Councils have been accused of routinely pursuing the most serious enforcement option open to them if they find a local licensing scheme has been breached by a landlord or property company.
David Kirwan, managing partner at Kirwans law firm, says: “There are a number of ways in which councils can penalise landlords who fail – for whatever reason – to comply with the rules of selective licensing. These range from providing advice, guidance and support or issuing a simple caution to prosecuting landlords through the courts and refusing or revoking licenses.
“A trend is emerging of councils choosing to enforce the harshest options as they seek to make an example of landlords who those who don’t abide by the rules.”
Kirwan says he has acted for clients investing in property to raise additional income or to provide a pension in retirement who he says have been “utterly devastated” to find themselves hauled before the courts, simply for failing to apply for a licence.
Using selective licensing legislation introduced by part three of the Housing Act 2004 in areas affected by poor-quality rental properties, irresponsible landlords and anti-social behaviour, local authorities are able to introduce penalties that go well beyond the mandatory government landlord licensing rules, he suggests.
“It is heart-breaking to watch some landlords going through completely unnecessary criminal proceedings, simply for failing to apply for a licence.”
In worst-case scenarios, landlords could be handed a criminal record, an order to repay 12 months’ rent, or be banned from renting out a property in the future. Even if councils choose to avoid the courts, civil penalty fines of up to £30,000 can be imposed.
Kirwan says legal action by the local authority on The Wirral shows a vivid example of this.
The latest court action taken by that council saw fines of more than £16,000 being handed down last year to a family who rented out a flat but who failed to obtain a licence, failed to provide documents and who provided false information.
The prosecution was the 22nd successful case by Wirral council against landlords and property managers who have failed to licence their properties.
Schemes across the country, which opponents claim are a way of boosting council funds, have faced criticism for both the cost of licenses – which usually run to hundreds of pounds – and for the fact that they may drive the very rogue landlords they are supposed to weed out further underground.
They have also proved confusing for landlords, who are often unaware that their property even lies in a selective licensing area. For those operating numerous properties across different areas, the situation can be more bewildering, as each council can create its own set of rules for each scheme.
Kirwan and other critics of such schemes say that rogue landlords, ironically, may simply choose to avoid the licensed areas, moving their poor practices to areas where such schemes are not currently in place.
In June the government announced a review of selective licensing and how well it is working, with the findings due to be published this spring.
Kirwan adds: “While we would all agree that unethical landlords must be weeded out to ensure protection for society’s most vulnerable tenants, councils must be careful that they don’t throw the baby out with the bath water.
“Rogue landlords operate in an entirely different manner to the many decent men and women, some of whom are only just entering the rental sector, who are finding their way in the rental market and may be unaware that such schemes have even been introduced in their area.
“To suddenly find themselves in a situation where prosecution with outrageous penalty fines is a distinct possibility is absolutely terrifying.
“It’s also counter-productive, as landlords are now telling me that, rather than face this sort of frightening action, they will either sell-up, or choose not to invest in property in affected areas in the first place. This will then reduce the choice of accommodation on offer for those renting, leading to a lose-lose situation for all.
“My advice to all landlords would be to check with their local council as to whether their property requires a licence, and to seek legal advice immediately if they receive a letter from their local authority threatening fines or prosecution.”
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More than half the councils in London failed to use new powers to fine rogue landlords last year, leading to criticism town halls are not doing enough to protect vulnerable tenants in “deathtrap” homes.
Only nine of the 33 local authorities issued civil penalties in the 2017/18 financial year, according to figures obtained via Freedom of Information.
A further four did not provide figures, but 20 admitted that they had not issued a single fine during the 12-month period.
These included Housing Secretary James Brokenshire’s local council Bexley, and Labour leader Jeremy Corbyn’s home borough of Islington.
The civil penalty powers were introduced in April 2017 to give housing officers a quicker and cheaper alternative to full-scale criminal prosecution of landlords breaking the law by failing to fix problems such as damp, mould or unsafe wiring.
They allow local authorities to fine landlords up to £30,000 and keep the penalties to fund further enforcement action.
However, to date, only a handful in London have made use of the legislation, led by Newham, which issued 95 civil penalties, Waltham Forest, which handed out 56, Camden (43) and Barking & Dagenham (40).
The same FoI request also showed that the number of criminal prosecutions of landlords fell to its lowest level in six years.
David Smith, policy director for the Residential Landlords Association, which collected the information, said: “Either the number of problem landlords is not as high as some suggest, or councils have been unable to enforce the extensive range of powers they already have.
“This proves that it is not more regulation that is needed but better enforcement of existing laws.”
Potentially thousands of tenants are falling victim to rogue landlords. For example a three-bedroom property in Newham, dubbed a “house of horrors”, was found to have exposed electrical wiring, rotten floorboards and missing ceilings.
It was let out to a family with two young children for £700 a month. Darren Rodwell, of London Councils, which represents local government in the capital, said: “The 63 per cent funding reduction experienced by London boroughs has had an impact on our ability to respond to residents’ needs.”
Last year the Government made an extra £2 million of funding available to local authorities in England to help tackle rogue landlords.
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The key rules for property investors, from letting fees to licensing change
It’s a confusing time to be a landlord, with new regulations on fees and licensing joining the raft of tax changes introduced over the past few years. Add to that uncertainty over Brexit and the potential for further base rate rises, and you’d be forgiven for feeling overwhelmed by the amount of flux in the buy-to-let sector.
To explain what’s happening and set the changes in context, we’ve listed the 16 most important things landlords need to know in 2019.
Letting fees ban
A ban on letting agents charging fees to tenants will almost certainly come into force at some point this year. The new rules will involve deposits being capped at five weeks’ rent (or six for tenancies that cost more than £50,000 a year), and agents and landlords will be banned from charging fees for anything other than the following: contract changes or termination when requested by the tenant utilities, communications services and council tax issues for which the tenant is at fault, such as the replacement of lost keys. While the changes are designed to crack down on agents, they’ll also have an impact on landlords, who will face the burden of paying for tenant referencing and inventories – costs that they currently pass on to tenants. The regulations will only apply in England. Letting fees are already banned in Scotland, and the Welsh government is considering a similar bill.
Mortgage interest tax relief
Landlords will continue to feel the effect of cuts to mortgage interest tax relief, which will continue to be phased in until April 2020. The 2019-20 tax year begins in April, meaning landlords will only be able to claim 25% of their mortgage tax relief when filing their taxes (down from 50% for the 2018-19 tax year).
HMO licencing extensions
Changes brought in last October mean thousands of landlords letting shared properties in England will now fall under House in Multiple Occupation (HMO) licensing rules. Previously, a property was only classified as an HMO (and thus needed a permit) if it was rented to five or more people from more than one household, was at least three storeys high, and had shared facilities. In October, the three-storey rule was removed, so any large flat or house share of five or more people now requires an HMO licence.
Local licensing schemes
As well as mandatory HMO licensing, more than 60 councils in England operate ‘additional’ or ‘selective’ licensing schemes. Additional licensing is when councils add extra stipulations to the mandatory HMO rules, for example if they feel they don’t go far enough or if the area is having particular issues. Selective licensing, however, can apply to all landlords in an area. These schemes often require landlords to adhere to a code of conduct or pass a ‘fit and proper person’ test. Licences can cost as much as £600, and those who break the rules face big fines.
Rogue landlord database
The government’s rogue landlord database was launched in 2018, though it’s fair to say it hasn’t yet got off the ground. Research by the Guardian in October found that more than six months after its launch, the database remained empty. Under the current rules, the database can only be accessed by central and local government officials, though that’s set to change in 2019. In October, a government spokesman said the database will start to be populated in the new year, and that the information will be openly available to tenants.
Minimum space requirements
Regulations governing the minimum size of bedrooms came into force in October. The new rules relate to the minimum size of ‘sleeping accommodation’ in a rented home. The regulations depend on how many people will occupy the bedroom, and are as follows: One person (under 10-years old) – minimum of 4.64 square metres One person (over 10-years old) – minimum of 6.51 square metres Two people (over 10-years old) – minimum of 10.22 square metres. Landlords who break the rules can be given up to 18 months to rectify the problem, and those who fail to do so will be fined.
Buy-to-let mortgage trends
During such uncertain economic times, it’s important for landlords to be up speed with the buy-to-let mortgage market. Landlords usually need to prove the rent they’ll receive will cover at least 140-145% of their mortgage payments (known as the interest cover ratio), but some lenders are now cutting this to as little as 125-130%. Elsewhere, landlords are increasingly looking to longer-term fixes, with five-year deals dropping to the lowest cost on record a few months ago, and more competitive 10-year fixes now coming on to the market. Shorter-term fixes (such as two-year deals) have been getting more expensive, however, with lenders instead looking to lure landlords with the following…
The return of cashback
With base rate rises making mortgage rates less attractive, lenders are increasingly offering cashback on buy-to-let mortgages. Research by Moneyfacts in November found that 444 buy-to-let deals came with cashback, up from just 291 a year earlier. If you’re thinking of refinancing your portfolio, it can help to get advice from a whole-of-market mortgage broker.
Client money protection
From April, all letting agents in England will need to be members of an approved Client Money Protection (CMP) scheme. These schemes protect the rent a tenant pays to the letting agent, for example if the agent goes out of business. While this might sound like good news for landlords, the Residential Landlords Association has wanted that CMP schemes won’t cover the full value of rent and that operators will be able to cap the amount of money they pay out in the event of a claim. With this in mind, the RLA says landlords with large portfolios should consider spreading their properties across a number of agents.
Stamp duty surcharges
The 3% buy-to-let stamp duty surcharge appears to be here to stay – and, for investors in Scotland, it’s getting worse. That’s because the Scottish government has announced plans to increase the Land and Building Transaction Tax (LBTT) surcharge to 4%, with this rise likely to come into force on 25 January.
Remember when three-year tenancies were the talk of the town? Us too, but right now they seem a long way off. In July, the government stated its intention to bring in minimum three-year contracts with a six-month break clause for tenants, but these reforms seem to have been kicked into the long grass – with rumours last October that they will be scrapped entirely. Mayor of London Sadiq Khan said in November that ‘ministers already appear to be wavering’ over three-year tenancies, but this could still be one to watch in 2019.
Minimum energy efficiency standards (MEES) were launched in April last year, meaning that newly rented homes and those with renewed tenancies have to meet an energy performance certificate (EPC) rating of E or above. But from 2020, these rules will also apply to existing tenancies – so if you have a long-term tenant you may want to spend some of 2019 making improvements to your property’s energy efficiency so it’s ready in time. Initially, it seemed that landlords who couldn’t secure government funding to make changes could claim an exemption, but in November the government clarified that landlords would be liable for costs of up to £3,500.
The government’s attempts to stop unfair leasehold practices – such as spiralling ground rent clauses and high ‘permission fees’ – will step up a gear in 2019. This is likely to involve the banning of new houses being sold as leasehold, and the possibility of caps on service charges, permission fees and ground rents, though it remains to be seen what will happen regarding existing leasehold properties. The uncertainty in this area means landlords should pay particular attention to the tenure of properties if they plan to expand portfolios in 2019.
In December, MPs debated section 21 eviction rules after campaigners claimed that the current laws can result in homelessness. Currently, landlords can give a section 21 notice of possession to tenants to inform them they wish to take back possession of a property at the end of a fixed term or at the time of an agreed break clause. While there’s no guarantee section 21 rules will be overhauled, this is something to keep an eye on in 2019.
Right to Rent
The government’s Right to Rent initiative has provoked lots of debate since being launched in 2016, and that’s unlikely to change this year. Right to Rent requires landlords to check whether tenants have the right to live in the UK, with the threat of criminal sanctions for those who fail to adhere. Last year, the Joint Council for the Welfare of Immigrants was granted permission by the high court to proceed with a legal challenge against Right to Rent.
We’d love to tell you that the uncertainty around the UK’s withdrawal from the European Union won’t affect you, but in truth nobody knows for sure what will happen. When we spoke to Chris Norris of the National Landlord’s Association (NLA) in October, he predicted that ‘landlords with established, well-capitalised portfolios will fare reasonably well, but those heavily reliant on finance may find uncertain conditions more troubling’.
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The Bill, tabled by Karen Buck MP, means that it will be a requirement for all social and private landlords (or agents acting on their behalf) in England to ensure that a property is fit for human habitation at the beginning and throughout the duration of the tenancy.
If a home does not meet the standard of the Housing Health and Safety Rating System (HHSRS), tenants will have the right to take legal action in the courts, for breach of contract. The Bill amends the Landlord and Tenant Act 1984.
The Act comes into force three months after it has been passed, that is on 20 March 2019. It will only apply to tenancies made after that date so any tenancy entered into before 20 March (ie. signed by both parties and executed) will not be covered by the legislation initially even if the actual occupation begins after 20 March.
Commenting on the new law, Heather Wheeler MP, the Minister for Housing said: “Everyone deserves a safe and decent place to live, regardless of whether you own your home or rent it. That’s why government has introduced a range of measures to help ensure that people who are renting have good quality and well-maintained properties to call home. This new law is a further step to ensure that tenants have the decent homes they deserve.”
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