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Thousands of landlords in England are facing rising costs due to selective licensing schemes imposed by local councils, according to a Freedom of Information request.
A freedom of information request by insurer Direct Line revealed that owners in areas requiring a licence are charged an average of £700 to obtain one.
In parts of England, local councils are requiring landlords to obtain selective licensing in order to rent out properties, in the hope that this will improve standards and quality.
The plans require owners to meet certain management and maintenance standards and are often accompanied by regular property checks.
Inconsistent: English councils charge landlords almost £700 on average for “selective” licences, which are compulsory in some areas, but some councils charge hundreds more
A licence normally lasts for a maximum of five years once granted, but local councils may choose to issue licences for a shorter period.
Although only 47 of the 245 councils that responded to the FOI request currently have a selective licensing scheme in place, Direct Line says this is a 10 per cent increase on those that reported having one in 2022.
Birmingham, Peterborough, Merton in south London and Charnwood in Leicestershire have all introduced them in the past two years, according to Direct Line.
How much do local councils charge for a property owner’s licence?
While councils charge landlords an average of £699.92 for compulsory selective licensing, there has been found to be wide variation across England.
The local authorities that charge the most are Leicester City Council, which charges £1,290, Newcastle City Council, which charges £900, and Greenwich City in London, which charges £858.
Ashfield District Council in Nottinghamshire charges the lowest fee of all councils, £350, and East Staffordshire Borough Council charges £507.
Last year, English councils generated more than £20m in revenue from selective licensing schemes.
Sophie Lang, regional executive at estate agents association Propertymark, said: ‘Selective licensing is a growing entity, but expectations and costs for landlords vary dramatically from council to council, making the current set-up a postcode-driven process and sometimes hugely inconsistent.
‘Ideally, there would be a framework that was implemented uniformly to help ensure consistency and streamlined compliance.’
Simon Wood, director of management and lettings services at estate agents Hamptons, also says selective licensing is a growing phenomenon.
He said: ‘The number of local authorities applying selective licensing areas for their plots appears to be increasing.
‘In addition, councils that already have selective licensing are expanding the size of areas that fall within that category.
‘For example, the Southwark area of London is almost entirely under selective licensing.
‘Each local authority has a different charging structure, but in London it’s typically around £600 for a five-year licence.’
Bureaucracy: The number of local authorities applying selective licensing to their plot owners appears to be increasing, according to property experts
What does a selective license require?
Each local authority has its own rules, but generally a property owner must maintain certain standards of safety and maintenance to obtain and retain a selective licence, according to Simon Wood of Hamptons.
“The criteria set for a selective licence are based on legal regulations on gas safety, a report on the state of the electrical installation, tests of portable appliances and reports on smoke and carbon monoxide alarms,” it says.
‘In addition, a floor plan and a copy of the rental agreement are required, and there is also a requirement for a ‘suitable person’ to supervise the property.’
What happens if the owners do not comply?
Owners who fail to comply with licensing requirements will incur significant penalties. In the worst case, they could face prosecution or large fines.
Burnley Council, for example, last year imposed fines of up to £10,000 for selective licensing breaches.
In fact, last year councils in England raised £2.5m by fining landlords, according to Direct Line – almost double the previous year’s revenue of £1.4m.
Waltham Forest and Middlesbrough have been revealed to have recorded the highest number of licensing breaches in 2023 and are also leading the way in 2024 so far.
Sarah Casey, Landlord Insurance Director at Direct Line Business Insurance, said: “It’s important that landlords comply with all relevant legislation as anyone who fails to do so could face a heavy fine.
‘Our analysis shows significant regional variations in licensing costs for owners and a growing burden of fines for non-compliance.
‘Anyone thinking about becoming a landlord, or who already has a property portfolio, should check with their local authority to see if they have a scheme in place.’
Is a selective license the same as an HMO license?
Selective licensing should not be confused with licensing for houses of multiple occupation (HMO).
Landlords who own HMO properties often need a separate licence from their local council.
However, under current rules, if a property has an HMO licence then it will not have to pay for a selective licence in addition.
Shared space: An HMO is when a property has at least three tenants living there who are not part of the same household. These dwellings may require a more expensive type of licence
An HMO is when a property has at least three tenants living there forming more than one household and if the bathroom, toilet or kitchen facilities are shared.
An HMO must be licensed if it is occupied by five or more people, but many councils often include other types of licensing, often if three or four tenants form more than one household.
HMO licences generally cost more than selective licences and require landlords to comply with additional regulations, fire safety measures and even minimum room sizes.
More costs and regulations ahead for owners?
Landlords will be concerned that further regulation and costs could be introduced in the near future, particularly through Labour’s Tenants’ Rights Bill.
“We are likely to see a mandatory housing portal introduced as part of Labour’s Tenants’ Rights Bill, which will incur additional costs,” Wood adds.
It is essentially a central database that will cover all owners and their properties.
“With so much bureaucracy, there needs to be a balance between improving the safety and quality of housing for tenants, without overburdening or increasing costs for landlords,” Wood says.
Propertymark’s Sophie Lang adds: ‘There was recent concern within the old Tenancy Reform Bill (under the Conservative government) that the implementation of a “decent housing standard” and national property database would mean that administration and associated costs could double for landlords and have the adverse effect of driving good landlords out of the sector due to increased expenses.
‘As things currently stand, many local councils have the issue of selective licensing on their radar, but have not even begun to fully consult on the matter, so it may ultimately be a while before many parts of the UK see movement on the matter.’
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