Welcome to those who are first time readers and welcome back to those who are returning. Medway Property News aims to bring you all the latest about what’s happening in the Medway towns and there has been A LOT happening! It’s been a really busy summer all round and we have some cracking posts heading your way over the next few weeks. To get us started, I think potentially the most critical topic is the HMO and residential property licensing reforms. These are going to have a massive impact on the rental market, with many indicating that the reforms will prevent them from renting their properties.

So what are the licensing reforms?

Back in 2015 the Government published a technical discussion paper on extending the mandatory licensing of houses in multiple occupation (HMO). Following, was a consultation which looked at the issues raised in more detail. The outcome of that was a proposal (published in 2016) to remove the requirement that HMO’s must be 3 or more storeys high in order to be licensed. The removal of the 3 storey requirement means any HMO that is occupied by 5 or more people, will require a mandatory licence.

Additionally the reforms also address the ever contentious issue of room sizes. The new compulsory condition states a minimum room space of 6.52sq-m for one person and 10.23sq-m for two persons. The new criteria will not apply to temporary visitors, but children will be counted as full adults for this condition.

When will the changes kick in?  

As with most reforms, when they were announced it felt that implementation was a way away. But time ticks on and the changes are set to be brought in this year. So the impact will be felt imminently.

When the Government outlined the changes to the criteria, it was clear the impact would be far and wide. Not only are they removing the storey rule and changing the room size rules, they are also extending the mandatory licensing to flats above and below business premises.

License requirements

Just to be clear, if a license is granted your requirements as a landlord (as outlined by the Government) are:

• the house is suitable for the number of occupants (eg size and facilities)
• the manager of the house – you or an agent – is considered to be ‘fit and proper’, eg no criminal record, or breach of landlord laws or code of practice

You must also:

• send the council an updated gas safety certificate every year
• install and maintain smoke alarms
• provide safety certificates for all electrical appliances when requested

The impact of the changes

It is estimated that the new measures will bring a further 174,000 HMOs into the scope of mandatory licensing.

The RLA (Residential Landlords Association) believes many of the changes are unnecessary and says they will put a huge strain on local authorities.

David Cox, managing director of the Association of Residential Letting Agents, also made his feelings clear about the new proposals. “Councils don’t have the resources to undertake effective enforcement action. Imposing more burdens on councils will not mean improved standards and better conditions for tenants – it will merely mean more laws that are not being enforced. Further, we have to consider the unintended consequences of minimum room sizes. Some people are happy to take small rooms to keep their costs down. If these rooms are no longer available, where are people supposed to live?”

In our view, legal subletters such as the Rent to Rent landlords are, perhaps, worst affected. They suddenly find themselves in a very tricky position.  These changes could impact their ability to rent their property. If they have a long term fixed guaranteed rental agreement in place with the property owner, they could struggle to cover their fees, let alone gain a yield.

What are the consequences for noncompliance?  

HMO landlords will find themselves in very deep water if they are found not to comply. They risk civil penalties of up to £30,000 and potentially even criminal prosecutions. But there is a grace period. The order hasn’t yet come into force although it’s looking likely for October. After which there is likely to be around 6 months from when the changes are imposed, to allow landlords to apply for their licenses.

Our view

I think a consistent approach to defining overcrowding in the private sector is positive and I applaud the intention. In this day and age unsafe accommodation is not acceptable. However, rules already exist to deal with overcrowding and they are often flouted. Without the proper resources and mechanisms in place to monitor license condition adherence, surely this is destined for failure?

Further, it seems the minimum room size rule could lead to a reduction in the availability of essential shared housing. Previously satisfied renters could be left without a home, which seems unbelievable given the amount of properties effectively being put out of use by the license changes. Worse still, those who show utter disregard for the integrity of our market, could view the desperation of renters as an opportunity, unintentionally leading to a rise in unsafe and unsuitable accommodation.

Finally, it seems that increasingly lenders are requiring HMO landlords to have a bonafide HMO letting agent in place to manage the property. Our view is these changes are likely to increase the number of lenders requiring this, as they consider the risk of not managing the properties properly impacting the security of their loans.

It’s a tricky situation and I’m interested to hear what you think too. Feel free to drop me an email and let me know your thoughts.