A broker guide to HMO licensing options

When it comes to property management, local authority licensing schemes are put in place as a tool to ensure that private rental properties meet safety, quality, and management standards. 

Licensing schemes vary from one local authority to the next which can make it difficult to navigate these schemes effectively, particularly for Houses of Multiple Occupation (HMO). Landlords must maintain and stay on top of their compliance to avoid costly penalties and with your help, they can do just that.

What are licensing schemes?

Licensing schemes are regulatory frameworks introduced by local councils in the UK under the Housing Act 2004. Their purpose is to ensure that rented properties meet safety standards, are managed responsibly, and address specific issues to improve overall housing standards in the area.  

Landlords who rent out properties falling under these schemes must apply for the appropriate licences. 

The three types of licensing schemes are:

1. Mandatory Licensing
2. Additional Licensing
3. Selective Licensing

They all share a common goal of improving housing standards, but their scale, application and requirements differ significantly. 

Mandatory Licensing 

A Mandatory HMO Licence is required when you rent a property which has five or more unrelated tenants forming two or more households sharing facilities such as kitchens and bathrooms. An example of this would be a townhouse let to 5 students in a university town.

This licensing requirement was originally limited to larger HMOs (those with three or more storeys), but amendments introduced in October 2018 removed the storey requirement. At the same time, they introduced minimum room sizes of 6.51sqm for a single room and 10.22sqm for a double room. However, local housing authorities have discretion and can set higher minimum room sizes in certain areas if needed.

Failure to obtain a mandatory license can result in significant fines and restrictions, including Rent Repayment Orders, typically up to 12 months of rent returned to tenants, and potential criminal prosecution.

Additionally, if the property is let to seven or more individuals it would then fall into another category of planning called Sui Generis, which would require a separate planning application. 

This is the licensing area where there needs to be an alignment between the license and the requisite planning permission. The logic that the licensing department within a Council will liaise with their colleagues in the planning department does not apply. 

Residential property is categorised as C3 usage. HMOs with less than seven occupants may apply to move to C4 from C3 usage under Permitted Development Rights. However, the challenge comes when the Council has applied an Article 4 directive over the area where the property is situated.  

This would mean landlords need to provide evidence that the property had been used as an HMO before the Article 4 directive was implemented to gain a certificate of lawfulness or for the local council to grant C4 usage. 

Therefore, it is always important when it comes to HMO properties not only to check for the correct licensing but also the correct planning permissions. 

Additional Licensing 

An Additional License is for HMO properties that do not fall under Mandatory licencing criteria. They allow local councils to address specific issues related to smaller or atypical HMOs that still require oversight to ensure tenant safety and property standards. An example of this would be a 3 bedroom semi let to 3 working professionals.  

The government gives councils the option to implement additional licensing to improve living conditions and management standards in areas where properties are inadequately managed or pose risks to occupants. 

Before introducing additional licensing, councils previously had to undertake public consultations. However, this has recently changed due to amendments to planning regulations implemented by the current government. 

Selective Licensing 

The third type of licence is the Selective Licence. Selective licensing schemes apply to any rented property in areas or streets chosen by the local authority, regardless of the way they are tenanted, a 1 bed flat to a 20 bed HMO and everything in between.

In areas with selective licensing, landlords are required to apply for a license before renting out a property. This process allows the council to determine whether the landlord is a "fit and proper person" to manage a rental. Additionally, the council can set specific conditions for managing the property in that area and ensure that necessary safety measures are in place.

Historically Selective Licensing could be applied by Councils to a maximum of 20% of housing in their area. Above this level, Councils had to apply to the Secretary of State who would grant under powers for a period of up to 3 years. In December 2024 the Deputy Prime Minister delegated full authority to Councils to use widespread Selective Licensing without referral. 

Practical tips for brokers

As a broker, your role in guiding landlords through licensing requirements is pivotal. Here are some practical tips to help navigate these cases effectively:

1. Stay informed about local regulations 

Licensing schemes can vary greatly depending on the location. Therefore, when handling a case, it’s important to check the local council's website for any updates on additional or selective licensing schemes. Many councils provide guidance documents and maps of designated areas.

If you are also unsure about this, lenders may be able to help. At Keystone, we can search all properties using KAMMA to confirm what licensing schemes are required by the local authority. 

2. Educate your clients

Ensure your landlord clients understand the distinctions between mandatory, additional and selective licensing. Help them identify which scheme applies to their properties by considering factors such as room size, occupancy, and location.

3. Conduct pre-licensing checks

Encourage landlords to conduct a thorough property inspection before applying for a license. This ensures they meet safety standards, minimum room sizes and addresses any potential hazards that could delay the licensing process.

4. Emphasise compliance

Remind landlords of the importance of compliance with license conditions. Non-compliance can result in severe penalties, including fines, prosecution, and restrictions on letting any property in the future.

5. Not just licensing

As well as local authority licensing, there may also be planning restrictions to the property should it fall within an Article 4 area. If the property is in an Article 4 area, then you would need to ensure that it has C4 planning.

6. New year, new rules? 

As I write this article, the new year has just begun. While the current rules are applicable at this moment, local councils may introduce new schemes or planning restrictions. Therefore, it is essential to understand the licensing and planning requirements when submitting a case.

Navigating the complexities of licensing schemes, whether mandatory, additional or selective, is an important part of managing properties. Each scheme serves a distinct purpose, targeting different types of properties and issues. By understanding the differences and staying informed about local regulations, brokers can provide invaluable support to landlords, ensuring compliance and maintaining high standards in the private rental sector. 

For brokers, the ability to guide clients through these schemes is not just a value-added service but a critical component when it comes to managing their client's property portfolios and future lending.