Tribunal Case Highlights HMO Licensing Risks for Landlords
A high-profile licensing enforcement case relating to a property in Manners Road, Portsmouth, has garnered significant local and national attention. The case involved a £7,500 fine issued by Portsmouth City Council to a landlord under the mandatory HMO licensing scheme. The landlord appealed to the First-tier Tribunal, whose detailed findings offer crucial lessons for landlords, particularly those engaging in rent-to-rent agreements.
This article breaks down the case, key tribunal findings, and takeaways for landlords to help avoid similar pitfalls.
The Case in Brief
The property in question, a five-bedroom house operated under a rent-to-rent arrangement, had been undergoing licensing verification. The owner, who held the HMO license personally despite owning the property through a company, appointed a rent-to-rent operator to manage day-to-day operations.
During a council inspection, housing officers discovered a room licensed for single occupancy being used by a family of three. The tribunal found the landlord ultimately responsible for the breach, despite their claim of being unaware of the occupancy situation.
Key Tribunal Findings
- License Holder's Responsibility:
The Tribunal was unequivocal that the ultimate responsibility for compliance rests with the license holder. Delegating daily management does not absolve the license holder of the duty to ensure compliance with licensing conditions.- Key Tribunal Quote:
"The delegation of day-to-day matters did not absolve [the landlord] of responsibility for ensuring that the tasks delegated were undertaken in an appropriate manner and fulfilled obligations under the HMO License."
- Key Tribunal Quote:
- Mismanagement in Documentation:
- The rent-to-rent agreement ambiguously named both the landlord's company and the rent-to-rent operator as "landlords."
- The tenancy agreements further compounded this issue, listing the landlord's company trading under the rent-to-rent operator's name. This created confusion for licensing purposes and posed risks for taxation compliance.
Post-Rakusen v Jepsen (2021), this approach contradicts legal precedent, as claims for rent repayment orders now lie against the immediate landlord (rent-to-rent operator), not the property owner - so we definitely need more case law or clarification in the Renters Rights Bill.
3. Breach of Licensing Conditions:o The room in question, while suitable for single occupancy, was too small for three occupants, violating HMO regulations.
o The rent-to-rent operator accepted the family due to a double-booking error and did not inform the landlord. This, combined with misleading actions by the occupants, complicated the breach further.
4. Landlord Oversight Failure:
o The Tribunal highlighted that as the license holder, the landlord should have conducted their own inspections to ensure compliance.
o While the Tribunal acknowledged the landlord's lack of direct involvement in tenancy management, it concluded this did not exempt them from responsibility.
5. Outcome of the Appeal:
o The Tribunal upheld the fine, rejecting the landlord's defence of "reasonable excuse." It emphasized the landlord's experience and the nature of the breach as factors in its decision.
Lessons for Landlords
For landlords considering or already engaged in rent-to-rent agreements, the case underscores several critical points:
- Clear Licensing Responsibilities:
- Ensure the rent-to-rent operator, not the property owner, holds the HMO license to minimize risks.
- Agreements must explicitly define roles, responsibilities, and accountability for compliance.
- Strong Documentation Practices:
- Avoid ambiguities in agreements. Clearly identify the operator as the responsible landlord in both rent-to-rent and tenancy contracts.
- Use specialist solicitors to draft agreements to comply with licensing and tax regulations.
- Diligence in Selection and Oversight:
- Choose rent-to-rent operators with proven track records and recommendations.
- Regularly inspect properties, even if management is delegated.
- Post-Rakusen v Jepsen Compliance:
- The Supreme Court ruling emphasizes that rent repayment claims are directed at immediate landlords. Ensure agreements reflect this.
- Consider Alternatives:
- Letting agents may offer a less risky solution for landlords seeking hands-off management, with the added benefit of professional indemnity insurance and redress mechanisms.
Broader Implications
The case highlights ongoing risks in the rent-to-rent sector, particularly for landlords seeking hands-off investment models. While mandatory HMO licensing aims to prevent poor practices, the findings suggest the need for greater clarity in compliance requirements and enforcement processes.
Looking Ahead
Landlords are encouraged to review existing agreements, especially in light of forthcoming regulatory changes, such as the Renters Rights Bill. The bill may impose additional accountability on property owners for breaches by rent-to-rent operators.
Additionally, the government's revived plans for regulating property agents, including mandatory qualifications, could bring much-needed oversight to the rent-to-rent sector.
For full tribunal findings, you can access the official case decision here.