Tara O’Leary examines the latest developments in relation to selective licensing, including the Government's ‘20/20 rule’ and the end of borough-wide schemes.
On 21 December 2015, the London Borough of Redbridge announced that the Secretary of State had recently refused permission to implement a borough-wide selective licensing scheme, approved by its members in June 2015. It is believed that this was the first application for approval of a borough-wide licensing scheme since the requirement for ministerial consent was introduced in April 2015.
The refusal has underlined the Government’s stated intention to increase scrutiny of any selective licensing scheme which covers more than 20% of a local authority’s geographical area or 20% of the private rented sector (“PRS”) housing in its district. It also poses broader questions about the future of selective licensing and the extent to which local housing authorities can target rogue landlords in their area.
Selective licensing: the legal framework
Selective licensing schemes are a creature of the Housing Act 2004 (‘the Act’), introduced as a discretionary tool for local housing authorities to improve the management of privately rented properties which accommodate single households.
Selective licensing is therefore distinct from the mandatory licensing requirements established by Part 2 of the Act, which apply to all large houses in multiple occupation (‘HMOs’). It is also distinct from ‘additional licensing’ powers (s56 of the Act) which enable local housing authorities to extend licensing over additional categories or description of HMOs in its area.
Under s80 of the Act, local housing authorities have the power to designate either the whole or part of their district area as subject to selective licensing, subject to two prerequisites. Firstly, s80(9) requires the housing authority to have taken reasonable steps to consult persons likely to be affected by the designation and to consider any representations made in response. Secondly, s80(2) requires that the proposed licensing scheme must satisfy one or more of a number of specified statutory conditions, set out in ss80(3) and (6) of the Act:
A. That the area is, or is likely to become, an “area of low housing demand”; and that the proposed designation will contribute to the improvement of the social or economic conditions in the area when combined with other measures taken in the area by, or in cooperation with, the local authority;
B. That the area is experiencing a “significant and persistent problem” caused by anti-social behaviour (‘ASB’); that some or all of the private sector landlords letting premises in the area have failed to take action which it would be reasonable for them to take to combat the problem; and that the proposed designation will, when combined with other measures, lead to a reduction in or elimination of the problem.
In March 2015 the Government extended the conditions for designation of selective licensing in England. The Selective Licensing of Houses (Additional Conditions) (England) Order 2015/977 came into force on 27 March 2015, and permits licensing where:
C. The area contains a high proportion of properties in the PRS, being properties which are occupied under assured tenancies or licenses to occupy, and one or more of specified further conditions also apply:
- Housing conditions: the local housing authorities considers it appropriate and intends to carry out inspection of a significant number of properties to determine the existence of category 1 and 2 hazards, with a view to taking any necessary enforcement action;
- Migration: the area has “recently experienced or is experiencing an influx of migration into it”; a significant number of properties are occupied by migrants; and the designation will assist the local housing authority to preserve or improve conditions in the area, ensure properties are properly managed, or prevent overcrowding;
- Deprivation: the area is “suffering from a high level of deprivation, which affects a significant number of the occupiers of [the] properties” and the designation will contribute to a reduction in deprivation;
- Crime levels: the area “suffers from high levels of crime”; criminal activity affects persons occupying the properties; and the designation will contribute to a reduction in crime levels “for the benefit of those living in the area”.
Separate conditions have been introduced in Wales, per the Selective Licensing of Houses (Additional Conditions) (Wales) Order 2006/2825.
Amended General Approval – April 2015
The Secretary of State has power to give general approvals for selective licensing designations, meaning that any licensing scheme compliant with the statutory tests would come into force subject only to compliance with any further conditions specified in the approval. The first General Approval was issued in March 2010, and required only that consultation on selective licensing take place for a minimum of ten weeks.
However on 1 April 2015 an amended General Approval was issued. The Secretary of State’s consent is now required for implementation of any selective licensing scheme which covers more than 20% of a local housing authority’s geographical area, or more than 20% of the PRS homes in the district area. Nicknamed ‘the 20/20 rule’, the new Approval significantly curtails the scope of established consent for selective licensing schemes.
Ministerial guidance was also issued to explain the implementation of these provisions: “Selective licensing in the private rented sector: A Guide for local authorities” (‘the Guide’).
The new landscape
The reforms to selective licensing in March 2015 were expressly interlinked, insofar as the expansion of conditions in which selective licensing can be imposed has been traded against the new presumption in favour of licensing smaller areas within local authority areas. It seems almost inevitable that the 2015 General Approval will encourage use of licensing powers on a more localised and targeted basis. As such, it could be argued that the reforms focus attention onto the quality and efficiency of licensing designations. However, it is also clear that the reforms shift a significant burden of proof onto local housing authorities whenever they identify problems involving more than a small minority of their landlords or PRS stock.
It is not entirely clear what went wrong for Redbridge, because the Secretary of State’s decision is not publicly available. However, Redbridge issued a press statement reporting that the Minister did not find that the link between ASB and private rented homes had been demonstrated throughout the borough. The Minister did, however, agree that there was a case for selective licensing in parts of the district.
This reasoning seems to reflect the Government’s stated impetus for the March 2015 reforms. The Minister had previously expressed his concern that “the blanket licensing approach adopted by some local authorities has major drawbacks”, specifically that such schemes generated a disproportionate burden and unnecessary costs for reputable landlords who were compliant with their obligations.
So what can local housing authorities expect from the new landscape?
Firstly, authorities who wish to introduce licensing above the 20/20 threshold will obviously need to focus on obtaining evidence demonstrating a clear correlation between housing-related problems in their area and both the existence and mismanagement of PRS properties. Specifically, ministerial approval will likely require data illustrating a concentration of housing-related problems in areas with high percentages of PRS properties, or clusters of problems and complaints associated with particular types of private rented properties.
The London Borough of Southwark – whose scheme did not exceed 20/20 and therefore did not require approval – seems to provide an example of this approach. Described as “one of the most complex licensing schemes” implemented to date, it was based upon findings that ASB was predominantly associated with privately rented flats above shops and commercial premises on main thoroughfares and high streets.
Secondly, and a related point, local authorities should begin to think more creatively about how the new selective licensing conditions introduced in March 2015 interact within its overall licensing scheme. Whereas authorities were previously required to demonstrate a link to either ASB or low housing demand specifically, they can now explore links between private rented housing and a much broader range of housing-related problems. As such, local authorities can consider implementing a network of designations across their borough, in which licensing is intended to address different housing-related problems in different wards and areas around the district. For example: crime in a particular housing estate, migration into a particular neighbourhood, deprivation above flats on the high street, and perhaps ASB in all three areas.
Take note however that this approach does not provide a means to circumvent the General Approval. The Guide (at para. 2) makes clear that where housing authorities make more than one designation, designation will need approval where they cumulatively cover more than 20% of the area or private rented stock. This includes new designations concurrent to an existing scheme.
Further, local authorities must bear in mind their obligations under s81 of the Act to coordinate licensing schemes with their overall housing strategy and, in particular, to consider whether there were other or lesser options which might have achieved the same results.
Thirdly, it is important to take note of the procedure for gaining the Secretary of State’s consent, which is set out in detail in the Guide. The Redbridge decision illustrated that the approval process poses a risk of significantly delaying implementation, even if permission is granted. Although the Guide states that the Secretary of State aims to respond within eight weeks, over six months elapsed between the approval of the Redbridge scheme by its members and the Secretary’s ultimate decision.
Finally, it remains to be seen how the new Approval will impact concerns about the ‘overflow effect’ of existing licensing schemes on neighbouring boroughs. In R (Regas) v LB Enfield  EWHC 4173 (Admin) the Court expressly recognised that the class of persons likely to be affected by licensing designation plainly includes residents, businesses, landlords and agents who live or operate in immediately adjoining parts of other local authority areas, because of the risk that licensing would displace rogue landlords and tenants to nearby areas.
Although the new preference for smaller, targeted licensing areas may help to minimise ‘overflow’ into neighbouring boroughs, the 2015 General Approval fails to address the very real concerns expressed by Enfield in Regas, that designating only parts of the borough would result in bad landlords as well as bad tenants simply moving to an unlicensed area within the district. The answer may unfortunately require local authorities to continue monitoring PRS housing around the borough, and to add new areas of designation to their schemes if or when the need arises – including an application for approval when schemes grow to exceed the 20/20 threshold.
There are currently at least four borough-wide licensing schemes in place in London (Barking & Dagenham, Croydon, Newham and Waltham Forest), and Liverpool City Council introduced city-wide selective licensing on 1 April 2015. Their neighbouring boroughs will no doubt be closely monitoring implementation for signs of ‘overflow effect’. Meanwhile, other authorities which are reportedly considering or consulting on the introduction of selective licensing will watch these developments with interest: this includes Ealing, Hammersmith and Fulham and Lewisham, among others.
 See s80(4) for factors which housing authorities must take into account in determining whether an area is one of “low housing demand”.
 Pursuant to s80(7) of the Act.
 See Art. 6(2) of the Additional Conditions Order 2015 for the relevant factors used to identify “deprivation”.
 By virtue of ss80(5), 80(6) and 261(1)(a) of the 2014 Act.
 This requirement has been retained in para. 5 of the Housing Act 2004: Licensing of Houses in Multiple Occupation and Selective Licensing of Other Residential Accommodation (England) General Approval 2015.
 Ibid, para. 6.
 The Guidance is available from the DCLG website. It replaces the previous guidance updated in February 2010, “Approval steps for additional and selective licensing designations in England”. This link and all other web links cited in this article were last accessed on 25 January 2016.
“Council ‘disappointed’ as scheme to protect private tenants is refused”, 21 December 2015.
 Letter from Housing Minister Brandon Lewis to local housing authorities, 11 March 2015.
 The scheme came into force on 1 January 2016. See London Property Lawyer, “Southwark’s new landlord licensing scheme delayed”, 20 October 2015; Southwark Council, “Southwark Council to introduce private sector housing licensing scheme”, 23 July 2015.
 Judge McKenna, paras. 39-40. Kelvin Rutledge QC and Sian Davies of Cornerstone Barristers acted for LB Enfield.