INVESTIGATION: Why licensing is a selective attack on landlords

Once upon a time, selective licensing only affected landlords of houses in multiple occupation (HMOs) and the rest were spared the red tape – and extra cost.

Until that is, Tony Blair’s government managed to persuade Parliament to enact the Housing Act 2004 which created an option for every council to impose a landlord licensing scheme.

The big idea was that it would force criminal landlords – who account for between 5%-10% of the sector – to clean up their act and reduce anti-social behaviour. It all sounds well in principle but, in reality it doesn’t work out that way.

Selective licensing was Part III of the Housing Act and came into force in 2006 – after which point landlords had a legal obligation to maintain a licence in areas subject to a licensing scheme.

Introduce licensing for all privately rented properties

Local authorities across the UK have the power to introduce licensing for all privately rented properties. For example, operating an unlicensed property that requires a licence is a criminal offence and councils can impose a fine of up to £30,000 for each breach of the rules.

However, the reality is that the fines tend to be £12-£15,000 for an HMO, and between £6-£12,000 for selective licences – but these fines are increasing.

And while these licensing schemes are called ‘non-profit’, they do have two aims for the collected fees:

• To meet the administration costs of the scheme
• Pay for more enforcement officers.

Each council has its own set of conditions which landlords must meet to be granted a licence. Some of the mandatory conditions include having a valid Gas Safety certificate, electrical appliances and furniture must be in good condition, and smoke alarms must be fitted and in proper working order.

Consultations help councils to achieve their aims

The government has made it more difficult for councils to introduce a borough-wide selective licensing scheme, but the consultations help councils to achieve their aims of introducing a scheme into a designated area.

It has to be said that the mandatory conditions might be described as being ‘standard’ – but most landlords tend not to understand them, and many won’t do anything to meet them.

The vast majority of landlords will be running a compliant business, which begs the question: ‘Why bother imposing an expensive licensing scheme in the first place?’

So, let’s look at Nottingham City Council which has proposed a second new selective licensing scheme which is awaiting approval from the government.

Council believes landlords won’t need to increase tenants’ rent

The council believes landlords won’t need to increase tenants’ rent to cover the cost of a licence application. Councillors say most landlords would be aware of licensing and a new licence should be factored into their business plan.

Experienced landlords appreciate that if they make £200 a month in profit from a house or flat, they are doing well. Unfortunately, councils don’t understand or, more worryingly, care about the economics of being a landlord.

The current cost for a licence in Nottingham is £ £520 for the first payment (Part A) and the second payment (Part B) is £370. That’s £890 per house. Have more than one rental property and landlords are looking at a hefty outlay.

Mick Roberts, a landlord from Nottingham told Property 118: “In my opinion, the proposed licensing scheme is a politically motivated attack from a council that cannot be trusted and is either too stupid to realise or simply not bothered about the facts that its unnecessary licensing scheme is going to push up the cost of renting a house in Nottingham higher than it needs to be.”

Mr Roberts said he won’t put up rents for his tenants if he can pay his licensing fees in one go without spending hundreds of hours filling in paperwork.

He said the total fee would cost him £57,000 and he tells the council: “Ring me tomorrow, I’ll pay your £57,000 and I promise to give zero tenants a rent increase if that is all I have to do.”

Consultation claimed to show that selective licensing is needed

Nottingham City Council completed a consultation which claimed to show that selective licensing is needed to improve standards.

However, when you look more closely that doesn’t tell the full story.

In the consultation, it says that more than 600 properties were inspected, with 270 being improved through pre-licensing inspections (before March 2020, the national lockdown) out of 27,292 licences that were issued.

By our calculations, the consultation says that 27,292 properties need to be licensed at £890 – which equates to a whopping £24.2 million but they only managed to inspect 600!

Experts say that an inspection will cost around £150 per visit which adds up to £90,000.

That then begs the question of what happened to the remaining £24.1 million raised from the licenses?

And remember those figures are for 1% of houses being improved, which means 99% of tenants had rent increases to pay for selective licensing that didn’t need it or they got nothing in return.

‘Why the existing scheme has not seen any substantial improvement’

In the consultation, the landlords’ association, East Midlands Property Owners, commented: “There is no consideration as to why the existing scheme has not seen any substantial improvement or a realistic assessment of how a further scheme will have a different outcome.”

A similar consultation was carried out in Manchester which said that “many PRS properties provide good accommodation”.

Manchester currently has an accreditation scheme and works with landlords in the private rented sector in dealing with complaints about anti-social behaviour, poor property management and waste issues.

It is worth highlighting at this point that no council has managed to control anti-social behaviour – but they expect landlords to do this.

Also, Manchester City Council has not seen any improvement in areas where additional interventions are introduced. The council argues: “Enforcement against individual properties alone will not improve standards to the level required across each area.”

Manchester should be trying to work with good landlords

Landlords claim that Manchester should be trying to work with good landlords to seek less expensive measures instead of a scheme that will cost £85,000 – in trying to improve tenant behaviour and property standards.

Phil Turtle, the compliance director with Landlord Licensing & Defence, said that it seems that council officers steer clear of criminal landlords because they face threats and intimidation, so they never get visited or investigated as it’s much easier to meet revenue targets from the low-hanging fruit that is decent but not perfect landlords.

Phil told Property118.com: “The one thing that improves property the most is education. The sad fact is that government and councils don’t educate landlords.

“We see daily cases of where tenants have been left in dire and often life-threatening circumstances so the council can still extract its fine revenue from a landlord.”

So, it seems that the minority of criminal landlords are failing to be punished whilst most good landlords are being penalised simply for not being a ‘perfect’ landlord.

Other critics of the selective licensing scheme include Ben Quaintrell, the founder of the estate agency group My Property Box.

‘Money raised is simply spent on administering the scheme itself’

He said: “I’m not against initiatives that address poor standards of housing and management while helping improve safety standards for tenants, but with selective licensing there’s a potential that much of the money raised is simply spent on administering the scheme itself.

“Selective licensing in some areas can essentially be an unfair mandatory tax, and the councils run a real risk of driving up rents at a time of economic hardship.”

He believes that selective licensing could cause landlords to leave the private rented sector and says: “Many landlords will have little choice but to pass on the quite considerable cost to tenants.

“Given the already substantial landlord legislation, it may even cause some to quit, leading to a greater shortage of rented properties in these areas of Nottingham.”

Enforcement is a better solution than licensing

The National Residential Landlords Association (NRLA) claims rigorous enforcement is a better solution than licensing.

A spokesperson for the NRLA said: “The overwhelming majority of landlords provide high quality homes and abide by the law.

“Rather than implementing licensing, we need effective, rigorous enforcement to ensure we can root out the criminal operators that bring the wider landlord community into disrepute and leave landlords having to fork out on costs.”

They added: “Local authorities must use the powers they already have. A selective licensing scheme would not add new powers to prevent this kind of action; it would only increase the costs on law abiding landlords and by extension, their tenants.”

‘45% of the properties which were inspected were improved’

A spokesperson for Nottingham City Council told Property118: “The 270 improvements are out of 600 pre-licensing inspections. That’s 45% of the properties which were inspected were improved, prior to a licence being issued (These figures are only up to March 2020 – pre national lockdown, and only just over a year into the current scheme).

“Also, up until this point, 2,155 were externally inspected of which 25% required improvement and accredited partners had inspected 2,315 where 1,700 hazards were removed.

“Since at the time, not all properties were inspected, it is not possible for the council or other parties to identify the percentage of properties which do not require improvement.”

That means a minuscule 600 properties were inspected out of 27,292 licence applications – and some might suspect that the council will have chosen the applications that seem most likely to need improvement.

Local authorities have misused their powers when introducing a licensing scheme

Critics say that many local authorities have misused their powers when introducing a licensing scheme and many landlords have avoided buying properties in areas where selective licensing has been introduced and many are selling up.

Decent Landlords say they are not the ones who should be targeted as they know the only way they can build a profitable business is to avoid additional costs or increase their rents.

There is already legislation in place to protect tenants from problems that most commonly occur, which begs the question – is it really necessary to have a scheme that targets 100% of landlords but fails to catch the 5-10% that are real rogues. No wonder that licensing is seen by many as an ‘unfair mandatory tax’?

With the ongoing cost-of-living crisis fuelled by soaring inflation, any additional cost such as selective licensing could have a detrimental impact on the wellbeing of everyone in the private rented sector – both landlords and tenants – but obviously not for the council’s coffers, for which these schemes are evidently introduced.

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