The Landlord’s Guide to Selective Licensing Schemes

Original article from Landlord Vision - The Landlord’s Guide to Selective Licensing Schemes 

Operating a rental property without the right landlord license is a serious offence which can result in hefty fines for UK landlords.

While many landlords are familiar with HMO licenses, selective licensing is less widely discussed but equally as important. These schemes play an important role in improving housing standards and strengthening local communities within neighbourhoods experiencing issues like high crime rates, anti-social behaviour, or poor housing conditions.

Understanding how selective licensing works and what it means for your rental property is very important. Not only is compliance a legal obligation, but it also helps to improve standards in the private rented sector and local community.

In this article, we’ll explore everything landlords need to know about selective licensing, including what it is, why it was introduced, and the conditions under which schemes are implemented.

What are selective licensing schemes?

Selective licensing came into force in England and Wales in 2006 under the Housing Act 2004. It allows local authorities to apply for selective licensing of all privately rented properties within problem areas.

In areas where selective licensing applies, landlords must pay for a license and ensure that their property meets the standards and conditions of the license.

Why was selective licensing introduced?

The government introduced selective licensing to help local authorities ensure that privately rented properties within an area are safe, meet basic standards, and are being managed satisfactorily. It aims to provide tenants with greater security and higher quality homes.

The idea is that if the quality of rented housing in the area can be managed effectively, it could have a positive impact on the neighbourhood, making it a more attractive place to live.

Under what circumstances are selective licensing schemes introduced?

Local councils have the power to introduce selective licensing to an area at any time, providing they have evidence that the area meets the criteria for licensing and they follow the correct legal process to designate the area, including carrying out a public consultation.

Selective licensing schemes are usually introduced within areas that are currently experiencing persistent problems with one or more of the following issues:

• Low housing demand
• Anti-social behaviour
• Poor housing conditions
• High levels of migration
• High levels of deprivation
• High levels of crime

Before a selective licensing scheme can be introduced, anyone who could be affected must be consulted; this usually includes local residents, landlords, businesses, and tenants.

If the proposed scheme covers over 20% of privately rented properties within the area, then the local council would also need to gain government approval.

What are the benefits of selective licensing schemes?

Selective licensing schemes play an important role in improving the standard of rental properties within designated areas.

Beyond creating safer and better-maintained homes, they can also have more far-reaching benefits for the wider community, including:

• Making the area a more attractive place to live.
• Encouraging tenants and residents to stay longer.
• Reducing void periods and maximising rental income for landlords.
• Increasing property values.
• Reducing crime and anti-social behaviour.
• Raising standards and professionalism in property management.
• Increasing demand for rental properties.
• Improving sustainability.

By improving property management standards and living conditions, landlords can create a more sustainable and profitable rental business. These improvements can also help to attract more reliable tenants, reduce tenant turnover, and increase rental demand, helping to make the local neighbourhood a safer and more desirable place to live.

What does selective licensing require landlords to do?

If selective licensing is applied to an area where you own a rental property, you must apply for a license for each property you manage within the area. The local council will then ensure that your rental property meets minimum housing standards and provides tenants with a safe and well-maintained home.

The specific licensing criteria vary from one local authority to the next. However, certain criteria are mandatory, including:

• Provide the local authority with an annual gas safety certificate: Ensures that gas appliances, pipework, and flues are tested and certified by a Gas Safe engineer.
• Keep electrical appliances and furniture in a safe condition: Ensures that electrical appliances supplied with the tenancy are regularly tested and meet fire and safety regulations and that upholstered furniture complies with fire resistance standards.
• Keep smoke alarms in proper working order: Smoke alarms must be installed and tested regularly. Some landlords are also required to install carbon monoxide alarms.
• Supply the occupier with a tenancy agreement: Tenants must be provided with a tenancy agreement that outlines their rights, responsibilities, and the terms of the tenancy.
• Collect references from all prospective tenants: Landlords must carry out comprehensive tenant referencing checks to ensure that prospective tenants have the right to rent and are financially stable.

During the licensing process, the local authority may carry out additional checks before issuing a license. These checks can include:

• Assessing the landlord’s criminal record: The local authority may check if the landlord has any serious convictions, including housing-related offences or fraud.
• Reviewing the landlord’s financial stability: Ensures that the landlord has the financial means to maintain the property in good condition.
• Reviewing property management practices: The local authority may want to find out more about how the landlord handles tenant issues, maintenance requests, and compliance with housing laws.
• Inspecting the property: Some local authorities visit the rental property in person to carry out physical inspections to ensure that the property is safe and being maintained to a good standard.

How to find out if you need a license to operate your rental property

You can find out about licensing requirements by checking your local council’s website. Remember, different areas have different licensing rules and requirements, so make sure you’re looking at information relating to the specific neighbourhood where your rental property is located, not guidelines for the entire city or borough. 

Most local councils offer an online tool that allows you to enter your property’s postcode to find out about what licensing applies to that area. If you can’t find the information you need online, you can always contact your local authority directly by telephone.

How much does a license cost?

There is no fixed cost for obtaining a selective license. The local authority sets the price, which is usually variable, depending on the property size, location, and whether it is an HMO or not. Most local authorities charge between £400 and £1000 per property. 

Selective licenses may be valid for up to five years but are sometimes issued for shorter periods.

If you decide to sell your rental property, the license is non-transferable, so you cannot transfer it to the new owner. Instead, the new landlord would need to apply for a new license.

Are there any exemptions from selective licensing?

Typically, most landlords with rental properties located within an area designated for selective licensing are required to pay for a license and comply with the conditions set out. However, some exemptions do apply. If you’re unsure if the licensing applies to you, you can check out the full list of exemptions on the government website here.

Some of the most common exemptions include:

• Tenancies controlled or managed by a local housing authority.
• Tenancies registered to a social housing provider.
• Tenancies already licensed as HMOs.
• Holiday lets and short-term rentals.
• Business or purpose-built student accommodation.
• Properties being rented to immediate family members.

If you’re unsure whether you qualify for an exemption, speak to your local council direct. Licensing rules can vary by area.

Who is responsible for managing selective licensing – the landlord or letting agent?

If you use the services of a letting agent to help manage your rental property, you may wonder whose responsibility it is to ensure compliance with relevant licensing requirements.

First and foremost, it is the landlord’s responsibility to apply for and pay for any licenses required and to ensure compliance with the licensing conditions. However, the letting agent still bears some responsibility. They are legally obligated to check that all rental properties they manage comply with local licensing regulations.

Therefore, if a property is being managed by a letting agent and does not meet local licensing requirements, both the landlord and the agent could face penalties.

What are the consequences of failing to comply with selective licensing?

Failure to comply with local licensing regulations can have serious consequences, so it’s very important to take your responsibilities seriously and stay informed about changes to licensing rules.

Breaching the conditions of a licence can result in a penalty of up to £5,000 for each offence and even a criminal conviction.

However, operating a rental property without a licence when one is required carries very severe penalties. For this offence, you could receive an unlimited fine or a Fixed Penalty Notice of £30,000.

By taking a proactive approach to learning about local licensing rules and ensuring compliance with licensing requirements, landlords can build a more successful and profitable rental business and help maintain higher housing standards in the local community.