Court case challenges costs to landlords for HMO licenses

A recent court case may have set a legal precedent for landlords in England to challenge the costs set by their local authority for an HMO license, experts suggest.

Local authorities can set the costs for HMO licenses at their discretion and since new rules came into effect last October it is estimated that up to 177,000 more landlords are likely to need to obtain a license.

However, specialist buy to let mortgage broker Commercial Trust Limited, believes that the costs required for some HMO licenses, might be open to discussion, if the services provided by the HMO landlord meet certain European Union law.

For many landlords, the price of the license is not the only cost. Further expenditure may be required to make changes to the property in question, to ensure that it meets licensing standards.

However, the recent court case of HMO landlord Peter Gaskin versus LB Richmond Upon Thames means that there are questions around the validity of some licensing fee costs set by local authorities, according to the firm.

In this case the High Court ruled that license fees can only cover the cost of the licensing scheme, not other costs such as enforcement and decided that Gaskin was providing a service within the meaning of EU law, by the private letting of accommodation.

Because Gaskin had met the EU requirements for providing a service, the court determined that the fee charged by the local authority for an HMO licence, had to be structured in a way which complied with EU law.

Under the terms of the Housing Act 2004, the landlord needed to obtain an HMO licence from the London Borough of Richmond before he could let out rooms in the property. HMO licenses have to be renewed every five years and when he came to renew his HMO licence, the council asked him to pay a fee covering not only the costs of processing his application, but also contributing towards the authority’s costs of running the HMO licensing scheme.

Gaskin refused to pay the amount requested for the HMO license, offering the authority a lower amount, which was rejected. The landlord was subsequently prosecuted in the Magistrates’ Court for operating an HMO without a licence.

However, under EU Directive 2006/123/EC, the Services Directive, there is a provision in its article 13(2), that where a charge is imposed for a person to apply to have access to a service activity, the charge must not exceed the cost of the authorisation procedures.

In this case, the question of whether the private letting of accommodation amounted to a service, would determine whether the London Borough of Richmond Upon Thames would be allowed to charge an application fee covering both authorisation procedures and the costs of managing their HMO licensing scheme.

The Court held that the London Borough of Richmond Upon Thames’s fee for an HMO licence was unlawful. The charge covered costs that extended beyond the cost of processing the licence application. It was ruled that the council had therefore not been entitled to demand the fee which it had demanded.

‘This is an interesting case which may set a precedent for some landlords and could have the potential to save HMO landlords hundreds of pounds, if some local authorities have been charging more than they were legally entitled to, for HMO licenses,’ said Andrew Turner, chief executive at Commercial Trust Limited.

‘This is a matter of law and I would urge any HMO landlords that believe they may have been overcharged, to seek professional legal advice,’ he added.