From 6th April new regulations come into force which affect Houses in Multiple Occupation (“HMOs”).  The regulations set down management standards and require licensing of HMOs.  Landlords who run houses in multiple occupation without having a licence will face hefty fines.  Not all buy to let properties are covered by the regulations.  But, what is a house in multiple occupation?  In general, the properties covered by the regulations are those which are let to unrelated tenants, where the tenants share “basic facilities” such as a kitchen, toilet or bathroom.  So essentially, if your portfolio includes bedsits, you may well be caught.  The regulations only cover those properties which have 3 storeys or more, but it is open to the local authority to bring other properties under the umbrella of the regulations.  It is therefore important to check whether your properties are covered or face the fine of up to £20,000 for non-compliance with the regulations.

The licences are obtained from the local authority and may cost up to £100 per occupant of the property.  Further information may be found from the website of the Office of the Deputy Prime Minister at www.propertylicence.gov.uk .  In terms of costs and administration, this may make investment in HMOs an unattractive option for buy to let investors and may see landlords switch to self contained dwelling houses or flats.

The Government is also bringing into force new health and safety rating system from April which will also affect houses in multiple occupation.  Under the new system properties will be given a score which depends on the likelihood of the tenants suffering from various hazards specified in the regulations ranging from death to “regular serious coughs and colds”.  If the inspector employed by the local authority takes the view that the property does not comply with the relevant standard, as well as forcing landlords to carry out necessary repairs, fines for non-compliance may be imposed.  The inspector can be called in by the tenant at any time.  This is likely to have a significant impact on buy to let returns.

2006 is not all bad news for landlords.  One measure introduced by the 2004 Housing Act, which applies to all tenancies, is likely to assist both landlords and tenants when it comes into force in the autumn.  Most landlords take a deposit from their tenants to guard against damage to the property, but at present this is unregulated and often tenants will refuse to pay the last month’s rent in lieu of reclaiming the deposit, which leaves the landlord to pick up the bill if the tenant has damaged the property.  Under the new tenancy deposit scheme the deposit will be paid to a central body which will administer the deposit and ultimately arbitrate as to whether the deposit can be returned to the tenant.  Although initially this is likely to increase administration costs, ultimately both landlords and tenants are likely to benefit.

The Government’s push to improve standards for tenants is likely to increase costs for landlords and given the criminal sanctions now imposed may make buy to let less attractive as an investment option.  Landlords need to keep abreast of increasing regulation to keep on the right side of the law.

Georgia Bedworth is a specialist Chancery barrister practising from Ten Old Square in Lincoln’s Inn, London. Georgia specialises in property-related litigation and represents clients in contentious matters relating to Trusts, Wills and Probate.

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