Property Licensing: What Landlords Need to Know
Property licensing is one of the most obscure and complicated areas of private housing regulation. Though the legislation underpinning compliance regulation can be difficult to parse at the best of times, licensing regulation is characterised by a baroque complexity that even experienced professionals can struggle with.
Luckily for landlords in London, we have spent hours reading through the legislation and various licensing guides of every local borough to spare you the agony! Our guide will help to demystify the subject of property licensing and give you the knowledge you need to determine if you need a licence to let your property.
What is property licensing?
Property licensing schemes allow local authorities to regulate standards in the private rented sector. These schemes help councils to identify rogue landlords whose criminal behaviour puts renters at risk and enforce higher standards in quality of private housing.
There are three kinds of licensing scheme in operation in London: Mandatory HMO, additional, and selective licensing.
Mandatory HMO licensing
A house in multiple occupation (HMO) is a property that is let to at least three people who are not from one ‘household’ but share facilities such as the kitchen and bathroom.
For the purposes of HMO licensing, a household is considered to be a single person or members of the same family living together (including couples). For example, four unrelated sharers would be four households, but four people living together as two couples would be two households.
In England and Wales, if you are renting your property to five or more people who form more than one household then you are required by law to possess an HMO licence (hence why it is referred to as mandatory licensing).
Your property requires a mandatory HMO licence if all of the following apply:
- It is occupied by five or more tenants who form more than one household.
- Some or all of the tenants share bathroom, toilet, or kitchen facilities.
- At least one of the tenants pays rent (or their employer pays on their behalf).
Licences are valid for 5 years and you must have a licence for each HMO you let.
Local authorities have the option under the Housing Act (2004) to introduce additional HMO licensing schemes at their own discretion. These apply to houses in multiple occupancy that fall outside the scope of the mandatory HMO licensing requirements outlined above.
The local council set their own conditions according to which smaller HMOs require a licence and the criteria varies widely between boroughs who operate additional licensing schemes. For example, the additional licensing scheme in Camden is relatively straightforward and applies to all other HMO properties that are not covered by the mandatory licensing requirement. This means that all houses with three or more renters forming two or more households in Camden require a licence. Lewisham, however, runs an additional licensing scheme that only applies to smaller HMOs if they are located above a commercial premises.
There is no central directory listing the boroughs which operate additional licensing schemes and new schemes are introduced on a regular basis. As of 2019, over half of the boroughs in the city have additional licensing requirements - so the best thing to do is call your local council before renting your property to three sharers who form more than one household.
Additional licences are normally valid for 5 years. If your property meets the specific local authority criteria for both additional and mandatory licensing, then only then mandatory licence will be required.
As with additional licensing, councils have the authority under the Housing Act to implement a selective licensing scheme for all rental properties within a defined geographical area. However, the process for introducing a scheme is much more complicated. To introduce a selective licensing scheme, the local authority must be satisfied that there are persistent and significant issues with crime and anti-social behaviour linked to private housing. In areas with a high proportion of residents in private rental housing, councils have wider powers to implement selective licensing provided the scheme is designed to address problems with poor housing quality, crime, deprivation, or migration.
Local authorities must conduct a consultation with stakeholders affected by the proposed designation lasting a minimum of 10 weeks. Schemes which affect more than 20% of private rental properties or cover more than 20% of the borough’s total area can only be introduced following approval from central government.
Roughly a third of London’s boroughs run selective licensing schemes, including:
- Barking & Dagenham
- Hammersmith & Fulham
- Tower Hamlets
- Waltham Forest
Croydon’s current selective licensing scheme expires on 30th September, but it intends to renew the scheme commencing in February 2021 subject to government approval. Enfield is also currently running a consultation on plans to start its own scheme.
As with additional licensing, there is no central directory of boroughs which operate selective schemes and new requirements are introduced across the city on a regular basis. Always call your local authority if you are unsure whether or not you need a licence.
Selective licences are normally valid for 5 years.
How much does a licence cost?
There is no fixed fee for property licences, even for the mandatory HMO licence, and each local authority sets its own fees. There are significant variations in cost between each of London’s boroughs, but typically a licence will set you back at least several hundred pounds.
As it can sometimes be frustrating trying to track down the pricing structure for each borough’s respective licences (some local authorities appear to not place much emphasis on user experience when it comes to web resources), we have put together this directory for you to refer back to whenever you should need it.
City of London (Note: City of London will only confirm the cost of the licence following application).
Kensington and Chelsea (Note: Kensington & Chelsea will only confirm the cost of the licence following application.)
Merton (Fee schedule can be located on p. 14.)
Sutton (See page 8.)
Wandsworth (The fee calculation can be located by downloading the application form).
Many local authorities offer fee discounts to landlords who are accredited by certain professional schemes. A few examples include:
- London Landlords Accreditation Scheme (LLAS)
- National Landlords Association (NLA))
- Residential Landlords Association (RLA)
- The Guild of Residential Landlords
- Association of Residential Letting Agents (ARLA Propertymark)
- Safeagents (formerly National Approved Lettings Scheme)
- UK Association of Letting Agents (UKLA)
- British Landlords Association (BLA)
How does it work?
Landlords must apply for a licence through the relevant local council. The process involves filling out a detailed application form and submitting certain documentation to demonstrate compliance with their minimum standards.
The council will grant a licence once it is satisfied that:
- The property is suitable for occupation by the number of people allowed under the licence.
- The proposed licence holder (i.e the landlord or the property manager) is a ‘fit and proper person.’
- The proposed license holder is the most appropriate person to hold the license.
- The proposed manager, if there is one, is also a ‘fit and proper person’ and the person or agent involved in the management of the HMO is competent.
A ‘fit and proper person’ is, generally speaking, someone the council judges to have sufficient professional competence and good character. This is assessed through consideration of the following:
- Any prior convictions for violence, sexual offences, drugs, and fraud.
- Whether the landlord has violated any laws relating to housing standards or landlord and tenant issues (including Civil Penalty Notices, Banning Orders or Rent Repayment Orders).
- Whether the landlord has previously been convicted of unlawful discrimination on the basis of race, religion, sex/gender, sexual orientation, or disability.
- Whether the landlord has been entered onto the Greater London Authority Rogue Landlord Register.
- Whether the landlord has previously managed a licensed property and broken any codes of practice.
Each council may have its own individual requirements for its different schemes, but at a minimum you will need to produce these documents:
- A sketch plan for the property detailing the layout and position of each room.
- A valid gas safety certificate for all appliances and installations.
- BS5389 test reports relating to the fire detection system.
- BS5266 test reports relating to emergency lighting.
- An annual building insurance certificate.
- Recent PAT (portable appliance test) test report.
- A valid EICR (Electrical Installation Condition Report) certificate.
The licence itself will specify the number of people permitted to occupy the property and set out the conditions that must be met by the holder related to housing standards and compliance with regulations governing the private rented sector. For example, you will need to provide a gas safety certificate every year, provide evidence that all smoke alarms are properly installed and maintained, and provide safety certificates for all electrical appliances when required.
What happens if I rent out my property unlicensed?
As with all compliance breaches committed by landlords, potential penalties include hefty fines and criminal prosecution. Punishments include a civil penalty of up to £30,000, a rent repayment order, and the inability to evict your tenants using a Section 21 notice. This applies to all three forms of licensing.
You may also end up on the Greater London Authority Rogue Landlords Register and find it difficult (if not entirely impossible) to secure any kind of property licence in future.
If you have any further questions, please reach out to our team for more information (details below). Individual boroughs can have particularly complex rules and requirements and it would be impossible to detail them all in a single article, but if you get in touch we are happy to help you understand what licensing scheme might apply to you and your property.