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I find it mildly amusing that over the past decade, as each new regulation made life harder for landlords or increased their costs, there was never any outcry from tenants on behalf of their landlords.

Yet at this months member meeting, we had 70+ attendees incensed at the impact disaggregation would have on their tenants – with calls for us to talk to MP's , start a Judicial Review, appeal and much else. Everyone agreed it is not fair, it does not make sense and it will impact those tenants least able to afford it – it is in effect a poll tax on the poorest in our society.

But when you step back, you can argue it both ways. Which side are you on? 

What Is Disaggregation?  

Put simply, a national government office known as the VOA (Valuation Office Agency) decides how properties are to be treated for council tax. When, say, an office block is converted into shops and flats, the VOA will define how many properties there are and what 'council tax band' each fall into.

Disaggregation is when, for whatever reason, a larger unit is redefined as a number of smaller units – for instance a Victorian semi which is in use as a 6-bed HMO, currently banded and taxed as a 'band E' unit and the VOA step in, look at the property and decide it is instead, 6 separate dwellings each of 'band A'.

This may make sense if each of the rooms is a self-contained flatlet, but what if there are no kitchen or bathroom facilities in the property apart from those shared by all?

A much better definition was given at this month's member meeting by Daryn Brewer and you can see that here: (Key piece starts at 3 mins) 

What Are The Rules?  

A hereditament is an inheritable estate or interest in property according to ancient law and as defined in most current dictionaries. It comes from the period 1425-75 and is classed as 'late middle English' and derives from the Latin word "hereditamentum".(The word 'inheritance' is the word derived from French meaning the same thing).

In property law, a hereditament is any kind of property capable of being inherited and before 1926, it was property that would be passed to an heir if not otherwise disposed of by a will.

In current law there is a 4-part test to show whether anything is a hereditament but sadly, the VOA seem to put great value in the test but forget completely the legal meaning of the term.

The 4-part test is that to be a hereditament, the property must have actual, exclusive and beneficial possession and not be transient.

Typically, most HMOs can be argued to have rooms under the VOA interpretation which are separate hereditaments:

  • Have sole use (the room is for one persons use and a lock on the door is often used to prove this – this ticks the actual and exclusive boxes)
  • Have individual facilities (such as a sink or ensuite and in one case, just a kettle and this one ticks the 'beneficial use' box as does an AST)
  • Contracted separately from other rooms (so individual ASTs are assumed to show this)
  • Not transient (so someone with an AST would be classed as not transient)

They obviously are not, as they cannot be sold or inherited separate from the building in which they form a part – but as stated before, the VOA focusses on 1967 law and case law since and has forgotten the 500 years of legal precedent before that point. 

 Why Are They Applied So Inconsistently?  

If the situation was that HMO landlords knew that their properties were going to be disaggregated and their tenants would have to pay council tax – we would grumble but reluctantly accept it as yet one more burden which we have to bear.

The issue is that no one knows whether their property is going to be disaggregated or not and if it is, whether the newly due council tax will be backdated to some prior date or not and if it is, when that date will be…

So, we have HMO landlords paying council tax on their HMOs not knowing whether this will change or not and we have tenants facing council tax bills if they stay where they are or none if they move to another HMO.

What makes all of this worse is the process of backdating demands. So, for example, a landlord has his 5-bed property disaggregated and for whatever reason, this is backdated to a date nearly 2 years ago. For the past 2 years, the landlord has been paying the council tax on the property – but from the date of disaggregation (which is 2 years ago), the landlord is no longer liable for council tax on the house, but each tenant is liable for council tax on their room.

So the landlord asks for a refund of the tax he has 'erroneously' paid – no joy, no refund. The tenant who left the house nearly a year ago, is sent a council tax bill for the 1st year since disaggregation – he no longer lives at the address and does not see the bill, he obviously knows nothing about it until at some point in the future, he finds he has a CCJ for non-payment of Council Tax!The clever reader will say the landlord just has to take a hit and pay the backdated bill – but he can't, it is not his bill. Imagine HMRC reviewing the accounts and seeing a deduction for several thousand pounds in payment for a bill owed by someone else – am sure their normal response is that is fine, don't worry about it…. 

Surely You Can Appeal? 

The thing about regulations is that they always come with rules and if they are wrongly applied, you can appeal against them.

Well, not when it comes to disaggregation – apparently the discretion of an officer of the VOA is such that not even his own boss has the right to challenge that judgement, so poor Mr (or Mrs) Landlord has no hope.You can go to a First Tier Tribunal and appeal the judgement – but you have no right of appeal over what the VOA decided, as there is discretion allowed and the discretion of the VOA officer cannot be challenged within the tribunal process.

It is a travesty that the VOA can apparently arbitrarily decide which properties to disaggregate and when they do, their decision and the date they choose to back date to cannot be challenged. 

PCC Benefits From Disaggregation  

This is an interesting topic. Councillors state it is not PCC policy to disaggregate HMOs but the VOA have confirmed that PCC have been sending many properties through to be disaggregated, more than other authorities.

Why might it be in PCC's interest? Well, firstly we know there is no love lost when it comes to HMOs and anything that makes an HMO less appealing is going to find favour with councillors.

And a 5-bed 'band E' HMO will pay £2,300.65p per year council tax whereas after disaggregation it will pay 5 'band A' payments of £1,254.90. Even assuming all the tenants claim a 25% single person discount the bill for the house will be £5,647.05p, so PCC will be £3,346.40p better off.

Apply that to the 1,400 licensed HMOs in the city and it becomes £4.68M.

Also, the local authority has a 'new homes' target and when a property is disaggregated, the individual rooms become 'new homes' – apart from needing to meet the target to ensure central government funding, the local authority also gets a bonus payment based on the number of new homes built.(Student halls count toward this also, surprise, surprise).

So in 2022-23, the provisional payment to Portsmouth based on 671 'new homes' between October 2020 and October 2021 equates to 152 band D equivalents (as a student hall room or a disaggregated HMO room is worth around a quarter of a new home under this measure) and a 'band D' is £1,882.35p per year – so that equates to a payment of just over £280k within the overall payment of £904k that PCC receive for new homes added.We are told, this payment is guaranteed for 6 years – so each home disaggregated will not only bring in almost double the council tax but it will also assure Portsmouth of a payment each year for 6 years equivalent to at least another £1,882 per property.

So, whilst it may not be policy – we can see why efforts to make it more fair or sensible do not get much traction… 

A Contrarian View – Please Disaggregate Me 

If disaggregation is universally the wrong thing to do, applied incorrectly, impacting those least able to afford it and so inconsistent that it severely disadvantages those who suffer it, how can I be in favour?

Look at it this way- a landlord with a 'band E' HMO with 5 tenants, will pay £2,300 council tax. This will be a cost of doing business but will affect his overall return from that property. If the property is disaggregated, PCC will levy 5 bills for 5 'band A' rooms of £1,254 each (less single person 25% discount), so call it just over £4,700 in total.

You can see the benefit for PCC even without the help it gives in achieving housing numbers. But what most people seem to overlook is the fact that your costs, as a landlord, have gone down by £2,300 a year.

Yes – your tenants pick up a bill of nearly £1,000 each but if they don't think that is fair, they can talk to PCC or the VOA or their MP as we have unsuccessfully tried to do on their behalf already.

The key point is that you have less paperwork so your management costs go down, your income remains the same and your profitability just increased.So why would you not want to be disaggregated? 

 Disaggregation Is Wrong 

 Whether you accept the business logic that disaggregation is a good thing for a landlord – it is impossible to justify since it is completely illogical – you cannot inherit an HMO room, and inconsistent – you don't have parking permits per room or pay water and sewerage per room or have a TV licence per room, the council don't offer a green bin per room.

And more importantly, it is not fair, why should people who live in HMOs be penalised in this way and why so inconsistently – no one knows which HMOs will be disaggregated or what criteria will be used to justify the disaggregation. Why should someone who cannot afford a studio flat and who chooses instead to share a house, be able to share the cost of Council Tax for that house?

If there was a 'Band A-' for individual rooms, set at a lower rate than Band A which was priced based on the assumption of having a self-contained 1 bed flat – maybe it would be possible to justify the additional bureaucracy and overhead forall involved – but surely simpler just to collect the same amount as 1 payment as today from the landlord?

Call To Action – What You Must Do  

If you are affected, do let us know and join the Facebook group 'HMOs and Council Tax' created by PDPLA member Daryn Brewer and also the website - find it here. The site has suggested letters for both landlords and their tenants to send to their MP's. Obviously, you need to make it personal - don't just cut and paste else you will get a cut and paste response - but if you or your tenants are affected, do take the time to ensure that your tenants appreciate that it is not anything to do with you and that they need to complain as no one listens to you.

We also need evidence and will be sending a questionnaire to members soon – do please look out for it and complete it when it arrives. 

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