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HMO landlords Under Siege - The Fightback Begins

Marcus Croskell discusses the history of HMOs, current case studies and sentences for landlords. Please see below his article on the topic or a link to access the recording of the webinar via the Property Investor Awards.
HMO landlords Under Siege - The Fightback Begins
If you would like to listen to Marcus Croskell's webinar please follow the link here.

Introduction

The following topics will be discussed including:
• The basic legal structure for assessing if a property is an HMO
• Recent case studies for HMO landlords to consider
• The Court’s sentencing powers including unlimited fines
• The current climate of prosecutions
• The benefits of working with your local authority productively
• Tips to assist landlords avoid or fight prosecutions


The History of the HMO

The regulation of Houses in Multiple Occupation (“HMO”) was first introduced by the Housing Act 1985.  Part XI of the 1985 Act allowed local authorities to regulate HMOs.  This legislation was problematic with a lack of effective definition as to what a ‘household’ was (amongst other issues).

However, today’s homes are governed by the Housing Act 2004 which repealed the piecemeal amendments and additions to the 1985 Act and replaced it with a single new streamlined regime.  This was the brainchild of New Labour in the Blair manifesto for 1997 and was developed and introduced by his government.  It is as many of you will agree, heavily in favour of the tenant and makes you feel as landlord, per the title of this webinar, like you are under siege.  However, you as landlords, agents and property investors have no option but to comply if you wish to pursue this as a profit-making venture and/or investment.  The alternative is that you face real consequences including a risk of a criminal conviction.

Under s.254(1) of the 2004 Act states that a building or part of a building is defined as a ‘House in Multiple Occupation’ if:

i) It meets the conditions of the standard test;
ii) It meets the conditions of the self-contained flat test;
iii) It meets the conditions of the converted building test;
iv) An HMO declaration is in force in respect of it; or
v) It is a converted block of flats.


I will not look at any of these definitions today save item (i) – that is the not the purpose of this Webinar.  However, I will remind you of the basic tenets of the standard test defined by s.254(2):

i) It consists of one or more units of living accommodation not consisting of a self-contained flat or flats;
ii) The living accommodation is occupied by persons who do not form a single household;
iii) The living accommodation is occupied by those persons as their only or main residence or they are to be treated as so occupying it;
iv) Their occupation of the living accommodation constitutes the only use of that accommodation;
v) Rents are payable or other consideration is to be provided in respect of at least one of those person’s occupation of the living accommodation; and
vi) Two of more of the households who occupy the living accommodation share one or more basic amenities or the living accommodation is lacking in one or more basic amenities.


HMOs are automatically licensable if they are large HMOs with three storeys or more with five or more occupants with shared basic amenities.

In short, this list captures so many rented properties and it is very likely the HMO issue is a legal time bomb waiting to go off.  I have regularly encountered landlords that did not believe that their property was caught by the tests or simply knew nothing about them in the first place.  The fact that you are taking time out of your busy schedules to listen to this webinar would suggest you will not be in this position.

First Tip: If you do not consider at the outset your property meets the threshold to be licensed, it is worthwhile challenging an HMO declaration made under s.255(1) and (2) of the 2004 Act by the local authority under s.255(9) – this gives you 28 days from “…the date of the local authority’s decision to serve the notice” to appeal the declaration to the Residential Property Tribunal (“RPT”).

Important to note here that it is not from the date of receipt by the landowner or the property agent but the date of the local authority’s internal decision under sub-section (5).

The importance of the situation is akin to a driving licence.  If you keep getting low level speeding fixed penalties in quick succession, you will find yourself banned for six months as a ‘totter’ having a 12 penalty points.  However, if you had taken the time to consider and if necessary fight one of those due to a procedural error, the fourth offence may not have resulted in disqualification.

If you challenge the designation as an HMO, if appropriate, then you could avoid the administration and red-tape that goes with it.  However, I emphasise as appropriate otherwise you will spend vast amounts of money with no hope of recovery of your costs.

Second Tip: There is a prescribed notice under s.255(4) that the local authority must serve on the landlord.  That notice must be served within seven days of the internal council decision to make the declaration.  If there is a failure comply with mandatory prescribed content the notice will be set aside and the local authority will have to start again. This plays for time rather provides an absolute solution.

Failure to Licence an HMO

It is an offence under s.72(1) Housing Act 2004 if a person having control of or managing an HMO which is required to be licensed under the Act but is not so licensed.  This is punishable with a fine.

e.g. last week in Bath Magistrates’ Court, Patrick Tetley of GT&G Ltd pleaded guilty to an offence under this section of the Housing Act 2004.  He was director of the company being prosecuted by Bath and North-East Somerset Council.  The company was ordered to pay costs and a fine totalling £4,110. 

This company got off lightly as the fine is unlimited.  I know there is real concern amongst the property fraternity about these fines.

Another example – someone I personally advised, but only on a late repeat application to appeal via the Criminal Cases Review Commission -  this gentleman challenged the result of a prosecution by Waveney District Council in Suffolk.  This gentleman was convicted of a series of offences including breaches of HMO regulations and s.72(1).

He privately owned a terraced house situated over five floors including a basement.  The internal structure had been altered in the 1980s to three separate units: a basement plus two separate units consisting of maisonette flats.  The middle unit’s toilet was on a mezzanine floor between the two floors and off the communal stairwell, thereby not giving exclusive use.  Secondly, the top unit had open access to it as there was no front door.  The top floor had multiple unconnected households (i.e. over five persons and more than two unconnected households). 

He had argued that:

a) It was not an HMO as at the time Waveney District Council had claimed he was in breach of the Housing Act 2004, the house was under an Improvement Notice banning the use of the property for all purposes including as a place of residence (which the Court went on to hold that he had ignored the Notices by failing to remove the residents over a one year period);
b) The building only consisted of three self-contained units; and
c) He had adequately improved the house by installing a fire alarm (but unfortunately did so by connecting it to a tenant’s prepayment electrical metre, i.e. no independent landlord supply).

The magistrates at trial and the Crown Court on appeal found that it was a licensable HMO – the third unit was deemed to be over three floors due to the open toilet in the mezzanine and over five persons in that unit.  He was ordered to pay £12,500 in the magistrates’ court and £4,420 in the Crown Court.

He was later refused permission to appeal by the single judge in the Court of Appeal (with further adverse costs against him) and an application challenging the process again was subsequently rejected by the commissioners of the Criminal Case Review Commission.  In addition to the circa £17,000 he was ordered to pay initially in the Lowestoft Magistrates’ Court and Ipswich Crown Court, he incurred yet more costs and fees (including instructing a QC to advise in the Court of Appeal).  I do not know what he paid in total, but at a guess given the amount of work undertaken and challenges made, I would estimate a case such as this incurred costs and fines well in excess of £60,000.00.

Cash Cow

There appears to be a noticeable creep over time with more local councils seeking to introduce licensing, despite there being little independent evidence that it works.  This is in part pushed by Westminster’s push for localism and devolution of such power. 

The focus of licensing is intended to be on health and safety and particularly the so called ‘slum landlord’ who will happily criminally receive private profit from overcrowding to the detriment of their tenants’ wellbeing and safety.  It is well known that the HMOs often can be very profitable.  Unconnected tenants means that there is more likely to be some tenants in residence at all times generating private income.  Whereas a standalone property may stand empty for months while a new tenant is found.  However, I use the word private profit deliberately here as although these provisions have no application to public housing, it easy to tar landlords with the same brush when in fact Grenfell Tower was a good example of alleged criminal acts in the public sector on a massive scale for profit.

Data from Shelter in 2016 showed that one in twenty tenants believed they were the victim of a rogue landlord and as much as 60% of those surveyed had experienced damp, leaking roofs or windows, mould, electrical hazards, animal infestation or gas leaks.

We will all agree that it is these landlords that put tenants’ lives at risk whilst ignoring crucial fire safety, gas safety and general repair of their HMOs.  The HMO in ‘Suffolk’ I just referred to was described in the judgment of Recorder Purchas QC as ‘dangerous.’  I also prosecuted on behalf of another local authority in Norfolk a landlord that was the epitome of the headlines.  She was generating rents when at full capacity of over £90,000 a year but failed to act despite repeat warnings from the local authority.

For those experienced HMO landlords listening, you will know from experience there is a considerable amount of paperwork applying for licensing.  This is costly for landlords in time and application fees.

Prosecutions bring with them kudos that allow local authorities to act firmly against any breach.  However, there remains a question sometimes whether this is active management by local authorities of the houses on their patch or merely a self-fulfilling prophecy of environmental health officers creating work – after all, do turkeys vote for Christmas?

S.237(3) of the Housing Act 2004 was brought into force on 6 April 2017.  This gives local authorities the power to use information from their housing benefit or council tax sections to determine whether a house is an HMO.  The Housing and Planning Minister Gavin Barwell consider this gave effect to the Conservative Party policy of localism.

However, what is also clear is that the levels of prosecutions vary immensely.  In London in 2016-2017, Wandsworth, Lewisham, Lambeth and Bexley failed to prosecute any landlords and Southwark and Greenwich prosecuted just two landlords each.  It seems strange that in densely populated urban areas such as these with a lower socio-economic group with vulnerable immigrant groups open to being taken advantage of by unscrupulous landlords.

However, sometimes a low prosecution rate will reflect a strong intervention policy.  In my opinion, a good council HMO team should not leap straight to a prosecution in all but the most serious cases.  Ironically, the case I referred to earlier involving an HMO in Great Yarmouth in Norfolk, the landlady was given nearly two years to rectify the problems.  She was given too much latitude by the local authority following a series of empty promises to improve. The consequence of which was that she then effectively was able to get away with doing nothing before eventually being brought to book.   

Third Tip: I encourage all landlords to co-operate with the local authority and if any points are raised, act promptly and decisively.  Whilst one can never discount a rogue local authority officer who will want to prosecute come hell or high-water, in my opinion the landlords that are open and engage stand the best chance of keeping a favourable attitude being displayed to them by the local authority.  After all it is human nature if an officer is met by animosity by the landlord and managing agent, they may react in kind.

Breach of Regulations

HMOs are subject to the Management of Houses in Multiple Occupation Regulations 2006 (“The Regulations”) of which any breach is an offence under s.234(3) of the Housing Act 2004.  As I previously noted the fines are level 5 on the standard scale – which is now unlimited.

It is difficult to give specific advice to landlords on the regulations, not least because the scope of the regulations are so vast that frankly often it is necessary to seek expert advice such as on fire safety considering:

• Escape routes
• Appropriate doors with intumescent seals
• Whether those seals need cold smoke seals
• Appropriate windows including escape windows
• Appropriate fire walls
• Emergency lighting
• Fire extinguishers (including up to date servicing)

You may find useful the LACORS Fire Safety Guide.  I warn you now, it is not good bed time reading, but the detail that has been incorporated into this document that was prepared with the approval of the Communities and Local Government Ministers and the Association of Chief Fire Officers is tremendous.  The Guidance applies to properties that were built or converted after 1991.  The link to the Guidance will be available at the end of this Webinar.

Breaches of the Regulations can result in the big fines that you as landlords will justifiably be worried about. 

Case Study: In November 2016, District Judge Pelling sitting in St Albans Magistrates’ Court sentenced a Mr Neil Carroll to a fine totalling £33,950 for 20 separate charges over two separate dates relating to inadequacy of a fire wall, failure to provide handrails, failure to maintain all means of escape from fire and a lack of intumescent strips and cold seals on doors. 

The case was insightful as it was handled by a district judge rather than lay magistrates.  Judges tend to hand down more considered judgments than a lay bench of non-legally trained justices. 

N.B. It should be noted that Mr Carroll pleaded guilty at the door of the court at this trial.  If he had pleaded guilty at the first opportunity he would have received a full third discount from his sentence rather than the 10% on the day of trial.  Criminal courts incentivise early pleas of guilty to avoid unnecessary use of court time by offering discounts to sentences if you plead at an earlier stage.

Therefore, the sum of circa £34,000 would have been nearly £38,000 had the trial been effective and approximately £25,000 if he pleaded guilty at his first hearing.  The sum at the date of trial does not include the costs of £25,000 or his own costs.  One can be safe to assume that all-inclusive, the bill for the process exceeded £75,000.

In relation to some of the more serious offences the levels of fine were:

• £3,600 – a door which would need to be used as a means of escape from fire and which needed a removable key in order to exit;
• £4,500 - an inadequate partition wall which did not offer 30 minutes fire protection;
• £5,400 - for each offence of the failing to maintain all means of escape from fire, a missing door catch to a kitchen door which was a means of escape from fire, and a lack of intumescent strips and cold smoke seals; and
• £2,250 - for each offence of missing handrails and an inadequate balustrade.
Where does it end?

Alas do not expect the landscape for landlords to remain still.  As ever you will await this week the next round of attacks from the Chancellor in the Budget.  Further around the corner is a consultation on ‘Houses in Multiple Occupation Licensing Reform’ that was introduced in Spring 2017.  It was delayed by the ill-fated snap election, but it remains outstanding and looks to remove the storey requirement leaving a minimum of five or more people covering two or more households. 

Fourth Tip: I cannot stress enough to landlords that good record keeping will save your bacon.  However tedious it may be for you and your staff, good record keeping (and retention of the same) will allow you to show at a later date that you did act appropriately.  This means keeping receipts, all electrical and gas certificates (which you need to keep and produce on request in any event), correspondence, attendance notes, etc.  If you have the capacity to digitise some of this process, it will save considerable storage space.  Often a defence to a charge under the Regulations is that at all material times you acted with all reasonable diligence.  How do you prove that? Contemporaneous records.

e.g. If you have told your tenants to keep passageways clear and thereby complying with your obligations to provide obstruction free fire escape routes, follow it up in writing and frankly be ruthless. Simply because your tenants are lazy, does not allow you to be so.  Place clear laminated signs in affected communal areas so that there can be no question that such conduct for instance by placing prams, bicycles, etc in an escape route is not permissible.  They must have adequate warnings (including in writing) and provide that if they fail to remove the fire hazard, there will be consequences. 

This is because the consequence to you could be a serious breach of the Regulations which may result in a fine and costs of approximately £10,000 alone.  Ask your staff to make a note either within your electronic systems or add a manuscript note to the tenant’s file of any oral instruction.

My advice though is to be careful about seeking to remove the items yourself unless specifically stated in your tenancy agreement and have clear laminated signs displayed within the property.  The better approach is that it is a failure to use the property in a tenant like manner and therefore in fundamental breach of a term of the agreement (this is likely an express term of an AST but alternatively may be an implied term) and allows you to seek possession with a s.8 notice under the Housing Act 1988 under the discretionary Ground 12 (breach of contractual provision save non-payment of rent).  You would be advised to seek advice on the contractual position before seeking to evict someone on this ground given its discretionary nature. 

As regards to protecting yourself from a prosecution, by keeping a careful record of all correspondence (including proof of postage if sent by post rather than email), you protect yourself from the suggestion you did not do more.  However, I emphasise you must act and must act decisively.  As a property owner employing agents, they must act in the same way as you may both find yourselves being prosecuted for the same deficiency.

Conclusion

I understand that landlords feel put upon and in particular with HMOs feel that the regulation is onerous.  Frankly, it is.  However, the principle of protecting occupants of housing was made clear in the very public disaster at Grenfell and over the years, private tenants have suffered similar fates.  The key to effective management of a property is pro-active advice from both legal and practical professionals regarding contracts and effective systems.  Comprehensive note taking and checklists will mean that everything from lightbulbs to electrical sockets are checked, maintained and kept in a safe condition.  Tenants often fail to treat your property with the care and attention that they should.  You need to fill that void wherever possible in practical way to keep them safe and your asset safe.  If you follow this approach, it is the best possible method of avoiding any uncomfortable conversations with the local authority.  However, if you are approached by the local authority and you consider there may be even a risk of prosecution, get early advice from a specialist solicitor and/or barrister to make sure you respond in the best possible way whilst protecting your position.

If you would like some advice or representation regarding your legal problem, please contact Marcus Croskell by email or 01473 214481.  Marcus accepts instructions directly from landlords and businesses as well as via a solicitor of your choice.