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MANDATORY LICENSING OF HOUSES IN MULTIPLE OCCUPATION (HMOs)

Consultation Paper on Possible Changes to Exemptions

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INTRODUCTION

This consultation paper seeks views on possible changes to the types of houses in multiple occupation (HMOs) that might be exempt from the mandatory licensing scheme that was introduced in October 2000. Any changes to current exemptions would require suitable amendments to the Civic Government (Scotland) Act 1982 (Licensing of Houses in Multiple Occupation) Order 2000 which sets out the statutory basis for the current scheme.

The consultation is being held now in order to inform the review of the scheme as a whole which has been initiated and to allow timely action on exemptions should Ministers consider that action is necessary. There is currently no commitment to extend the range of exemptions and the decision on whether or not to extend exemptions will be informed by the responses to this consultation and research on the initial operation of the scheme that has been commissioned from Heriot Watt University/ Edinburgh College of Art.

Background

The current mandatory licensing scheme was introduced in October 2000 using the powers available to require certain activities to be licensed under the Civic Government (Scotland) Act 1982. The scheme is set out in the Civic Government (Scotland) Act 1982 (Licensing of Houses in Multiple Occupation) Order 2000 and requires all owners of HMOs over specified size thresholds to obtain a licence from the local authority if they "give permission for that house to be occupied" ie if they let the house or rooms to tenants including lets on a rent free basis. The specified size threshold was set at 6 or more persons at the introduction of the scheme in October 2000 and reduces by one person each year until it becomes 3 or more persons in October 2003. To qualify as an HMO, the house must be occupied by persons who are not all members of the same family or of one or other of 2 families. The scheme is based on the licensing procedures set out in the 1982 Act, but certain aspects of these have been modified by the 2000 Order. Failure to obtain a licence is a criminal offence. More detailed information on the mandatory licensing scheme is set out in "Guidance on the Mandatory Licensing of Houses in Multiple Occupation" published by The Stationery Office on behalf of the Scottish Executive.

The detailed design of the mandatory licensing scheme took account of responses to a Consultation Paper that was issued by the Scottish Office in May 1998, and the results of research on the former discretionary licensing schemes introduced by an Order in 1991. The 1998 Consultation Paper, in particular, sought views on whether the scheme should be targeted specifically at the private rented sector or, alternatively, focus on HMOs irrespective of tenure. It set out a list of types of property that might be classified as HMOs and sought views on which, if any, types of HMOs should be exempt from the proposed licensing scheme. The Consultation Paper discussed the principle of risk assessment and sought views on whether the scheme should require risk assessments to be undertaken for all potentially licensable HMOs with an exemption given to those who are assessed as low risk. It also sought views on whether there should be a minimum size threshold (in terms of number of occupants) for HMO licensing with properties falling below this threshold being exempt.

The Mandatory Licensing Scheme - current exemptions

In the light of the responses to the 1998 Consultation Paper, it was decided that:

• the scheme should include all HMOs (irrespective of tenure) unless the properties in question were already covered by a comprehensive alternative system of regulation which achieved the same objectives;
• there should be no minimum size threshold other than that implied by the basic definition of an HMO itself which requires at least 3 persons;
• the requirement to obtain a licence itself should not be based on initial risk assessment since this would require primary legislation and, in addition, there was no established methodology for undertaking risk assessments in HMOs 1.

The 2000 Order, as amended in 2002 in response to the Regulation of Care (Scotland) Act 2001, therefore exempts HMOs which are regulated by the Scottish Commission for the Regulation of Care. This includes residential care homes and nursing homes, boarding accommodation linked to schools and secure accommodation for children. In addition the 2000 Order specifically exempts HMOs occupied by religious communities (on the grounds that people joining such communities have consciously chosen to accept the conditions imposed). Properties occupied by persons from different families who are joint owners as also exempt since the aim was to focus on let accommodation.

REVIEW OF THE MANDATORY LICENSING SCHEME

When the 2000 Order was introduced Scottish Ministers gave a commitment to the Social Justice Committee of the Scottish Parliament to review the mandatory HMO licensing scheme in the light of its first year of operation. In order to gather evidence for that review the Scottish Executive has commissioned research which is currently in progress and is expected to report in the summer. The Executive has also received comment from a number of parties, which will be taken into account. In addition, the Social Justice Committee has taken evidence on the operation of the scheme from a variety of organisations. Its interim report (Report No 8 dated 4 December 2001) included a specific recommendation that the classes of property currently exempted should be extended to include "public sector organisations and others such as the Abbeyfield Society, Scottish Women's Aid, university accommodation and similar for which a clear definition will be required". As part of their response to the report of the Social Justice Committee, Scottish Ministers have undertaken to consult on possible changes to the current exemptions. This is being done before the commissioned research has been completed in order to provide another strand of evidence for the review, and to minimise the delay in exempting additional categories of HMO should that be Ministers' decision.

Criteria for considering possible exemptions

The policy objective of HMO licensing is to ensure acceptable standards for both the physical and management aspects of the houses to which it applies. Exemption means that, for the particular category of houses concerned, both these aspects are taken outwith the control of the licensing scheme. Under the statutory framework for licensing partial exemption is not possible; partial control can only be achieved through the way in which licensing authorities devise and apply their licensing schemes.

This suggests that the criteria for exemption could be as follows:

Q1. Are these the correct criteria for considering exemptions?

POSSIBLE ADDITIONAL EXEMPTIONS

HMOs owned by bodies subject to regulation by Communities Scotland

Communities Scotland is responsible for a regulatory framework that sets out general expectations about the management and maintenance of houses owned by both RSLs and local authorities, but the agency does not inspect the physical condition of the houses themselves. Local authorities are expected to accept registration with Communities Scotland as sufficient evidence of meeting licensing conditions relating to management standards in connection with HMOs.

In practice, many of the HMOs which are owned and managed by RSLs (these are largely very sheltered housing schemes or other group homes where there is a significant degree of shared accommodation) have been built or converted relatively recently and, therefore, subject to building standards which are at least as demanding as the standards set for HMOs generally. Other RSL owned HMOs may however be considerably older and may not, therefore, meet the same standards. This may also be the case for HMOs, such as hostels, owned and managed by local authorities.

In general, it is arguable that the level of risk associated with not licensing HMOs which are currently regulated by Communities Scotland is low, even though Communities Scotland does not inspect the physical quality of the stock. This is likely to be particularly true for modern purpose built accommodation owned by some RSLs. Q2. Do you consider HMOs subject to regulation by Communities Scotland should be exempted and, if so, should this be for all such HMOs or only those built in recent years? What should the cut-off date be?HMO owned by other publicly funded bodies

HMOs owned by other publicly funded bodies not subject to regulation by Communities Scotland include:

• student accommodation owned by higher education institutions and colleges of further education; and
• staff accommodation owned by NHS bodies.

It has been argued that these HMOs should be exempt on the grounds that the bodies concerned are publicly accountable although the nature of this accountability varies, for example, higher education institutions are independent bodies even though they receive substantial public funding. Moreover, in recent years it has become increasingly accepted that publicly funded bodies should not be exempt from regulation simply because they are publicly funded, for example, the Regulation of Care (Scotland) Act 2001 applies the same regulatory regime for care accommodation equally to councils and other providers.

The types of HMOs owned by these publicly funded bodies varies, particularly in the case of student accommodation where higher education institutions and colleges of further education may own both purpose built halls of residence and existing houses which have been acquired and which may in practice be very similar to housing provided by private landlords. There is, therefore, the question as to whether any exemption should apply to all HMOs owned by publicly funded bodies or just certain types of accommodation. Q3. Do you think that HMOs owned by publicly funded bodies not subject to regulation by Communities Scotland should be exempt from HMO licensing on the grounds that they are low risk and, if so, should this be all such HMOs or just certain types?

HMOs owned or managed by charities or other voluntary bodies

A case has been made for exempting HMOs owned and managed by Scottish charities or other voluntary organisations on the grounds that they might also be considered to be "low risk". However, recognition as a Scottish charity merely requires the body in question to have charitable purposes and to follow certain specified procedures in relation to the keeping of accounts etc. Merely qualifying as a Scottish charity does not in itself require regulation of either the physical or management standards of any HMOs owned or managed by the charity (although, of course, some Scottish charities may also be RSLs or undertake activities which are subject to other forms of regulation). Similar considerations apply with even stronger force to other types of voluntary organisations which do not qualify as Scottish charities.

The Law Reform (Miscellaneous Provisions) (Scotland) Act 1990 defines a Scottish charity as a body that has been recognised as having charitable status for tax purposes by the Inland Revenue. There is, therefore, a question as to whether any exemption should be limited to such bodies or, alternatively, extend to other voluntary organisations. There is, however, no straightforward legislative definition of a "voluntary organisation" and it might be difficult to frame an exemption which did not create a major loophole in the scheme as a whole.

Some HMOs are directly managed by bodies with charitable status; in other cases such bodies may lease HMOs from other owners for example, local authorities. The existing HMO licensing scheme requires owners to apply for a licence so, if charitable organisations were to be exempt, there would need to be special provision made to exempt owners from the licensing requirement if they lease property which is to be used as an HMO by a charitable body.

Q4. Do you think that bodies which qualify as Scottish charities should be exempt from HMO licensing on the grounds that they are low risk and, if so, what is the basis for considering that they are low risk?

Q5. Do you think that other voluntary bodies which do not have charitable status should be exempt from HMO licensing and, if so, what is the basis for considering that they are low risk and what definition of voluntary bodies should be used?

HMOs which are owned by co-ownership bodies

The current legislation exempts from licensing any house which is occupied only by people each of whom has a heritable right of ownership in the house, and their families. However, some HMOs have been established by setting up a co-ownership body, in which all the occupants of the HMO are members of the body and jointly own the house in question. Currently, such ownership bodies may be required to obtain an HMO licence. The assumption is made in the existing licensing scheme that it is unnecessary to licence a house where all the occupants are owners, since they all have equal control over the condition and management of the house. The case can be made that these co-ownership HMOs are in the same position, and should not be subject to licensing

Q6. Do you consider that co-ownership HMOs where the HMO in question is collectively owned by its members should be exempt from licensing?

HMOs which are already subject to some form of regulation

As noted above, the existing licensing scheme exempts HMOs which are already subject to a comparable licensing scheme, ie one that covers both physical standards and management. The case for exempting HMOs owned by RSLs and local authorities subject to regulation by Communities Scotland is discussed above (paragraphs 10 to 12), but there are also other categories of HMOs which are subject to what might be described as "partial" regulation and are not currently exempt. These include, for example, all HMOs where staff are employed, where the owners are required to carry out a fire safety risk assessment which may be validated by the fire authority as well as being subject to the requirements of the health and safety at work legislation. HMOs where food is provided will also be regulated by the Environmental Health Department under the Food Hygiene (Scotland) Regulations. Where hotels and other premises which require fire safety certificates have accommodation for staff which is linked to the premises, then this accommodation will normally be subject to an inspection by the fire authority and covered by the fire certificate. In addition, houses or flats in multiple occupancy may require planning permission. However, the aims of planning control relate to the wider issues of amenity, environment and the character of the area rather than to the internal condition or the management of the property.

The scope of these other licensing requirements can vary considerably from HMO to HMO. For example, university halls of residence which provide food would normally be subject to fire safety, food safety and hygiene and health and safety at work legislation. At the other end of the spectrum, owners of all rented property, including owners of HMOs must ensure that any gas appliances are inspected on an annual basis under gas safety legislation. If further exemptions are to be provided for, then the key question is the extent of partial regulation which should lead to an exemption from the licensing scheme.

Q7. Do you consider that HMOs which are already subject to partial regulation should be exempt from HMO licensing and if so what forms of partial regulation should trigger an exemption?

HMOs which are particular types of housing

Some types of housing might be regarded as low risk both in terms of the physical standards, particularly fire safety risks, and in terms of the impact on the neighbourhood which might result from poor management. Examples could include semi-detached and terraced houses as distinct from flats of various sorts. However, exemption on these grounds alone would mean that the tenants did not receive protection against poor management practices in connection with, for example, repairs, maintenance, safety of fittings, buildings insurance and rent and deposit arrangements.

The view that houses represent a lower risk category of HMOs is recognised in the current proposals for licensing of HMOs in England and Wales. These proposals envisage that 2 storey shared houses would be exempt from the mandatory scheme although local authorities will have discretionary powers to license properties of this type if they so wish. (It is not possible using the provisions of the Civic Government (Scotland) Act 1982 to exactly mirror this approach.)

Q8. Do you consider that HMOs which are houses as opposed to flats should be exempt from the licensing scheme and, if so, what is the justification for this? Are there any other specific types of houses that should be exempt?

HMOs which are below a specified threshold

It is generally considered that HMOs containing relatively large numbers of occupants are more "at risk" than those containing relatively few occupants. This was recognised in the legislative framework for the earlier discretionary licensing schemes which specified that licensing should only apply to HMOs containing 5 or more persons. Similarly, at present under the provisions of the Town and Country Planning (Use Classes) (Scotland) Order 1997 a planning application for a change of use of a house from family accommodation to "multiple occupation" is not required where it is occupied by up to 5 persons. In relation to the current scheme, the progressive reduction on the size threshold will require increasing numbers of HMOs to be licensed and it can be argued that the need for local authorities to process applications on this scale make it difficult for them to focus attention on the larger, problematic HMOs. However, the Scottish Executive has no evidence on the extent to which the level of risk does reduce in smaller HMOs and the choice of a particular size threshold is, therefore, inevitably somewhat arbitrary. The use of a size threshold may also encourage landlords to seek to evade the need for licensing by reducing the number of occupants in the HMO.

Q9. Do you consider that HMOs below a specified occupancy threshold should be exempt from the licensing scheme and, if so, what threshold should be selected and what is the justification for this?

HMOs with resident landlords

It may be argued that standards of both accommodation and management are generally higher in a house where the landlord is also a resident. In such cases, the landlord has a more direct interest in the condition of the property, and in the behaviour of the tenants, and being on hand can address any problems immediately. There are a variety of circumstances in which the landlord may be resident in an HMO. In some cases, a person has chosen to buy a large property for letting, and to live in part of the house themselves. In other cases, the property is the family home, where the owner is letting spare rooms, perhaps after children have left home. The current licensing scheme introduces some anomalies for resident landlords, for example, a single person can let more rooms in their home without licensing than a couple. There are also concerns that resident landlords are likely to withdraw from the market rather than apply for a licence. In addition, resident landlords may offer informal support to tenants, and the loss of this sector could have a substantial impact on vulnerable people who benefit from that support. On the other hand, some resident landlords may operate large HMOs where tenants would benefit from the safeguards introduced by licensing.

Q10. Do you consider that HMOs where the landlord is resident should be exempt from licensing, or that certain categories of resident landlords should be exempt? How should those categories be defined?

HMOs where licensing is inappropriate

As explained in paragraph 6 above, the current scheme exempts HMOs "occupied by a religious community whose principle occupation is prayer, contemplation, education or the relief of suffering". Hotels, guest houses and conference centres are also excluded providing they are not the only or principal form of accommodation for the resident.

Q11. Do you consider that other specific types of HMOs should be exempt on the grounds that licensing is inappropriate and, if so, what is the rationale?

CONCLUSION

As part of its review on the mandatory HMO licensing scheme, the Executive would welcome views on the questions relating to possible changes to the current exemptions to the HMO licensing scheme set out above. It would also be interested to hear of any specific proposals for exemptions and the rationale for these. For ease of reference, consultation questions set out above are summarised below:

Q1. Are these the correct criteria for considering exemptions?

Q2. Do you consider HMOs subject to regulation by Communities Scotland should be exempted and, if so, should this be for all such HMOs or only those built in recent years? What should the cut-off date be?

Q3. Do you think that HMOs owned by publicly funded bodies not subject to regulation by Communities Scotland should be exempt from HMO licensing on the grounds that they are low risk and, if so, should this be all such HMOs or just certain types?

Q4. Do you think that bodies which qualify as Scottish charities should be exempt from HMO licensing on the grounds that they are low risk and, if so, what is the basis for considering that they are low risk?

Q5. Do you think that other voluntary bodies which do not have charitable status should be exempt from HMO licensing and, if so, what is the basis for considering that they are low risk and what definition of voluntary bodies should be used?

Q6. Do you consider that co-ownership HMOs where the HMO in question is collectively owned by its members should be exempt from licensing?

Q7. Do you consider that HMOs which are already subject to partial regulation should be exempt from HMO licensing and if so what forms of partial regulation should trigger an exemption?

Q8. Do you consider that HMOs which are houses as opposed to flats should be exempt from the licensing scheme and, if so, what is the justification for this? Are there any other specific types of houses that should be exempt?

Q9. Do you consider that HMOs below a specified occupancy threshold should be exempt from the licensing scheme and, if so, what threshold should be selected and what is the justification for this?

Q10. Do you consider that HMOs where the landlord is resident should be exempt from licensing, or that certain categories of resident landlords should be exempt? How should those categories be defined?

Q11. Do you consider that other specific types of HMOs should be exempt on the grounds that licensing is inappropriate and, if so, what is the rationale?

Comments should be received by 30 August 2002 and should be sent to:

Kelvin McBryde
Housing Division 2:2
Area 1-G, Victoria Quay
Edinburgh
EH6 6QQ

Tel: 0131 244 5574
e-mail: kelvin.mcbryde@scotland.gsi.gov.uk

Any queries should be addressed to Kelvin McBryde or to Jean Waddie

(telephone: 0131 244 7951) ( jean.waddie@scotland.gsi.gov.uk).

• This paper is also available on the Scottish Executive's website at www.scotland.gov.uk, under "Consultations".
• Copies of the Civic Government (Scotland) Act 1982 are available from The Stationery Office.
• The 2000 Order (Scottish Statutory Instrument 2000 No. 177) and the 2002 Amendment Order (Scottish SI 2002 No. 161) are available on the HMSO website at http://www.scotland-legislation.hmso.gov.uk/legislation/scotland/s-stat.htm#2000
• The guidance issued by the Scottish Executive to local authorities on the mandatory licensing of houses in multiple occupation is available on the Scottish Executive's website at http://www.scotland.gov.uk/library3/housing/himo-00.asp .

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