Analysis: the UK’s messy landlord licensing system

The licensing system for landlords in the UK can be a postcode lottery. In some areas many properties don’t need a licence, while in others you might have to pay up to £1,000 per property. What is behind this haphazard system?

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Evette Sebastian Roberts is a busy person. A practising nurse and midwife, Dominican-born Roberts is a mum to two teenage boys and has been an active landlord in London since 2010. She also serves as chair of the Barking and Dagenham Landlords Forum. So applying for a landlord’s licence is one more piece of red tape that Roberts could do without.

“Landlord licensing places a further burden on professional landlords whose genuine intentions are to secure additional income for their future,” she says.

While Roberts believes that long-standing antisocial behaviour (ASB) problems are an appropriate reason for licences to be introduced in an area such as Barking and Dagenham, she also feels that the scheme needs to “make a clear demarcation between professional and unprofessional landlords, and place more emphasis and surveillance on the latter”. And, more importantly, Roberts has seen no real difference between her landlord experiences in Barking and Dagenham, where a licence scheme is in place, and nearby Havering, which remains licence-free.

In Scotland and Wales, the situation is more straightforward – all landlords need to be registered and/or licensed, and the licence applies to the landlord, rather than to specific properties (see below). The fees are also relatively affordable.

In England, houses of multiple occupation (HMOs) with at least three storeys, occupied by five or more tenants who form more than one household and share some facilities, require a mandatory licence across the nation. But, for smaller properties or those let to just one family, whether or not a licence is needed depends on the local authority, and there’s huge discrepancy in fees.

So what is the point of landlord licensing, and how did we get here?

 

Origins of licensing in England

Broadly speaking, landlord licensing in England began with the Housing Act 2004. As well as mandatory HMO licences, local authorities can also introduce two types of discretionary licensing, which must be preceded by a public consultation: additional licensing for other (usually smaller) types of HMO; and selective licensing, which applies to any type of private rented sector (PRS) property in a given geographical area. This latter was introduced in the PRS as a way of tackling social problems in specific areas, including ASB and low housing demand.

Originally, all selective licensing schemes had to be rubber-stamped by the Secretary of State, but this was rescinded in 2010, opening the door to many more borough-wide schemes. In 2015, the rules changed again: the selective licensing criteria were broadened to include poor property conditions, migration, deprivation and crime, and the NLA successfully lobbied central government to introduce what is now known as the ‘20 per cent rule’. If a local authority wants to licence more than 20 per cent of the PRS in a specific geographical area, the scheme now has to be approved by the Ministry of Housing, Communities and Local Government.

The NLA welcomed the 20 per cent rule, but it acknowledges that this only tends to slow down the process of approval for large licensing schemes, rather than preventing their approval. While the organisation understands, and has supported, recent calls for light-touch registration, it feels that licensing is a step too far – something most landlords agree with.

“The spirit of the licensing scheme, and the way in which the legislation is written, is supposed to enable local authorities to do something really localised to change things for the better,” explains the NLA’s head of policy, public affairs and research, Chris Norris. “And when it’s done properly in an area of genuine need – where there’s chronic ASB or poor standards of housing management, as the Housing Act 2004 originally stated – it can have a very positive effect.” However, with so many social problems not actually connected to how private tenants’ accommodation is provided, it can be difficult to appreciate the potential benefits – particularly when some local authorities charge up to £1,000 per property for what is typically a five-year licensing period.

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How the scheme works

Robert Jameson owns buy-to-let properties in areas with and without borough-wide licensing and, like Roberts, he sees no tangible benefits to being licensed. “When they instituted this licensing system, my first thought was that we’re paying the local council to carry out duties that they should be doing anyway,” he says. “Once you’ve bought a licence, there’s no enforcement, no inspections and no meaningful follow-up. The only real change is a vast burden of bureaucracy. The application form is 40 pages long and, because I have seven flats in the same area, I have to pay for a separate licence for each property – around £3,000 in total.”

Jameson feels that the licensing system proceeds form a general prejudice against landlords, despite landlords themselves having little protection against troublesome tenants. The NLA’s local authority policy officer, Gavin Dick, agrees there’s a grain of truth there. “Some local authorities’ knowledge of the rental market is 10 years out of date, and the licensing terms and conditions are often written by someone who doesn’t fully understand the PRS,” he says. “Local authorities are more used to social housing tenants who, by and large, follow the rules. So, when it comes to the PRS, they seem to think that a landlord can tell tenants what to do, and how to behave.”

The NLA is particularly concerned about several aspects of licensing: the lack of transparency surrounding licence fees; the burden of social responsibility being thrust upon landlords; and the lack of follow-up inspections and enforcements.

Newham was the first London borough to introduce a borough-wide licensing scheme and it is generally considered a flagship scheme. However, even in Newham, only 3,500 inspections have taken place in five years, out of 27,000 properties.

“Inconsistent enforcement is what really annoys landlords,” remarks Norris. “There’s a dismally low prosecution rate across the UK and it’s interesting to note that 85 per cent of all landlord prosecutions in the past three years have happened in Newham!” So local authorities have a long way to go to make landlords feel that they’re getting value for money.

 

How are local authority fees set?

In order to bring some clarity to the situation, the NLA has investigated how fees are set. “We don’t believe that selective licensing is specifically a revenue earner for local authorities, but we don’t feel the fees are being calculated accurately either,” explains Norris. “Selective licensing tends to be a political decision and, at this point, is more likely to be rolled out in Labour-controlled councils. In the past few years, there’s also been the question of how closely linked it is to general cuts. Licensing potentially offers an opportunity to plug holes and pay for other services, whereas it should be ring-fenced for related work, such as enforcement of housing standards.”

Norris admits that, despite determined lobbying, the NLA cannot often get a proposal for a selective licensing scheme reversed, although Bournemouth Council has recently changed its mind as a result of NLA efforts. However, the organisation has been working hard to mitigate the terms of new schemes – by reducing the price, negotiating discounts for NLA members and pushing for improved access to council services. This has already happened in Peterborough, where NLA members get a discount of £550 on the £600 licensing fee, and in Leeds, where NLA accreditation gives landlords various benefits, including access to the tip, parking permits and licensing discounts.

 

What about Scotland and Wales?

In Scotland, the emphasis is on registration rather than licensing. Since 2006, all private (non-HMO) landlords have paid a fee to be included on a national register of landlords and, as with the licensing system in England, they must pass the ‘fit and proper’ person test. The three-year registration fee (per landlord) is £55, plus £11 for each property you own. Discounts are available for landlords who hold an HMO licence and/or jointly own a property with a family member. Registration is renewed on a three-yearly basis. Since 1 December 2017, local councils have been able to apply to have an area designated as a ‘rent pressure zone’, and the new Private Housing (Tenancies) (Scotland) Act 2016 will also be introduced.

In Wales, all landlords must be registered with Rent Smart Wales, a national scheme that has been centrally administered by Cardiff Council since 1 April 2015. The registration fee is £33.50 (online) and a five-year licence costs £144 (online). Landlords also need to buy a licence if they look after their own properties, and the same rules apply to letting agents and landlords’ employees. Landlords in Wales need to undergo training (at additional cost), which the NLA is authorised to provide. Unlike in England, a landlord in Wales only needs one five-year licence to cover all rental properties.

 

NLA Licensing 365 allows landlords to stay informed about licensing schemes and consultations affecting their property portfolio. Associates can use the service for one property or, if you upgrade your membership, the service can be used for up to 16 properties.

Find out more at www.landlords.org.uk/nla-licensing-365

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