Depending on the area in which you are running your buy to let business, the local council may insist that you hold a licence granted by them to take on the role of a private rental sector landlord.
This produces a degree of tension between local authorities who have a responsibility for ensuring adequate and high standard rented accommodation in their area and landlords who are wary of the way in which increasing regulation increases costs and therefore affects the viability of their buy to let business.
It might be helpful, therefore, to take a brief look at the pros and cons of landlord licensing by local authorities.
The current local authority licensing regime may be divided into two categories – compulsory licensing and discretionary licensing.
Under the first of these two categories are Houses in Multiple Occupation (HMOs) where a licence is essential. An HMO is a property housing three or more tenants forming more than one family or household and sharing facilities such as a kitchen and/or bathroom and toilet.
There is a further sub-category – the large HMO – which refers to a property more than three storeys all in which five tenants in more than one family or household live and share facilities such as a kitchen and/or bathroom and toilet.
Local authorities are required to licence all such HMOs and, in addition to the regulations which apply to all private sector landlords, also requires a Housing Health and Safety Rating System (HHSRS) risk assessment to be conducted within 5 years of any application for a licence. If the assessment reveals significant risks, the landlord is responsible for carrying out remedial works on the property.
But local authorities have also been given a discretionary power to require the selective licensing of any private rented property.
With the approval of the Department for Communities and Local Government, local councils may introduce selective licensing with the object of addressing social problems caused by a low demand for housing or responsible for a high level of anti-social behaviour in designated areas.
The principal objections from landlords and the bodies which represent them stem from a growing concern about the impact of ever-increasing regulation of the private rental sector. In a sector already put under significant pressure by changes in tax relief on mortgages, some may argue that the costs associated with compliance to licensing schemes are the final straw resulting in landlords abandoning the market – and thereby making a difficult housing situation still worse.
Some of these financial pressures are highlighted by a story in The Week magazine on the 11th of August 2016.
The National Landlords’ Association (NLA) has also published a comprehensive report on the extent of local authority licensing schemes and the reaction of its members to such regulation.
The NLA makes the point that private sector landlords have overtaken social housing providers with responsibility for the second largest type of tenure in the UK. Some one and a half million landlords provide housing for an estimated 18% of the entire population.
The NLA reserves its strongest criticism for the discretionary, selective licensing powers granted to local councils. The organisation considers such licensing to be a poor, ineffective and altogether too blunt an instrument for addressing social and housing issues – especially where “blanket designations” have been made.
There is also considerable variation, says the NLA, in the philosophy and practice adopted by different local authorities around the country. In order to address what it considers to be evident disparities in the ways different schemes work, it proposes a number of measure designed to improve the efficiency of licensing and to establish agreed codes of practice to be shared by landlords and councils alike.