Coming to an area near you - selective licensing in the private rental sector

House key iStock 000004543619XSmall 146x219The number of local housing authorities introducing selective licensing in the private rental sector is on the rise. Samantha Jackson looks at what is involved.

The Housing Act 2004 (“HA”), Part 3, makes provision for selective licensing of privately rented residential property. The powers in the Act came into force in April 2006 but use of the scheme is only just becoming 'fashionable' amongst local housing authorities.

Local housing authorities can designate their entire district or an area within a district (s.80(1)). The proposed area must meet one or more of the following conditions:

  • the area is one which is experiencing (or is likely to experience) low housing demand and the local housing authority is satisfied that ‘designating’ an area will, when combined with other measures, lead to improved social and economic conditions in the area(s.80(3)); or
  • the area is experiencing a “significant and persistent” problem caused by anti-social behaviour and that some or all private landlords in that area are not taking appropriate action to tackle this. Moreover, the designation in combination with other measures would lead to a reduction in or elimination of the problem (s.80(6)).

Sections 79, 80 and 81 of the HA allow for a scheme of selective licensing of private landlords in a local housing authority area. Selective licensing of the private sector was and is intended to address the impact on society of poor quality private landlords and anti-social tenants. However one has to question whether the desired aim is being achieved by this increasingly popular regulatory scheme, as anti social behaviour appears to be rife.

According to Environmental Health News on line as of December 2013, 16 English local housing authorities have implemented selective licensing and argue that it is working. Many local housing authorities are also currently considering selective licensing. From my own research if any readers have clients in the private landlord business in the local housing areas of Peterborough, Sheffield, and the London Boroughs of Waltham Forest and Enfield they may wish to direct them to the current consultation exercises or advise them to apply for a licence very soon.

In any area subject to selective licensing all private landlords must obtain a licence (ss. 87-90) for each property they privately rent out to tenants (s.91(1). The licence will last for at least 5 years but can be revoked. Furthermore the licence is not transferable so any client buying a property with a “sitting tenant” will need to acquire their own licence.

S.87(3) permits the local housing authority to charge a fixed fee for the licence which appears (again from my own research) to be approximately £500-650.

S.88(3) makes provision for whether the proposes licence holder is a “fit and proper” person and the most appropriate person out of all the persons reasonably available to hold the licence.

S.89 could cause problems for applicants as when deciding for the purposes of s.88(3)(a) or (c) whether a person is a fit and proper person to be the licence holder (or the manager of the house), the local housing authority must have regard (amongst other things) to any evidence within subsection s.89 (2) or (3). This includes evidence of whether the applicant has:

  • committed any offence involving fraud or other dishonesty, violence or drugs, or any offence listed in Schedule 3 to the Sexual Offences Act 2003 (offences attracting notification requirements);
  • practised unlawful discrimination on grounds of sex, colour, race, ethnic or national origins or disability in, or in connection with, the carrying on of any business; or
  • contravened any provision of the law relating to housing or of landlord and tenant law.

Evidence is within that subsection if:

  • it shows that any person associated or formerly associated with the applicant (whether on a personal, work or other basis) has done any of the things set out in subsection 89(2)(a) to (c), and
  • it appears to the authority that the evidence is relevant to the question whether the applicant is a fit and proper person to be the licence holder or (as the case may be) the manager of the house.

Schedule 4 deals with the mandatory conditions that must be in a licence. Paragraph 2 further provides that a selective licensing landlord must have requested references from those wishing to occupy the licensed premises.

Schedule 5 deals with procedural requirements relating to the grant, refusal, variation or revocation of licences and with appeals against licence decisions.

If an applicant fails to acquire a licence or achieve acceptable management standards, the authority can take enforcement action by issuing a fine (up to £20,000) or assuming management control of the property (s.95). The Environmental Health News article referred to above reported on the level of prosecutions for the local authorities operating the schemes but there is no detailed explanation (at least that I can find) that explains whether the prosecutions have been successful in eliminating the problems.

A private landlord’s biggest “fear” for operating without a licence will no doubt be the fact a court may order that any rent payments made in respect of the unlicensed premises are repaid (s. 96). Even more “painful” is the fact that no notice of seeking possession under s. 21 of the Housing Act 1988 can be relied upon to obtain possession against an assured shorthold tenant occupying premises let without a licence where one is required (s. 98).

A local authority has extensive powers to take control of unlicensed premises under Pt 4 of the HA, but this costs money that may never be recovered in full by the local authority. Therefore rent repayment orders and the ineffective s. 21 Housing Act 1988 notice (which also applies for a failure to licence a house in multiple occupation) are probably going to cause the most trouble for private landlords.

Responsible landlords have nothing to fear, but it does mean there is another process to follow and a fee to be paid. Letting agents need to be aware of these changes and arguably the commission they charge for their services will increase. There are reports in some landlord forums that mortgage companies will not grant mortgages for the buy to let market in an area subject to selective licensing.

Whether it will stymie the private landlord sector remains to be seen, but I expect rental levels will increase as private landlords will seek to cover the licence fee in the rent they charge as they are operating a business.

Samantha Jackson is a barrister at 1 Chancery Lane. She can be contacted This email address is being protected from spambots. You need JavaScript enabled to view it.. Samantha would be interested to speak with any local authority either currently consulting or operating a scheme.