For what may be the first time, a management company has been prosecuted for failing to obtain a house in multiple occupation (HMO) licence for a building occupied by property guardians. This case has significant implications for all property management companies, as property dispute senior associate Helen Thomas explains.

The facts of the case

Property guardianship is an arrangement whereby a number of people, or “guardians”, are given residential accommodation in return for payment of a fee. The concept is that the guardians will, as well as living in the building, look after it, for example, preventing it being occupied by squatters.

The buildings were not always originally designed for residential use and the accommodation may be for shorter periods and at lower costs than traditional shared accommodation.

The residents are classed as licensees, who have less protection than tenants. The creation of a licence must be done carefully to avoid inadvertently creating a tenancy.

Property managers are required by law to obtain an HMO licence, when a building is occupied by 5 or more people who are in two or more households and who share facilities. By obtaining an HMO licence, managers must have set standards in place for the property which must be maintained for the duration of the residency. The basis of the regulatory system is established in the Housing Act 2004 and accompanying regulations.

The Ministry of Housing, Communities and Local Government (MCHLG) factsheet for property guardians does not mandate licenses for properties occupied in this way, merely suggesting that companies check with the relevant local authority.

In the case of Colchester Borough Council vs Camelot Guardian Management Company (CGMC), the property occupied was a former care home and contained up to 30 guardians. There was only one kitchen, a lack of hot water and a faulty fire alarm system.

CGMC did not obtain an HMO license for the property and this, combined with inadequate living conditions, meant that the company was charged with and pled guilty to 15 separate offences.

What this means for property managers:

  • The fines for the offences are unlimited, so have the potential to be very costly if an organisation or individual is successfully prosecuted.
  • The guardians themselves are permitted to apply for Rent Repayment Orders if the property is unlicensed, these can amount to up to 12 months rent (or license fee) in each case.
  • The property cannot (should not) be let pending grant of the licence, effecting current income.

The private rented sector is becoming increasingly regulated by local authorities, and other councils may follow Colchester’s lead and seek to regulate any guardian-occupied buildings in their areas. Any individual or company utilising the guardianship system should urgently seek advice as to licensing/the standards that will need to be complied with to obtain a licence.

Property disputes or prosecutions for breaking property laws can have serious financial and reputational implications for property managers and developers alike, so it is highly recommended to seek advice from an expert on property law who can advise you about any potential issues that could affect your business.

 

Helen Thomas is a senior associate in our disputes team based in Truro. Helen acts for residential and commercial property clients in all types of disputes, with a particular specialism in residential tenancies in both the private and social sector. To discuss property disputes or any other property matter, telephone 01872 265100 or email h.thomas@stephens-scown.co.uk.