7th September 2015
Licensing affects not just myself and landlords in Liverpool, but others across the country as more and more local authorities will adopt such schemes, once they realise how much money can be generated from it!
Licensing was implemented in Liverpool on 1st April 2015. From the landlord’s perspective, that means every rental property within the boundaries of Liverpool City Council must have a licence, the cost of which is £400 per property, a big dent in cash flow even for someone with a small portfolio. If you have a block of, say, five flats, then you have to get a licence for each flat, amounting to £2,000 for a licence for one single building.
We have been negotiating with the council for the past two years in an attempt to get the point across about the cost of licensing. Once you take out mortgage payments, insurance, maintenance costs, agents’ fees, compliance (such as gas safety checks and mains-powered smoke alarms from later this year) and so on, many landlords are ‘on the brink’ with regard to cash flow – there is not much left by way of profit to cover the additional cost of the licence fee.
Despite our involvement, as of yet we have only had limited success in breaking the barriers regarding the cost issue within the council. To make my position clear, I have always been an advocate of raising housing standards within the private sector. There is nothing worse than being tarred with the same brush as rogue landlords. So when the city council comes forward to promote schemes to raise housing standards, I am always in favour. Our objection, though, is the ‘taxation’ that comes with the licensing. Through the co-Regulation model we have successfully formed with the council we will continue to have regular meetings regarding on going issues with licencing and we hope to demonstrate in the coming months the minimal administration involved with working with regulated agents that we can further reduce the licence cost to our landlords.
Councils and public sector workers seem to fail to understand that landlords do not sit on Caribbean beaches sipping cocktails all day, counting their money. Many have just a few buy-to-let (BTL) investments running alongside their main job. And if they bought during the boom, then they are probably in negative equity as well.
As agents, we see many accidental landlords, or people with just one or two rental properties who don’t think of themselves as professional landlords. When we ask “Have you applied for a licence?” the answer is frequently, “What licence?”
This is very worrying for us. Landlords generally want to be compliant and not fall foul of the law, but they are simply not aware of the scheme. If they hadn’t spoken to us, they might have let the property to a friend or work colleague without knowing the consequences.
Those consequences are heavy. Fines can be up to £20,000 along with a criminal conviction. Aside from the huge financial implication, a conviction, depending on their job, could affect their mainstream income. Along with being in breach of their mortgage conditions & insurance.
We have tried to press the council about their policy for issuing these fines. They have assured us that they will take a softly, softly approach in cases where the property owners are not professional landlords, and advise them of the steps they need to take to get the property licensed. My concern, however, is that the council has told us the reason for bringing in licensing in the first place is because they want to ‘sharpen the stick’ to raise housing standards in rental properties. Our response to that is: they have sufficient power under the Housing Act to do that, without the need for licensing. I am dubious and concerned about whether they really will adopt a lighter approach, but it remains to be seen how they will enforce it. Only time will tell.
From the very start, I have believed this to be a revenue generator for the council. I understand there are government cut-backs and accept they are trying to find ways of getting in more revenue, but let’s look at the figures.
As we all know, this money can only be used for administering the license and not used within other departments, so we have asked several times why the fee needs to be so high – surely they don’t need £20 Million to run the scheme? Each time, they have failed to clarify the costs.
This week, I found out that an additional £50 will have to be paid for a ‘fit and proper person’ check. This was not included in the business case or on the application form and will be interesting to see how they will enforce this after a licence has been applied for?
When the council first consulted about the scheme, we formed a consortium of landlords and letting agents to legally challenge them. Councils can cite one of two reasons for implementing licensing: anti-social behaviour or low demand. Liverpool opted for low demand as the business case; we felt this was flawed as it is only true in small pockets of the city. What frustrated us was that the twenty members of the consortium are all property professionals with years’ of experience, but the council would not listen to our professional advice or what we thought would benefit the private rental sector within the city. It seemed they had made the decision and were going through the consultation as a tick-box exercise, with no plan for how to introduce this licensing scheme.
On top of that, we are now three months into the scheme, and I don’t think anyone has received a licence yet. That would seem to support the argument that they did not have much of a plan for implementing and producing 50,000 licenses.
The council’s original application for licensing declared that 42% of the private rental stock in Liverpool was below standard. We challenged this, as the figure did not fit with our experience. It turned out they had compiled the figures from complaints received from or about properties within the PRS over the previous year – they had found 42% of these to be substandard, not 42% across the board. We felt there should have been a broader assessment from a random selection of properties selected from agents and private landlords to provide a fair assessment.
Being as all of our properties are managed through our ARLA-accredited managing team, we ensure that all of the rental properties on our books meet licensing standards already (seeConcentric’s Top Ten Tips for letting). Licensing, however, will effectively duplicate our administrative workload as it will include notification of gas checks, tenancy agreements, etc.; things that we already have to do in accordance with our professional body.
One thing we have succeeded in doing is to set up a co-regulation model with Liverpool City Council. Properties managed by ARLA- or NALS-accredited agents will qualify for a 50% reduction of the licence fee, because they already meet certain housing standards. This will bring the fee down to £200 and we hope to negotiate it down further as previously mentioned.
One of the issues we raised with the council was the issue of rogue agents. This was one of the reasons for forming the co-regulation model – the city council accepted that an ARLA- or NALS-accredited agency is governed by a professional body, and that properties and client funds are managed to industry standards. They recognise that we set good housing standards by complying with the HHSRS.
One of the conditions of co-regulation is that the agent must be the licence-holder for a rented property. Consequently, if owners are concerned about licensing, we will take over that liability. It is a degree of protection for landlords because we are then the ones with our neck on the block. This is a matter that we have had to thrash out with the council because as with HMO licensing, many agents previously thought that by having the licence in the landlords name not theirs would exonerate them from prosecution for failures to comply with licence conditions. This was not the case and many agents have been prosecuted by Liverpool city council even though the licence was in the landlord’s name. By making the decision to become the licence-holder ourselves, we can make sure landlords are meeting all their obligations and won’t fall foul of non-compliance.
A fee discount and becoming the licence-holder in place of the landlord might help, but there are so many other issues. I have already mentioned the risk of criminal prosecution, and through the consortium’s research, we have also discovered that 30% of lenders will not lend on a property within a selective licensing area. We have asked our landlords to check with both their mortgage and insurance providers whether the conditions allow them to let within a licensed area.
The combination of all of these things could have a detrimental effect on rental housing stock as landlords will sell up and move elsewhere. The risks are getting too high.
There would be a knock-on effect to that. According to housing officers, Liverpool has a housing crisis with 17,000 people on the waiting list for council housing. With landlords who have good quality properties being put off by the scheme, we believe that over time, there will be a negative impact on the amount of quality housing stock available within the borough.
At the end of March, the Secretary of State for Housing stated that no councils would be allowed to bring in a city- or borough-wide scheme without first applying to the Secretary of State. Unfortunately, that came too late for Liverpool because it had already been passed. In essence, by bringing in the scheme city-wide, this council (along with Newham) has defied government guidance on selective licensing, which was intended to target selective areas with anti-social behaviour or low rental demand.
Personally, I feel that the London Rental Standard is a much better scheme. But licensing is what we have. The implications of continuing to invest in a licensed area include factoring in the cost of licensing when taking on a property or working on a project, particularly if it has multiple units. That additional cost could dictate whether you go ahead with that project. I have been able to incorporate the costs into my portfolio given our agency discount but there are plenty of landlords in negative equity who are just breaking even; this will be enough to prompt them to walk away. That would result in a repossession, which takes the property off the rental market, ultimately diminishing stock.
It has already happened in Newham, and will be implemented in Wales in October. “Newham council is sharing the details of their successes with other councils across the country and this is sparking an interest, due to the high level of income generated from the highly successful scheme they have operated in their area”
It’s likely that most are at least consulting on it internally, but there are mixed views. The selected scheme was adopted in Manchester but scrapped after a couple of years, once the cost-benefit ratio compared with the number of chimneypots being licensed was examined.
Going forward here in Liverpool, we will continue to work alongside the council and hopefully that will reflect in license fees as they sort out the good landlords & agents from the bad.
For those in areas not yet affected, I hope this will clarify some of the issues and provide some ammunition for when the time comes to challenge any proposed plans for licensing.
See the video link for Sally Lawson’s full presentation of Top Ten Tips Before You Let.
https://youtu.be/o9q5g8Pw6Xs
To talk to the team at Concentric about property in Liverpool, contact us via email: liverpool@concentricproperty.co.uk
