Growing financial risk for 'go-it-alone' landlords

Housing minister Jacob Young recently scotched rumours that the property portal proposed in the Renters (Reform) Bill would remove the need for selective local authority licensing. Instead, pending a future review of such schemes, they will continue to apply – even after the passing of the Bill – leaving non-compliant landlords and managing agents at increased financial risk.

Clearing up confusion

It had been suggested that the new digital compliance measure would sweep away the necessity for the patchwork of licensing schemes introduced by many councils in certain parts of their borough where there was sub-standard housing or a high incidence of anti-social behaviour.

But in a statement the minister clarified that there would be a review of council licensing schemes to minimise their overlap with the property portal when the Bill becomes law. (The Bill has completed its Commons stages and has now progressed to the House of Lords.)

There has been no indication from the Government on who is going to undertake this review or when it will be completed, given the near certainty of a general election in the second half of 2024. However, Young suggested it was possible that some licensing fees could be cut and some schemes reduced in scope.

Until that review is completed, selective licensing will remain in place, leaving non-compliant landlords and managing agents at risk of fines up to £30,000.

Greater accountability

Selective licences were introduced as part of the 2004 Housing Act and implemented two years later. They were intended to improve the quality of homes in the private rented sector (PRS) – and are not restricted to properties registered as houses in multiple occupation (HMOs). Furthermore, since they were introduced, the number of councils implementing selective licensing schemes has increased dramatically, especially in recent years, and landlords have faced fines totalling over £10 million for non-compliance in London alone. The cost of licence fees varies, but as a rule they work out at around £750 and last for five years.

Some local authorities have adopted a robust approach to licence enforcement over the years and the income gained has become a valuable source of revenue, which councils would be reluctant to let go.

All of this suggests that the trend towards tighter regulation of the PRS is likely to continue into the future – whatever the results of the review and whichever political party is in power after the general election.

Owners of HMOs also face tougher regulations as a result of an amendment to the Renters (Reform) Bill, saddling superior landlords with greater accountability for non-compliance, even if they don’t directly manage or control the property they own.

The minister’s statement said: ““The portal will be a resource for local authorities and to help landlords understand their legal obligations, while selective licensing gives councils powers to licence properties to address issues such as poor housing and crime. There will be overlap with data. We don’t want to see selective licensing abolished but want to ensure the processes are streamlined – that’s why we’re committing to a review of selective licensing and HMOs.”

Assuming the Renters (Reform) Bill is passed, this could mean both the portal and selective licensing will continue, and local authorities will remain responsible for enforcement.

More necessary

In such a scenario, landlords face an increasing financial risk through non-compliance either through fines or rent repayment orders or both.

This increased burden of regulation – whether that be in finding suitable tenants or property management – puts the onus on landlords not just to remain on the right side of the law but to keep themselves updated on the changes.

According to Propertymark, there are 168 pieces of legislation facing landlords in England every day they are in business, and the chances are this number will only increase in the months and years to come.

This is why landlords should recognise the direction of travel and, literally, get their houses in order.

There has never been a more necessary time for landlords to secure the services of a professional letting agent to look after the day-to-day running of their property portfolios. It is no longer a question of whether they can afford to employ the services of an expert. It is more of a case of can they afford not to do so?