HMO licence required for property occupied by guardians

Property guardianship

Property guardianship is a tool to protect otherwise vacant property through occupation by property guardians, usually at below market rents. The model originated as an anti-squatting measure in the Netherlands in the early 1990s, and is becoming increasingly popular in the UK.

Case background

The case of Global 100 Limited v Jimenez and others involved the former Addison Lee Building in London, a five-storey office building.  A suite of three offices on the third floor were occupied by three property guardians who shared a communal bathroom. 

The case was put forward by the three former property guardians who claimed that the property constituted a licensable HMO and that the absence of an HMO licence amounted to an offence to which the rent repayment regime in the Housing and Planning Act 2016 applied.  

HMO tests

There are five alternative tests to establish whether (part of) a property constitutes an HMO.  A property will be an HMO if:

• it satisfies the ‘standard test’; or
• it satisfies the ‘self-contained flat test’; or
• it satisfies the ‘converted building test’; or
• an HMO declaration is in force under section 255; or
• it is a converted block of flats to which section 257 applies.

Sole use condition

The relevant test in this case was the ‘standard test’.  In addition to the living accommodation in the property being occupied by persons who do not form a single household and who share one or more basic amenities, the test requires a number of other conditions to be met.  In particular, it requires the occupation by those persons to constitute the only use of that accommodation.

The company providing the property guardians was held to be in control of the property, and was therefore the responsible party in respect of HMO licensing.  It argued that the property was not an HMO, because the occupation did not constitute the only use of the property.  Although the property guardians were in occupation, this was not for the purposes of their accommodation but rather to protect the otherwise vacant property.

The Upper Tribunal disagreed and held that the property guardian’s occupation of the living accommodation was the only use of the property.  It was a side effect that their presence would dissuade trespass or damage, but they were in occupation to have a roof over their heads and only that.  Consequently, an HMO licence was required and the company was ordered to repay the rent to the former property guardians.

Consequences of breaching HMO legislation

This was a case brought by the former occupiers for a rent repayment order due to the absence of a required HMO licence.  However, it is important to remember that in addition to financial consequences, it is also a criminal offence to manage or have control of an unlicensed or non-compliant property, except in a limited number of circumstances.  Furthermore, for criminal liability to be established there is no requirement to prove that the landlord knew that the property they controlled or managed was an HMO.

Looking ahead

This decision will have an impact on property owners who use property guardians to protect their vacant (and usually commercial) properties, a mechanism often used by owners, lenders and receivers whilst a property awaits development or disposal. HMO treatment of these properties will have financial consequences in the context of HMO licensing fees and the requirement to comply with the regulatory requirements of HMOs, with the added risk of criminal liability for failing to comply with those regulations.

We question whether or not property owners will want to become involved in the HMO licensing process and all of the ongoing compliance burden. Those running guardian businesses want to present their solution as convenient, hassle free and with the potential to be net income generative. We also question whether or not many of the commercial properties hitherto fitting the model could, in fact, become licensed at all.     

It also remains to be seen how many former and current property guardians will make a claim for a rent repayment order for similar scenarios on the back of this decision. The Government guidance on the subject - Property guardians: guidance - GOV.UK - indicates that between 5,000 – 7,000 people are living as property guardians. It remains to be seen if this number will be reduced and if so, by how many, as a consequence of this decision.

How can we help?

TLT’s real estate lawyers are experienced in a full range of real estate matters.  If you would like to discuss your requirements, please get in touch.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at March 2022. Specific advice should be sought for specific cases. For more information see our terms & conditions.