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Fri 10th September, 2010
News
What are Property Licences? |
31st May 2006 |
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When arranging buy-to-let mortgages, mortgage introducers need to be aware of the obligations now placed on landlords who may require a property licence.
From 06 April 2006, the key question all landlords must ask themselves, and all prospective landlords must consider, is whether the property they own, or will own, requires a property licence. In its simplest form, no licence means no rent.
The Government has introduced the property licence to improve the control of multi-tenanted properties and to ensure minimum standards are met to protect tenants from potentially exploitative landlords. Previously unregulated landlords will now have to comply with the legislation so as to avoid committing a criminal act.
The Housing Act 2004 has introduced mandatory licensing, additional licensing and selective licensing for rented properties. The most important aspect of the Act is mandatory licensing. The legal framework has imposed minimum obligations on landlords to comply with if they meet certain criteria. The primary obligation is to apply for a property licence from their local authority if they wish to continue renting out their properties to tenants.
Only certain properties fall within the ambit of the Housing Act and the need for a property licence. These properties are called “Houses in Multiple Occupation” (HMOs).
Three criteria set out by the Housing Act must be met for the property to be classified as an HMO and thus require a property licence. Landlords have to ask themselves, in the first instance, the following questions:
1. Does my property have 3 or more storeys (including habitat attics and basements)?; and
2. Is my property occupied by 5 or more people?; and
3. Is my property occupied by people from two or more single households?
If the answer to all three questions is yes, the landlord has to make an application for a licence. Determining the correct answer to the questions may prove more complicated than it appears on paper and advice should be sought to determine whether an application should be made.
For the licence to be granted, the proposed licence holder and any manager of the property has to be a “fit and proper person” to hold the licence. The local authority has to be satisfied the licence holder is the most appropriate person to hold the licence and that proper management standards are applied at the property along with minimum standards of facilities and amenities being provided.
For mandatory licences, there has been a “grace period” implemented for a period of 3 months to allow landlords who have not applied, to make an application without penalty. After 06 July 2006, penalties will begin to be enforced on landlords if they rent a HMO without a licence.
Additional and selective licences can be imposed on landlords but the local housing authorities have to consult with landlords in the first instance and publish any changes before they are implemented.
It is a criminal offence to rent an HMO without having the appropriate licence. The severest penalty is to be fined a sum up to a maximum of £20,000. In addition to a fine, the local housing authority can also clawback any rent received by the landlord for the period where rent was obtained without a licence. The landlord may also be prohibited from renting properties indefinitely. Finally, if the landlord is operating without a licence, his right to serve a notice on the tenants for eviction for non-payment of rent is extinguished.
The impact of the property licence is yet to be assessed in practice. However, mortgage introducers need to question this type of letting with clients from the outset as many mortgage lenders will no doubt require this information given the risks of landlords receiving no rental income which will inevitably be used to fund the mortgage on the property.
For further information, please do not hesitate to contact Mr Stuart Giddings, Lawcomm Solicitors, DDI: 023 8038 4407, E-mail: stuart.giddings@lawcomm.co.uk
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