toilets plus a wash hand basin in every bedroom. No wonder landlords want to keep away from such a system for as long as possible. It is not as if the tenants want these amenities. Tenants often want cheaper accommodation and recognise that they will not get luxury standards. What is wrong with this so long as basic health and safety is catered for in the properties. Whilst we want Rolls Royce standards Reliant Robin resources are devoted to implementation.
20. The other problem as to why landlords want to keep away from the system for as long as possible is that they know from bitter experience that as time goes on standards are ramped up. It has happened with care homes; the result of which is that perfectly good care homes have gone out of business. We were promised “light touch” regulations repeatedly by civil servants and Ministers. Did we believe it? No. Has it happened? No.
21. Unfortunately, the Government has, as always, embarked on a hopelessly over ambitious project. Purportedly, they were going to learn from the problems in Scotland. HMO registration schemes also had major problems with non compliance in many areas. History does not point to a high likelihood of compliance. Thus the signs are not promising in response to the third question namely achievable levels of compliance. 80%/90% seems a realistic target.
22. What needs to be done to address the situation? We need to look at the remainder of the questions posed at the beginning together as they overlap. RLA has a number of proposals, some of which can only be addressed by the Government, because, however worthy, the LACORS project is not going to be able to deal with many of the complex issues, because problems are deeply embedded in the legislation.
23. At the “macro” level the Government should introduce self regulation for those landlords who are prepared to join an approved body, which would include landlords associations and accreditation schemes. These will be self regulating bodies with proper codes of conduct and complaints procedures. The RLA has always argued that one licences people not property. One aims to improve standards of management, not least by training and education. This would be a fundamental change and would mirror what is now happening with the Child Support Agency. By taking out local authority jurisdiction responsible landlords (who would be at least one third of the market) this would mean that the LAs energy would be solely devoted to those who have not complied. It immediately overcomes the psychological element referred to above which result in local authorities devoting 90% of their efforts to the responsible landlord and 10% to the irresponsible. You would, effectively, turn this around so that they could spend 90% of their work time on the irresponsible landlord and only 10% on the responsible (receiving complaints and passing them on self regulatory bodies etc).
24. The next point is a major one and one where perhaps LACORS may have more power to influence events. The RLA is very concerned in relation to the statutory duty (iii) outlined above, namely, the requirement to review licensed HMOs within 5 years in relation to HHSRS hazards. From around the country there are clear indications that the majority of LAs envisage a property by property detailed inspection. The Act makes it clear that this is not necessary but it goes back to the psychological need for EHOs in their present culture to have to review the minutiae of each and every property. Manifestly, there is no need for this whether legal or practical. Section 55(6)(b) is quite clear. Indeed, in the present situation the RLA is of the view that there should be an embargo on inspections, save for the very largest HMOs and known problematic HMOs as well as obviously having to address individual complaints. In other words, except for those cases no routine inspection should take place at present. Priority must be given instead to locating and dealing with those properties which have not been the subject of licence applications. It must be accepted that there are simply insufficient resources to do both.
25. Furthermore, there are the inevitable cash incentives of finding the unlicensed HMOs because this will bring in additional income for licence fees. Otherwise, those who have applied for licences will have to be funding not only the inspection regime but also trying to find those who have not applied. The Government should announce legislation at the first available opportunity to extend this 5 year period. In the interim it should give strong guidance as to how to deal with the Section 55(6) duty. The five year objective is simply not achievable in the present situation. The interim guidance should require local authorities to get on with finding those who have not applied for licences rather than concentrating their efforts with those which have, which is what is happening at the present time.
26. The Government should immediately put a moratorium on all applications for selective or additional licensing. It is a complete nonsense to bring in new types of licensing when implementation of mandatory HMO licensing is in a complete crisis. Unfortunately, we have local politicians who have been given a new toy in the shape of additional and selective licensing. Central Government should very firmly say that no further applications are going to be entertained for the time being for approvals.
    
27. Leeds City Council have indicated that they do not intend to inspect every property; rather only a sample of the properties. Landlords who are accredited will have a lower percentage of properties inspected that those who are not accredited landlords. This is a good example of what can be done. LAs and EHOs will, undoubtedly, be concerned if they are expected not to inspect all licensed HMOs. LACORS, itself has suggested that all properties need to be inspected. With respect, this is wrong.

What is the alternative:-
 (a) inspect a sample of properties on a risk assessed basis. Thus, where a landlord has a history of complaints one would expect a higher level of inspections, for example. Take a sample of different types of properties owned by the same landlord. These initial sample inspections will themselves be revealing. The purpose of the inspection should not just be to physically survey the property, but also to give advice/guidance to landlords. This should be done in the expectation that the knowledge gained by the landlord will be transferred by him to his other properties. A landlord who is about to embark on a programme of works across his portfolio to carryout work to comply with licence conditions will need guidance to make sure that the work is being approached in the correct manner

 (b) educate/train landlords. Acquaint them with HHSRS to raise the standards by encouragement in this way
 
(c) rely on the fit and proper concept. If a landlord persistently falls down on standards in his properties then is he a fit and proper person? Improvement, if need be, can be brought about by the threat of possible revocation of the licence and actual revocation if this is to be required. There seems to be a lack of informed thought as to the nature of the fit and proper person requirement. Properly used, this can be a dynamic which will in time improve the sector as bad practice is reduced
 
(d) the Government can help by publishing an approved Code of Practice. This can act as a “highway code” and define what is expected of landlords as part of the fit and proper person requirement. It can give clear cut guidance in endeavouring to reduce the complexities. The RLA has already produced such a draft but the response to date as been that this is too prescriptive. So what! Landlords repeatedly say they want to know what they are meant to do and they will do it. A clearly drafted Code of Practice which is approved would undoubtedly assist in helping to drive up management standards because it lets landlords know what is expected of them. Machinery is already there in the Act.

Why not use it?
It is vital that this issue of inspections is addressed immediately. This goes to the heart of the present situation. Only if the main thrust of resources is devoted to seeking out unlicensed licensable HMOs, rather than detailed inspections of each and every property, will any break through be made. Otherwise, we will be left with lamentable levels of compliance and the whole system will be a joke. The rogues will disregard it with impunity as they have done in the past. Poor standards will continue and bring the sector into disrepute. The Government want a professional private rented sector but the current policies are making this more and more likely. This issue is absolutely the centre of the problem.

What can be done on a local basis to improve compliance –

(a) beside culling data bases such as housing benefit records, council tax records and electoral registers, it is clear that the only realistic way forward is systematic on the ground street by street work to identify individual HMOs. This requires door knocking. The sensible way forward would be to identify areas where there are known types of licensable HMOs. It is only by systematic detective work of this kind that properties will be identified

 (b) effective local publicity is needed to remind both the landlords and tenants of the need for licensing

 (c) prosecutions should be avoided unless a landlord, when invited to do so, fails to apply. Any kind of blanket prosecution policy will make the current situation worse. It will simply drive those who have not applied further underground. At the moment encouragement is needed; not a big stick approach. Obviously, in individual situations a prosecution may well be needed because the landlord simply fails to apply when told to do so. Undoubtedly, this will happen and then by prosecuting these recalcitrant individuals. This will also raise the profile of licensing. In time once compliance levels are higher there could be formal amnesties.

 (d) a local hot line for anonymous calls to report non licensed property which is suitably publicised

(e) advertisements for likely licensable HMOs being followed up. If advertisements are seen in corner shops, chip shops etc cannot someone simply call the number and make enquiries about the property. This can then be followed up by an on the ground check. Go through the advertisements in the local newspaper “To Let” section.



28. What can the Government do on a national basis? We have already made a number of suggestions, particularly in relation to the inspection regime and the introduction of an approved Code of Practice. Undoubtedly, one of the disincentives to licence is the correct perception of standards being set at too high a level. The associated cost is a strong disincentive to apply for a licence. It is important for the Government to look at this issue again, particularly in relation to amenity standards such as bathroom/toilet and wash hand basin provision. What the Government can and should do is immediately announce the abolition of the requirement for a wash hand basin in each room in a shared house. An overwhelming case has been made against this requirement. The RLA have submitted a detailed submission to the Government and a response is now awaited. However, local authorities do not want this requirement; nor do tenants. If the Government were to make an immediate announcement that this requirement was scrapped then this would send out a strong message to landlords that their concerns are being listened to and addressed. It would also indicate that the Government was thinking again and for once there was a sensible reversal of this gold plated requirement. Furthermore, the Government should also announce an immediate review of other amenity standards. LACORS itself has questioned the need for two separate bathrooms in a five bedroomed property and the RLA (as well as others) have seriously questioned amenity standards in properties for six, seven and eight. The third compartment for sanitary provision is, again, an excessive and unnecessary requirement. Why do you think landlords are running a mile from HMO licensing when you get these sort of onerous and unnecessary sort of requirements imposed? We would repeat that the abolition of the wash hand basin requirement in shared houses already referred to would kick start the whole process by signalling the Government’s intentions to look realistically at the amenity provision of this kind.
29. Another approach the Government could adopt is in relation to the professionals and lenders involved in this sector. Solicitors and surveyors need education so that they can advise their clients. Despite suggestions from the RLA, there has been no apparent attempt by the Government to engage the mortgage lending sector in the HMO licensing process. They are key. Many HMOs will have a mortgage on them. All mortgage deeds contain a covenant to comply with legal obligations. The mortgage lender’s security is potentially at risk if the landlord of an unlicensed HMO is prosecuted (or if housing benefit tenants occupy the property) because there could be a rent repayment order which would put the income stream at risk, adversely affecting the lender. Lenders can police this in two ways. One is when money is lent. This does not just happen when the property is sold. Landlords often remortgage. Secondly, what is to stop lenders being encouraged to survey their portfolios and ask their borrowers if they are compliant. An enquiry from a lender is likely to have more impact than one from an EHO! As well as the main high street banks lending to this sector is mainly by specialist lenders who can be readily identified. No doubt the Council of Mortgage Lenders can assist. It may well need some funds from the Government to mortgage lenders to help them but the amount spent in this way would be far less than the current cost which are, no doubt, having to be incurred in locating non compliant landlords.

For any enquiries please contact:
Richard Jones
Secretary/Solicitor
Residential Landlords Association
C/O 4 Butts Court
Leeds  LS1 5JS
r.o.jones@burywalkers.co.uk
Residential Landlords Association Ltd Registered Office  1 Roebuck Lane Sale  Manchester  M33 7SY

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