The Facts

This case involves the all too familiar letting of a house to three tenants. Twelve months later, aware of changes in the local authority's licencing requirements, the agent advised their landlord client accordingly. The changes required all houses let to three or more, unrelated, tenants to be licenced as Houses in Multiple Occupation ("HMO").

Despite this advice, the landlord took no action. Two years later, the letting agents received summonses from the council, as statutory prosecuting authority, relating to the failure to obtain an HMO licence for the property. One summons was issued against the firm and the other was issued personally against one of its directors. The landlord also received a summons for the same offence.

Although the prosecution was persuaded to drop the summons against the director, but the firm was fined £2,000 and ordered to pay the prosecution's costs; as was real culprit, the landlord. 

In circumstances such as these, where the agent had been alive to the requirements and given good advice to its client, the outcome may seem rather harsh. However, the position under section 72 of the Housing Act 2004 could not be clearer, any person with control of or managing an HMO commits an offence by failing to licence the HMO, if a licence is required.

Hence the agent, similar to the Property Manager pursuant to the Occupiers Liability Act, is deemed by section 72 to have control of a HMO if acting as the landlord's agent; whether through acting in the letting of such a property or through the subsequent collection of rent or provision of additional management services. It is irrelevant whether the agent takes steps to inform the landlord of the classification of a property of a HMO and the licencing requirements that such a status gives rise to, as the legislation creates a legal duty on all those 'in control' to satisfy licencing requirements

Further, as the case demonstrates, those operating the agency (if a partnership, LLP or company) are equally liable to prosecution which, if successful, will result in their obtaining a criminal record to add insult to the injury done to the businesses brand and reputation. So whilst the landlord is rightly the subject of prosecution, the legislation enables local authorities to target all those involved in the 'control' of the property.

There is a final sting in the tail as the legislation provides the potential for tenants, of the local authority itself if it is responsible for the rent, to reclaim all rent paid over to the landlord for the whole period in which the property was lacking the relevant licencing compliance.

Our Take

Agents need to be absolutely on top of the licencing requirements in all local authority areas in which they operate. But more than that, they must insist on proof of compliance from their landlord client at the outset of any letting or property management retainer and be sure to inform their clients of any subsequent changes to the requirements during the term of the tenancy. Even then, as this case graphically demonstrates, they need do to more. The choices are twofold, either terminate their retainer within a limited period of time if their client fails to produce evidence of full compliance with any revised requirements or have the contractual right within their retainer to themselves carry out the necessary work to secure compliance and fully recover all/any costs from their client.

Whilst on the topic of terms and conditions, they would also be wise to ensure that it is made absolutely clear that the client is solely responsible for all licencing contraventions (absent the agent have absolute control over the carrying out of works to ensure compliance) and to exclude all liability for any back-rent that may be ordered to be paid. That latter exclusion is, of course, unlikely to be effective if the agent has failed to advise their landlord client about any changes to the licencing requirements and, in addition to defence costs, will fall to be an insurable loss (unlike any fine that is imposed).

The risk versus reward debate once again surfaces for professionals operating in this sector.

The law and the requirements of HMO licencing is a complex beast, further complicated by regional variations. Add into the mix the differences in approach to prosecutions shown by the same authorities (inconsistency merely adds a layer of uncertainty), and the current challenges that agents face with the ever increasing regulation being imposed by central government.

And let us not forget the stiff competition which the established agents are facing from the new on-line, Proptech, challengers in the space who, without the same overheads, can drag fees ever downward.

Letting agents must keep fully on top of the HMO requirements in force in the areas in which they operate (which, unhelpfully, can vary between regions) but, more than that as this case establishes, they need to be satisfied that all licencing requirements are fully up to date and, if not, have the authority and resources to remedy the situation or else simply cease to act.

In our view the HMO sector is not the only one where the apparent race to the bottom, in terms of pricing, seems wholly inappropriate. Perhaps being 'reassuringly expensive' is no bad thing going forward, raising both price and service levels could even exclude the client basis which could be most likely to cut corners?