Freeholders and head lessees will become liable for rent repayment orders relating to unlicensed houses in multiple occupation (HMOs) from 1st May 2026, according to legal experts at international law firm CMS.
The Renters’ Rights Act will extend enforcement powers to superior landlords who hold an interest in unlicensed properties, even where ownership structures place responsibility at arm’s length through intermediary companies.
Closing the loophole
Until now, enforcement action for offences such as operating an unlicensed HMO has been limited to the immediate landlord receiving rent from tenants. The Supreme Court ruling in Rakusen v Jepsen established that rent repayment orders could not be made against superior landlords further up the ownership chain.
Anna Ralston-Crane and Sarah Collins, partners at CMS, said the changes will close what had become a well-known loophole in HMO licensing enforcement. From May, liability will extend to any landlord holding a superior interest in a property that requires a licence but does not have one, regardless of their involvement in day-to-day management.
Financial penalties
The penalties include unlimited fines, civil penalties of up to £40,000, and rent repayment orders of up to two years’ rent. Local councils are expected to pursue the party best placed to pay, which could impact landlords with substantial property portfolios.
Statutory defences remain available, including where “all reasonably practicable steps” have been taken to ensure a property is licensed. However, the legal experts warned it will not be sufficient to rely on tenancy agreements that seek to restrict how a property is occupied.
Implications for investors
The changes are likely to affect property investors who structure their holdings through multiple corporate entities or who hold head leases on properties sub-let as HMOs. The extension of liability up the ownership chain may require investors to implement more robust compliance monitoring systems, particularly where properties are managed by third parties.
The legislation comes as the buy-to-let sector faces increased regulatory scrutiny across multiple areas of operation.
The Renters’ Rights Act received Royal Assent earlier this year and the HMO licensing provisions will take effect from 1st May 2026, giving landlords and investors approximately one month to review their compliance arrangements.
