A controversial new regulation came into effect yesterday which will affect both sales and letting agents and the advice they give home-owners, landlords and property investors.
Statutory Instrument 653 means that any property from now onwards which the owners want to convert from a single house into a small shared property may well require planning permission. The Government anticipates that as a result of the rule change, a further 8,500 planning applications will be generated each year.
Two critical points are that the legislation affects small properties, which will be rented out to between three and six unrelated people, but will also affect home-owners who take in three to six unrelated lodgers.
The legislation is not retrospective and will not affect properties with an existing use. But it will catch any house that will, for the first time, be rented out to between three and six sharers or where the home-owner decides to take in more than two paying lodgers. These properties now count as HMOs with a new planning class designation, C4.
The aim of the legislation is to prevent so-called ‘studentification’ whereby rows of terrace houses in university towns and cities are rented out to students. The Government believes this is a problem, although its own advisers in the Rugg Report said it was not.
Landlord groups have been fighting to prevent the change happening, and David Cameron has tabled an Early Day Motion to get it rescinded.
Lawyers have also pointed out that the legislation is extremely unclear because the need for planning permission depends on a material change of use. In the past, courts have taken different views on whether a property used for residential purposes has undergone a material change of use if it is still used for residential purposes.
There is a further problem that all letting agents should be aware of. Many rental properties are let out to both families and to groups of sharers at different times, but landlords should be advised that if they let out to between three and six sharers (Class use C4) and then let out to a family (Class use C3), they will have changed the class. That means that if they want to re-let to between three and six sharers again, they might have to seek planning permission, which could be refused.
Letting agents also need to be aware of the pitfall of letting property out to three sharers on year, but then only two sharers the next. They cannot count on getting planning permission to return the property to C4 use.
Robert Jordan, former ARLA president, said many agents remain unaware of the changes. He, like the landlord groups, believes that the supply of shared rental accommodation will become restricted, with landlords unwilling to pay the cost of obtaining planning permission with the possibility that they might also have to pay to have their HMOs licensed.
Jordan said: “Perhaps the next government will reconsider this silly change and reverse the regulation.”
Agents should also note that a C3 HMO currently shared by between three and six tenants will not need planning permission to become a single household.
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Comments
There are other interesting questions...should tenants require proof of planning status before signing (if advised by university for example)would a certificate of lawful use be issued? How long would this take? How much would it cost? The same issue would apply in change of ownership. What about investment landlords who have exchanged, in good faith, on a property (currently C3) to convert to C4 but have not yet completed?
How will the whole thing be policed?
What will be the impact on property values? Where we operate in Oxford, property values are "propped up" by potential yield from letting to students. If the city blocks the movement from C3 to C4 use, values in some parts of the city could fall considerably, whilst the value of property with C4 use will increase as the supply demand balance is weakened.