Licensing Liverpool's landlords

As a legal practice based in the North West, we’ve watched with interest the changes to landlord licensing that have been put into effect in Liverpool.

The introduction of the new citywide landlord selective licensing scheme, which came into effect on 1 April 2015, will have dramatic implications for the city, but could also set a precedent for landlords across the country.

Although new rules introduced in March 2015 mean local authorities now have to seek confirmation from the Secretary of State for any selective licensing scheme which covers more than 20 per cent of their geographical area or homes, Liverpool’s landlord licensing scheme was not affected, as the scheme had already been introduced.

Liverpool is the first major city to introduce a citywide selective licensing scheme, and up to 50,000 properties owned by an estimated 5,000 landlords are now covered.

Improving area conditions

The Housing Act 2004 provided councils with the power to introduce licensing of privately rented properties in selected areas, with the aim of improving conditions for local tenants and the surrounding community. In order to introduce selective licensing, councils have to demonstrate that the area is, or is likely to become, an area of low housing demand and that making the designation will, when combined with other measures taken in the area by the council, contribute to the improvement of the social or economic conditions.

Councils also have to evidence that the area is experiencing a significant and persistent problem caused by anti-social behaviour, and some or all of the private sector landlords with premises in the area are failing to take appropriate action to combat the problem. The council must also show that making the designation will, when combined with other initiatives, lead to a reduction in or elimination of the issue.

From 6 September 2010, it has been a criminal offence to let a property in a selective licensing area without applying for a licence. Upon conviction this may result in a fine of up to £20,000. For any period where an unlicensed property is being privately rented, an application can be made to the Residential Property Tribunal for a rent repayment order for up to 12 months’ rent.

Since 2010, local councils have had the power to license landlords across an entire borough or jurisdiction in order to combat issues such as anti-social behaviour in these so-called ‘hotspot areas’. This led to a sharp increase in the number of schemes being introduced.

Selective licensing requires that within a designated area all private rented properties are licensed. Certain standards and conditions are required to be met in order for a licence to be granted. Failure to meet such conditions and standards may result in prosecution and/or the making of a management order by the council, which will transfer the management of the property to the council.

The licences, which the council says will help to improve standards in the sector, cost landlords £400 for a first property and £350 for each additional property, although for those in an approved landlord scheme the cost is £200 per property.

Selective licensing of private landlords was originally brought in to allow local authorities to apply decency conditions in areas with a high concentration of poor quality housing stock.

However, where previously licensing could only be applied to areas on the basis of low demand or high levels of antisocial behaviour, a blanket approach means the selective licensing system could be being rolled out across the city, irrespective of any additional factors such as location.

The decision to take a blanket approach to what is, by its very nature, a policy more suited to selected areas raises a number of issues. Recognising the validity of these concerns and citing the ‘major drawbacks’ that the blanket application of the scheme could have, Brandon Lewis MP introduced the reform to the law in March to help local authorities focus their enforcement activity where it is most needed, while ensuring that good landlords are not adversely impacted.

Burdensome requirements

The scheme’s aim is to ensure that licensed landlords in the city are ‘fit and proper’. Before they are granted a licence, landlords will be asked to declare convictions for dishonesty, violence, or drug-related offences, or breaches of housing or landlord and tenant laws.

Licensed landlords’ properties must meet fire, electrical, and gas safety standards and be in a good state of repair. Licensed landlords must also be able to deal effectively with any complaints about their tenants.

From a practical perspective, this heavy-handed set of conditions is cumbersome and hard to regulate. Our property team is already receiving queries from reputable landlords concerned about the level of detail which the laws contain.

Landlords are expected to satisfy five pages of conditions, on everything from supplying the council with gas safety certificates, to a declaration that any furnishings supplied by the landlord within the property are safe, with fire-retardant upholstery.

While these requirements are mostly common sense, clients with larger portfolios in excess of 100 properties will find the new requirements burdensome to fulfil. Not only will it be extremely time consuming, it will also be costly: a licence fee of £400 for the first property and £350 for each additional property means that a portfolio of 100 properties could cost £35,050 in fees every five years.

While the administrative burden could be seen as a necessary evil in the quest to ensure that the properties are safe, secure, and equipped to a high standard, a more pressing concern, in our eyes, is how the scheme will be monitored and regulated.

Regulation difficulties

It is easy in theory to introduce this sort of blanket licensing, but policing it is another matter entirely. I fear that the burden of the selective licensing scheme will be shouldered by reputable landlords who will feel compelled to comply with this strict regulation.

Without a central register for tenanted properties, it is hard to see how this sort of system can be effectively monitored and enforced. As a basic example, if you have just one property rented out privately, nobody would know apart from you, the tenant, and possibly the mortgage company and any tenant deposit company. This leaves rogue landlords in a position where they could easily slip through the net.

It is unlikely that property owners who let out substandard properties and are already acting outside the law are going to apply for licences. Without allocated funding to enforce the legislation, the introduction of this new system could leave criminals free to operate out of the reach of the law. The scheme has already met with strong opposition from groups representing landlords, including the National Landlords Association (NLA).

However, some councils have taken a balanced approach to addressing licensing issues in specific areas. A neighbouring north-west authority, Wirral Council, has only implemented licensing in specific problem areas and has allocated funding for targeted enforcement – a solution which will bring the law-abiding landlord community on side, while addressing the threat of rogue landlords.

The varying types of licences now available have turned this area of legislation into a bit of a minefield for landlords. For example, not all properties fall within selective licensing criteria. There are a number of tenancies which are exempt, such as those held by business or agricultural properties. The different criteria required for licensing of houses in multiple occupation (HMO) and selective licensing also creates a situation where landlords may need to seek advice or run the risk of falling foul of the law.

The far-reaching economic effect of the widespread introduction of this licence on the property market is yet to be properly assessed, but there will likely be a significant impact on tenants – with many footing the bill for the excess costs landlords will now face.

While driving up rental conditions through selective licensing could rebalance housing markets and provide prospective residents and tenants with greater confidence, the blanket application of a system which was designed to improve specific deprived areas seems short-sighted and will, no doubt, have a long-term impact. SJ

Lisa Evans is a solicitor in the property team at Kirwans