Freehold Purchase - Council Didn't waste time deeming HMO, and won't budge!

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

    Freehold Purchase - Council Didn't waste time deeming HMO, and won't budge!

    In August 2013 my wife and I bought a freehold comprising of 5 leasehold flats on 999 year leases which we insure and manage.

    At the beginning of September got a letter from the local council stating that the property is in an area where an HMO Additional Licensing Scheme is in place, and asking that we register ourselves as the owners of the HMO (and pay the £500!).

    I complained as no details of the scheme were enclosed, nor the legislation that underpins their scheme. In addition, 90% of the application form does not apply, as it asks questions about the inside of each flat - of which, unless we wish to make a formal visit under the lease, we will not know. It also requires such things as the appointment of a Manager who must make visits 'at least weekly'. Which, if we arrange this and pass on the costs, it will balloon the leaseholders costs out of all proportion.

    Mid-September I received a reply which stated:
    We are satified that the property is an HMO under Housing Act 2004 as it is a converted block of flats to which clause (e) "it is a converted block of flats to which s257 applies" .
    Clause 257 has the following relevant clauses:
    (2) This section applies to a converted block of flats if—
    (a) building work undertaken in connection with the conversion did not comply with the appropriate building standards and still does not comply with them; and
    (b) less than two-thirds of the self-contained flats are owner-occupied.[/QUOTE]

    Owner-Occupier is defined:
    (4) For the purposes of subsection (2) a flat is “owner-occupied” if it is occupied—
    (a) by a person who has a lease of the flat which has been granted for a term of more than 21 years, ...

    I thus wrote back to say as all five leases were for well in excess of 21 year, this clause did not apply, and thought this would be the end of the matter. Not so.

    Got a reply yesterday from a Principle EHO where he states:
    A flat is owner-occupied if it is occupied as by the person who has the lease of the flat for more than 21 years

    As I understand, there is only one such person of that nature within the building ... the remaining flats are not occupied by the leaseholders of those flats and are either unoccupied or rented to tenants
    In our buyers pack there is no evidence of sub-lettings, nor any applications for such as required under the lease.

    In my view the council's view is stretching the normal definition of "owner-occupier", particularly as there is no evidence of such.

    Does anyone think the council's view has merit?

    [NB The formatting of the quoted sections seem to have a life of their own - sizewise]
    On some things I am very knowledgeable, on other things I am stupid. Trouble is, sometimes I discover that the former is the latter or vice versa, and I don't know this until later - maybe even much later. Because of the number of posts I have done, I am now a Senior Member. However, read anything I write with the above in mind.

    #2
    The building does meet the criteria of a HMO if it does not meet the 1991 building regulations when converted, does it? Also the definition of owner occupier seems correct.
    As freeholder you can be required to apply for a licence and will be responsible for the common parts of the building meeting the councils standards, but not the flats within.
    However I have read somewhere that this definition of a HMO has been successfully challenged elsewhere, others may know.

    Comment


      #3
      In this case have your chartered building surveyor and inspect and report on teh building and the coversion standard relative to c 257 and assess how many sublettings there are at the time of their inspection.

      I have propreties in prime London areas with private gardens ( east of Park Lane) each worth 7 figures per flat but which are classed as HMO's
      Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

      Comment


        #4
        Originally posted by DNM2012 View Post
        The building does meet the criteria of a HMO if it does not meet the 1991 building regulations when converted, does it? Also the definition of owner occupier seems correct.
        As freeholder you can be required to apply for a licence and will be responsible for the common parts of the building meeting the councils standards, but not the flats within.
        However I have read somewhere that this definition of a HMO has been successfully challenged elsewhere, others may know.
        It appears that there never was a completion certificate. I have spoken to my local chartered surveyor and his view is that it could be simple, or quite complex - to get a retrospective completions certificate would probably entail submitting a surveyors report. To obtain this might mean such things as exposing the voids between floors by lifting floorboards and cutting into ceilings to check for the existance of fire retarding materials and sound insulation, with the risk of finding that these are deficient thus having the expense of retrofitting or abandoning the process.

        The whole thing hinges on the interpretation of the word 'occupied':
        (4) For the purposes of subsection (2) a flat is “owner-occupied” if it is occupied


        The leases have this paragraph where the lessee covenants:
        Not assign underlet (for a term in excess of three years) or part with possession of the whole of The Flat without obtaining from the assignee a covenant directly with the Lessor to pay the rent and the service charge contribution referred to in this lease and to observe and perform all the covenants on the part of the lessee and the conditions contained therein
        I have examined the files on each individual flat, and there are no records of either applications or the acceptance of any covenant in relation to an assignee, and in addition, all service charge statements etc are sent directly to each flat - thus if the leaseholder has parted with possession, it is without the lessors knowledge or consent, and thus places them in breach of the covenant. In addition, the service address for each flat owner recorded on HM Land Registry is the property itself.

        Thus any information on other similar cases where HMO status has been successfully challenged woud be most greatfully received.
        On some things I am very knowledgeable, on other things I am stupid. Trouble is, sometimes I discover that the former is the latter or vice versa, and I don't know this until later - maybe even much later. Because of the number of posts I have done, I am now a Senior Member. However, read anything I write with the above in mind.

        Comment


          #5
          I know little about leaseholds but surely if a leaseholder is breaching the conditions of their lease by sub-letting, you need to take action against them to correct the breach? When you bought the property, did the solicitor not check this out?

          If you were to do so (and provide evidence to the council that you were taking such measures) I wonder if the council would allow any leeway time wise to bring the property back to non-hmo status.

          I don't think the council is being unreasonable in insisting that just because someone has an address there, that does not prove they are the occupier.

          Also, if a leaseholder is breaching their lease and by doing so it causes additional expense to the freeholder, surely they are liable?

          Comment


            #6
            I would say then it is definitely a HMO meeting the definition under the housing act 2004.
            The council will have access to who actually lives there, from council tax, electoral roll etc.
            My understanding is the clause quoted doesn't place restrictions on subletting for terms less than 3 years.

            Comment


              #7
              As to the underletting consent is only required if the letting is in excess of three years. Unless they are required elsewhere in the lease to give notice, even if consent is not required, then I appreciate that its hard for you to know.

              What it hinges on is if the property does not meet the 91 regs that then looks at individual flats which are underlet in a different way, then where the flats are let out, the thinking is that they are comparable to a house in multuiple ocuaptions and theerfore for reasons of build and arrangement need the required protections that a shared house might do.

              Your surveyor and I agree that to establish a; whether that is the case ( doesnt meet 91 regs), or b; to obtain retrospective completion, will require extensive investigations, as we both suggest.

              Lets assume that it does not or you are prepared to accept it as I have said its not uncommon even in the best areas, and have looked at this issue severl times. The answer therefore usually lies in the building itself and £1500/£2000 on investigation is better value than counsel's opinion.
              Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

              Comment


                #8
                Thanks for the input.

                Having given the matter quite some thought, coupled with the uncooperative attitude of a couple of the leaseholders (taking their annoyance out on us for the poor antics of the previous freeholder, methinks) I've decided to take the easy way out that won't cost me time and money.

                According to the lease, the managing agent is entitled to add to the service charge all costs of complying with any statute or regulation. Thus, the managing agent will be the holder of the HMO licence, and if the council require visits 'at least weekly to ensure that there are no contraventions' and maintaining a log of each visit, then the managing agent will arrange this. which including VAT this will cost the leaseholders £40.80 a week.

                With the previous freeholder self-managing, the leaseholder were paying a service charge of around £400pa including building insurance. Adding the HMO costs and management fees, it looks like their service charge will increase to nearer £1,000.

                All in all, a waste of leaseholders money - but I didn't make the rules.

                [and before anyone queries it, I stared the s20 consultation the day after we completed in case we did decide to appoint a managing agent!]
                On some things I am very knowledgeable, on other things I am stupid. Trouble is, sometimes I discover that the former is the latter or vice versa, and I don't know this until later - maybe even much later. Because of the number of posts I have done, I am now a Senior Member. However, read anything I write with the above in mind.

                Comment


                  #9
                  Sadly no the managing agent cannot be the holder of the licence and that extends far beyond the definition of an agent someone acting on someone’s behalf let alone their contract. An agent might take that on but don’t expect that to be at the same levels of fees as this is an entirely different set up.

                  It can be part of those duties to provide access or attend those meetings, but not their legal responsibility.

                  Now I think that you are taking n approach that can just lead to further upset.

                  Even if the costs are going to be service charge recoverable they are still going to be subject to section 20, even though the agents fees are not, and both must be fair and reasonable.

                  Can I suggest that you look at the lease again as to costs of defending such an action and look at investigation again as if the lease allows those costs to be recovered they might be better off with one hit of a few £000 that several £000 per annum.

                  As a rule of thumb

                  • Has the inherent defect resulted in physical damage to the subject matter of the covenant? If there has been no physical damage, no action under the repairing covenant is called for.
                  • If the inherent defect has caused damage (and for your purposes the required action can be regarded as such) is it practicable to remedy the damage without remedying the inherent defect? If it is, then the landlord is only required to carry out those works required to remedy the damage and to recover the cost of those works, in this case management under an HMO.

                  • If it is necessary to eradicate the inherent defect and remedy the damage, the question is whether the remedial work goes beyond repair as a matter of fact and degree? In order to answer this question, it is necessary to consider the repairing obligations in the Lease as a whole and then to decide whether the works are so substantial that they do not properly fall within these obligations.

                  That means that the owners might challenge what is the most reasonable step, investigation and remedy or works and management, by reference to S19 and s20 as well as any limitation their lease makes on them to contribute.
                  Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

                  Comment


                    #10
                    Thank you so much for your considered opinion. I have been pondering on this dogs breakfast for the last few days.

                    As I wrote earlier, the leaseholders have been treated shabbily by the previous freeholder - and we may have to engage them with litigation as they have neglected to provide all the information they agreed to when we bought. Thus there is some antagonism with the leaseholders. I was hoping to build bridges and get a good working relationship, but with this HMO can of worms this is unlikely to be the case.

                    Looks then like the easiest way will be to become HMO registered myself as the freeholder (which is not what I would have wished) then appoint for practical purposes a managing agent to comply with whatever rules the council wants. It looks like these costs of obtaining an HMO licence and the ancilliary CRB check will be recoverable from the lessees under the following clauses:
                    Pay to the Lessor without deduction by way of further or additional rent a one-fifth proportion of ... the provision of services and the other heads of expentiture as the same are set out in the Schedule ...
                    SCHEDULE ... 5) All reasonable charges assessments impositions and other outgoings payable by the Lessor in respect of the Building not exclusively occupied or intended to be occupied by a lessee.
                    Obviously, the lessees won't be happy having the above foisted on them, plus the costs of ongoing compliance which will significantly increase their service charge. The only consequence might be that it makes them more amenable in co-operating to get retrospective Building Regs approval.
                    On some things I am very knowledgeable, on other things I am stupid. Trouble is, sometimes I discover that the former is the latter or vice versa, and I don't know this until later - maybe even much later. Because of the number of posts I have done, I am now a Senior Member. However, read anything I write with the above in mind.

                    Comment


                      #11
                      But your underlying problem is always whether that cost is F n R. I would not discount the option of investigation and a few £100 on an initial inspection and discussion might shine some light.

                      Have you discussed this with the LA as to what factors they have identified makes them wish to treat this an an HMO?

                      In one case in leafy W9 I managed to avoid this by simply upgrading the flat doors double lining the communal celings which were due for painting anyway and installing new light fittings with EL built in ( not a lot more per unit) and smoke tests in each flat.


                      I would think about doing this under section 20 and make partners of the residents having an informal discussion with them over the choices you have.
                      Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

                      Comment


                        #12
                        Originally posted by leaseholdanswers View Post
                        But your underlying problem is always whether that cost is F n R.
                        Please pardon my ignorance, but what does F n R mean?

                        Originally posted by leaseholdanswers View Post
                        In one case in leafy W9 I managed to avoid this by simply upgrading the flat doors double lining the communal ceilings which were due for painting anyway and installing new light fittings with EL built in ( not a lot more per unit) and smoke tests in each flat.
                        What a definite win-win outcome. I agree that getting belated building regs approval will be the best scenario - and in my mind it should increase the value of each flat, which the leaseholders will benefit from.

                        Trouble is the local authority are breathing pretty hard on my neck and require the HMO application to be lodge within the next month. Even if I got immediate agreement, s20 takes ages - we'd be looking at next year before anything can start.
                        Last edited by Esio Trot; 07-10-2013, 15:43 PM. Reason: clarification
                        On some things I am very knowledgeable, on other things I am stupid. Trouble is, sometimes I discover that the former is the latter or vice versa, and I don't know this until later - maybe even much later. Because of the number of posts I have done, I am now a Senior Member. However, read anything I write with the above in mind.

                        Comment


                          #13
                          Sorry, fair and reasonable.

                          Thats why it is important to talk to theCouncil now and find out what issues make this an HMO, and in discussion with a chartered building surveyor, the likely costs of managing as an HMO vs works and applying for retrospective consent.

                          You can start the S20 process with a simple either or option and during that process put together your options so that prices are turned round shortly after the NOI expires and the NOE is served. It will also allow you to get residents on side, or if hey rebel to think about which way to go and even if you need to proceed and seek retrospective consent at the FTT.

                          The longer you wait......
                          Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

                          Comment

                          Latest Activity

                          Collapse

                          • Variation of lease
                            by scampicat
                            I own a flat with a lease of 125 years starting from 2012. The ground rent is at present £150 pa, but increases as follows every ten years: £225... .£337.50.... 506.25.... 759.38.... 1139.06.... 1708.59.... 2562.89 ....3844.34. There are no more increases after eighty years. I am considering a variation...
                            25-02-2020, 08:57 AM
                          • Reply to Variation of lease
                            by sgclacy
                            A ground rent of £150 per annum increasing by 50% every 10 years until it reaches £3,844.33 with 2 years to go before it makes its first doubling would cost around £7,600 plus 0.33% of the value of the flat to have a statutory lease extension

                            One of the difficulties in proposing any...
                            13-08-2020, 01:08 AM
                          • FH forfeits and sells before 6 months window for relief?
                            by Loque
                            999yr Long lease commercial, lessee in breach, S146 served, S146 expires without being complied with, FH re-enters and changes locks.

                            Now... LH can go to court to claim relief from forfeiture for the remediable breach, usually within 6 months or so. BUT lets say once FH has re-entered he...
                            12-08-2020, 13:26 PM
                          • Reply to FH forfeits and sells before 6 months window for relief?
                            by sgclacy
                            Once the Land Registry have closed the title and a new lease granted there is no redress for the lessee seeking relief from forfeiture

                            The land registry will write to any party shown in the charges register and the tenant before closing the title - therefore illustrating the need to make...
                            13-08-2020, 00:03 AM
                          • RTM - Admin Fees Charged by Freeholder
                            by chris1544
                            We have RTM in place for our two flat building. Recently the other leaseholder put in a request to the RTM company to install an air vent. I duly wrote to the freeholder, notifying them of our intention to grant approval for the works, giving them the statutory 30 days notice.

                            They have...
                            12-08-2020, 11:04 AM
                          • Reply to RTM - Admin Fees Charged by Freeholder
                            by Gordon999
                            Its in section 98 of Commonhold &Leasehold Reform Act 2002.

                            Where a person who is—

                            (a)landlord under a long lease of the whole or any part of the premises, or

                            (b)party to such a lease otherwise than as landlord or tenant,

                            has functions in relation...
                            12-08-2020, 22:27 PM
                          • Reply to RTM - Admin Fees Charged by Freeholder
                            by Lorimer
                            There isn't much case law on this but even when an RTM is in place and it is the RTM that is responsible for dealing with consents, I believe the freeholder CAN charge a reasonable admin fee simply for the freeholder's time in reviewing the consent application. This is because the RTM company cannot...
                            12-08-2020, 20:33 PM
                          • Reply to Late ground rent payment charge & legal fees no warnings
                            by Stew
                            sounds like a major win
                            12-08-2020, 20:22 PM
                          • Late ground rent payment charge & legal fees no warnings
                            by KingstonBee
                            Wonder if you can help... This week I have received a Court Claim form pack with what seems to include a ‘particulars of claim’ and ‘lease’ for ‘outstanding arrears of Ground rent and insurance’.

                            Now this is a huge shock as I’ve not received any letters at all, no emails or phone...
                            10-06-2020, 20:13 PM
                          • Reply to Can I let this freehold indefinately ?
                            by ChrisDennison
                            Well but who’s to judge that intention? If I as the freeholder only want women, kids and one armed pirates in my block of flats and therefore put a restriction of use to that extent in the lease isn’t that my pretty unambiguous intention?



                            Well put. I have a property with...
                            12-08-2020, 19:14 PM
                          Working...
                          X