Legal case – can there be a reasonable excuse for not licensing an HMO?

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We’ve all heard the expression, “ignorance of the law is no excuse” and this applies without question in all areas of the law. But in some rare instances it seems the courts and tribunals are open to accepting a defence of what is termed ‘reasonable excuse’ even when the regulations have not been followed to the letter.

The defence has been pleaded in many areas of the law, including regulations in the private rented sector (PRS), in areas of the law relating to HMRC and the tax regulations, and there have been several examples used recently with the regulations relating to Covid and the ‘stay at home’ rules during lock-downs.

Being able to show that you have a ‘reasonable excuse’ has been shown in certain rare instances to be a valid defence to a criminal offence, which would otherwise would be dealt with by a court on a strict liability basis.

Many examples have been made where a landlord breaches the requirements under the Management of Houses in Multiple Occupation (England) Regulations 2006, but where it did not make any difference if the landlord did not know the rules or intend to breach them – they were penalised.

The Regulations

Acts of parliament rarely give any guidance as to what may be deemed a “reasonable excuse”, which means that lawyers may try to structure a reasonable excuse defence based on the facts of the particular case, and on what the courts – judges, magistrates and tribunals – have decided before. Nevertheless it is possible given the right circumstances to build a successful defence based on having a “reasonable excuse.”

A recent appeal in the D’Costa v D’Andrea and others (2021) case in the Upper Tribunal (Lands Chamber) proves this point. The appeal was against a previous ruling about a rent repayment order (RRO) awarded against the landlord owner and a property management company by the First-tier Tribunal.

Background to the case

In the D’Costa case the owner of a residential property was let to a property management company, FTC Property (Apartment Wharf), which in turn rented out rooms in the property as a house in multiple occupation, otherwise known as an HMO and a rent-to-rent arrangement.

The agreement between the two allowed FTC Property to dependently sublet parts of the property, which comprised five bedrooms across two storeys, together with a kitchen and two bathrooms.

The company successfully sublet all five rooms in the property and it was clear that no mandatory HMO licence was required for the property prior to 1 October 2018, as it comprised only two storeys.

The law changed after 1 October 2018 for HMOs, with five or more occupants requiring a licence when the three storeys rule was removed. The result was that some HMOs, which had previously been exempt from the licencing requirements, as in this case, now required HMO licencing.

Inspection visits

At the time of a visit from the local authority inspector in 2017, the landlord owner asked if a licence was required and was willing to apply for one. She was told via email that a licence was not required and she would be advised if this situation changed.

At a further inspection in 2019, there being no communication from the local authority in between these dates, she was told that a licence was required. She made the application the same day.

The property therefore was without a required a licence since 6 October 2018, when a fifth tenant had taken up occupation.

The tenants, who were supported by the local authority, applied to the First-tier Tribunal for a Rent Repayment Order because their property was not licensed as required. The FTT found in favour of the tenants and made out the order based on the fact that the landlord owner had committed an offence as the person ‘in control’ of the property, and the management company had also committed an offence as the ‘manager’ of the HMO.

The First Tier Tribunal ruled that a Rent Repayment Order (RRO) of £16,000 be made out against Ms D’Costa (the landlord owner) and £6,218 against FTC Property (the property manager) for failing to licence the HMO.

The landlord appealed to the Upper Tribunal.

The decision:

The Upper Tribunal found that the landlord could in this case use the defence of “reasonable excuse”, as set down by s.72(5) of the Housing Act 2004, and that the Rent Repayment Order could not be made against her.

Section 72(1) of the HA 2004 provides that ‘a person commits an offence if he is a person having control of or managing an HMO which is required to be licensed… but is not so licensed’.

The landlord argued the defence of “reasonable excuse” as the local authority representative had told her that she would be advised if a licence was required.

She could show that she had received this advice, but she did not receive any further notification. She further argued that only the management company should be liable for obtaining the HMO licence as it was in control of the occupation of the property, the landlord owner having had no control over the company’s sub-lettings.

The Upper Tribunal found in the landlord’s favour and agreed her defence of “reasonable excuse” – she had not committed the criminal offence of operating the HMO without a licence, and the RRO could not be made out against her.

In addition, the tribunal decided that given the business relationship between the parties, the property being managed by a professional property company, the landlord could reasonably have expected the company to inform her if the HMO required a licence.

Lessons to be learned from this case:

This is another case that shows some of the perils of rent-to-rent arrangements and provides a useful guide for landlords and management companies when operating HMOs.

Management companies are professionals in their field and can be expected to be aware of the rules and regulations in the day-to-day management of properties. Their responsibilities extend to knowing the HMO – Management of Houses in Multiple Occupation (England) Regulations 2006 – and they will be liable if they fail to ensure the properties they have under management are not correctly licenced, rather than the owner of the property.

Landlords it seems may be able to rely on the defence of “reasonable excuse”, in licencing matters in certain rare circumstances, particularly where they have been misinformed be officials and where, as in this case, a management company has total control over the number of occupants in the building.

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Ground source heat pumps ‘totally unrealistic’ for most rented homes – expert

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Ground source heat pump installation costs can add up to an eyewatering £35,000, according to one heating expert, and are incompatible with most homes.

Even for committed landlords who have the space and the planning permission, those with a combi boiler or a hydrogen-ready boiler won’t qualify for the £6,000 Boiler Upgrade Scheme (BUS) grant because the government deems anyone with low-carbon heating systems ineligible, according to Myles Robinson (pictured) from Boiler Central.

He explains that the immense costs can multiply if some parts of the existing heating system are incompatible with the heat pump system, such as radiators, emitters or any pipework.

“Compared to a £2,000 hydrogen-ready boiler and even £7,000 for an air source heat pump, this is clearly out of most people’s reach,” says Robinson, who adds that not every property is suitable for heat pump installation.

“It’s also not worth bothering to get planning permission for an air source heat pump that will last you less than a boiler, which you would need anyway for when it’s cold outside and the pump struggles to extract heat.

The BUS scheme launched in April, when other experts voiced fears that landlords would need longer-term funding to help them meet energy efficiency targets through a national retrofit campaign.

Through the scheme, they can get £6,000 off the cost and installation of a ground source heat pump, £5,000 for an air source heat pump, and £5,000 for a biomass boiler.

Ground work

But Robinson says there are some positives to installing a ground pump as they increase the value of a property, are extremely energy efficient and could reduce the council tax bill.

They also need little-to-no electricity to run, are far less dependent on the weather and can double as a cooling system. These pumps can last up to 25 years, compared to weather-battered air source heat pumps that only last a decade or a gas boiler’s 15-year lifespan. Unlike air-source heat pumps, they don’t generally need planning permission.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – Ground source heat pumps ‘totally unrealistic’ for most rented homes – expert | LandlordZONE.

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Final Call – Consultation about how the taxation of Property Income could be simplified

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Hi, has everyone responded to this survey? >> Click here

There is not much time left. It closes on the 5th of June at 11:45 pm and I only received word about it today from Airbnb.

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Is now a good time to refinance and fix?

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My brother and I own 26 rental properties, all very standard houses and flats kept in good condition and let to working people. They are all what I would call “vanilla” buy to lets.

Rents and values have increased significantly since we purchased them

View Full Article: Is now a good time to refinance and fix?

Landlord says protecting tenants during portfolio sale will cost him £500,000

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Nottingham benefits landlord Mick Roberts (main picture) has made another bid to sell 40 of his properties by offering to cut the sale price by a tenth if a landlord buyer keeps his existing tenants on.

The regular LandlordZONE contributor has previously suggested paying his tenants’ deposit if they buy their home from him.

During an interview with The Telegraph newspaper, he says the average property in his portfolio is worth £130,000 so by paying their 5% deposit for each of the 40 houses it would cost him a total of £260,000 – but he’s had no takers for his offer so far.

Now he plans to take a 10% hit on the sale price if a buyer will buy the properties with the tenants in situ, a discount which could cost him more than half a million pounds.

Mick, who operates one of the largest private property portfolios in the city, blames government policies, licensing schemes and a tortuous Universal Credit system – with the latest EPC regulations being the final straw – for his decision after 25 years as a landlord housing mainly benefit claimants. 

He had hoped to slowly dismantle the portfolio by selling the properties as and when his tenants moved on, but as the supply crunch deepens, Mick’s low-income tenants are increasingly unable to move anywhere else.

Crappy landlords

He tells LandlordZONE: “I don’t want to sell my houses to some crappy landlord – I’ve got a duty of care to these tenants, some of whom have been with me for 24 years.

“Someone has offered to buy the whole lot in the past, but I wasn’t comfortable with the deal and my tenants would have been petrified to have had some armchair investor in charge, who might not do their repairs like I do and would probably put the rent up.”

However, he isn’t particularly hopeful that many landlords will take him up on the offer. Mick adds: “I’ll give it three years and if the plan doesn’t work, I’ll just have to go ahead regardless.”

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – Landlord says protecting tenants during portfolio sale will cost him £500,000 | LandlordZONE.

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How many BTL properties is enough?

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Why is it that so many landlords judge themselves and their peers by how many Buy-To-Let properties they own?

Given a choice between owning 1,000 flats in Northern England or Scotland, which are let to benefits tenants, or the alternative of owning the Burj Khalifa in Dubai

View Full Article: How many BTL properties is enough?

LATEST: Guidance issued for landlords with tenants hoping to take in Ukrainian refugees

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Landlords have been warned to check a property’s potential status if their tenant wants to offer Ukrainian refugees a spare room.

Updated guidance on the rules around the Homes for Ukraine scheme outlines that where a private tenant is paying rent for their accommodation, the property might be covered by additional/mandatory HMO licensing schemes in the area.

It advises: “The landlord can consider whether they are happy to approve of the arrangement, including whether this may bring them within scope of HMO licensing in their local area.

“Where accommodation could be covered by selective licensing, councils should take a pragmatic approach in recognition of the unique nature of the scheme.”

Landlord consent

Tenants offering a spare room are already advised to seek their landlord’s consent before doing so, according to the Department for Levelling Up, Housing & Communities, which adds: “Where no rent is being paid by the sponsor of the accommodation, and since no rent is payable by the guest under the scheme, we do not expect councils to require such accommodation to obtain an HMO licence, whether mandatory or additional.”

LandlordZONE has already reported that landlords have been warned about the legal pitfalls of opening up a home to Ukrainians fleeing the war, as offering anything other than a room in your own main home, such as an annex or separate property, can inadvertently create a tenancy.

There are also questions around responsibility for property maintenance, insurance and payment for utilities and council tax that need to be considered.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – LATEST: Guidance issued for landlords with tenants hoping to take in Ukrainian refugees | LandlordZONE.

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TONIGHT: How to buy in a Booming Market

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This is just a quick reminder about the live training tonight at 8pm, all about how you can compete in today’s booming market and still purchase using very little of your own money.

Generally, sellers expect to get paid top price for their property and are often getting it.

View Full Article: TONIGHT: How to buy in a Booming Market

BREAKING: Wales delays introduction of controversial Renting Homes Act

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The Welsh government has announced a five-and-a-half-month delay to the introduction of its controversial Renting Homes Act which had been due to go live on 15^th July this year.

Now postponed until 1^st December, housing minister Julie James says the delay has been announced after representations from both private and social landlords.

The act will bring in huge changes to the way landlords can evict tenants, issue tenancy contracts, and manage their properties.

This includes a  six-month notice requirement for a landlord to end a contract where the tenant is not at fault, a minimum ‘security of tenure’ of one year from the date of moving in and tighter rules on so-called retaliatory evictions and easier management of joint tenancies.

The act also ushers in a whole new terminology for landlords to grapple with including contract holder (not tenants or licencees) and occupation contracts or standard contracts (replacing ASTs).

Landlord properties must also pass the minimum fit for human habitation (FFHH) test including ensuring that electrical safety testing and ensuring working smoke alarms and carbon monoxide detectors are fitted.

Also, abandoned properties can be repossessed without needing a court order.

More time

But landlords have told James that they need more time to prepare for these changes after the long slog of Covid and the ongoing job of helping house Ukrainian refugees.

“Wholesale reform of the type that the Renting Homes (Wales) Act is bringing about happens only very rarely – perhaps once in a generation,” says James.

“I want to do all I can to ensure landlords have adequate time to make the necessary preparations to comply with the requirements of the Act.”

Frustration

The minister adds that she appreciates that this delay will be a source of ‘frustration’ to some of the government’s partners, “especially those who are anxious to see the enhanced protections for tenants the Act will deliver”, she says.

“I share those frustrations, but I recognise that preparing new occupation contracts and ensuring that properties meet the fitness standards set out in the legislation are major undertakings, particularly for those landlords responsible for a large number of properties and tenants. 

“I also accept that landlords from both private and public sectors, as well as letting agents and other stakeholders, would benefit from additional time to familiarise themselves with the various pieces of subordinate legislation – the final tranche of which are due to be made in July – before commencement.”

The Welsh government has launched a dedicated website for landlords about the new rules.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – BREAKING: Wales delays introduction of controversial Renting Homes Act | LandlordZONE.

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End tax advantages for holiday-let landlords, says lobbying group

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Generation Rent has called on the government to ditch tax relief for holiday let landlords and also give councils the power to license holiday lets and impose council tax premiums.

The pressure group is urging Ministers to incentivise landlords to let to tenants rather than tourists in its report, Understanding the Impact of Holiday Homes on the Private Rented Sector, where it explains how the sector has been fuelled by a lack of regulation, tax advantages over residential lettings and a generally favourable tax system for the property sector.

It points to the nearly 300,000 holiday homes in Great Britain – about 6% of the private rented sector – two-thirds of which are classed for tax purposes as second homes and the remainder as commercial holiday lets.

Generation Rent wants the government to withdraw mortgage interest relief from furnished holiday lets, require all holiday lets to be registered for council tax and create powers for councils to levy council tax premiums on second homes and commercial holiday lets – something the Welsh government has already done for second homes.

More power

It hopes a registration scheme, similar to the one announced earlier this year in Scotland, could be set up by giving more power to local councils.

The report adds: “One way of reducing the number of properties becoming second homes is by making it harder to buy them, so increasing the stamp duty surcharge could make an impact in England.

One way of bringing second homes back into the residential market is to make it more costly to own one. A council tax premium is one of the few ways of raising these costs, and it would more efficiently target homes that are not being lived in than the stamp duty surcharge.”

Read more: The attractions of holiday lets for landlords.

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