Landlord registration: consultation on a review of applications and fees

Part 2 - Landlord registration application fees.

Overview

Section 83(2) of the 2004 Act makes provision for an application to be accompanied by such fees as the local authority may determine. However, this is subject to section 83(3) of the 2004 Act which makes provision for the Scottish Ministers to bring forward regulations to prescribe:

• fees;
• how fees are to be arrived at;
• cases where no fee is payable.

It is important to note that these powers only allow fees to be set in connection with the authorisation process for applications. Primary legislation would be needed to introduce fees in connection with enforcement costs or financial penalties.

When landlord registration was introduced in 2006, the Scottish Ministers used powers under section 83(3) to set national fees. The aim was to simplify the fee structure; make it easier to apply for registration and reduce the burden on local authorities and large numbers of landlords to register for the first time. Maintaining a national fee structure helps to provide consistency and certainty for landlords that regardless of where they let property, they will pay the same fee to register.

The setting of any fee for landlord registration is also subject to the EU Services Directive ( EUD), as implemented in the UK by the Provision of Services Regulations 2009, which provides that any charges which applicants may incur under an authorisation scheme must be reasonable and proportionate to the cost of procedures and formalities under the scheme. Application fees should not include the costs of enforcement (such as prosecution of a landlord).

Application fees

For most landlords, the application fee consists of the principal fee of £55, and a property fee of £11 (for each property being let). The principal application fee is paid when a new and renewal application for registration is submitted to the local authority. It is a one off payment that does not exceed the reasonable cost to local authorities of scrutinising, processing and making determinations on applications. The property fee of £11 is payable for every property included in an application or that is added to an existing registration. The payment of a fee based on number of properties reflects the additional work involved in checking and processing an application with multiple properties. Registration lasts for up to three years. In some cases, an additional fee may also be payable where a landlord renews their registration only after the three year registration has expired. More information on the range of tasks that local authorities carry out to process landlord registration applications is included at Annex D.

Certain discounts may apply to landlord registration fees and these are considered later in the consultation. A summary of the current fees and discounts available is included at Annex E.

Proposal - Application fees

Due to the wide variety of tasks that local authorities undertake to process an application and the varying structure of the teams which undertake these tasks, it can be very difficult for local authorities to provide precise figures on the costs which they incur when processing landlord applications. For this reason, it is difficult to use component costs as a basis on which to uprate the fees. As an alternative, the consultation proposes that registration fees should be uprated by inflation (the Consumer Prices Index) from the period between 2006 (when the fee was initially set) to 2016 (the latest full year for which CPI is available).

The Consumer Prices Index, published by the Office of National Statistics, is a measure of the overall level of price growth in the economy and can be used to give an indication of the change in costs faced over a given period. CPI, rather than other published measures of inflation, has been chosen because CPI is classified as a National Statistic by the UK Statistics Authority - while other measures of inflation, such as the Retail Prices Index ( RPI), are not. ^[1]

Over the period from 2006-2016, CPI (All Items Index) has increased by a total of 26%. Other indicators which may give an indication of the change in costs faced by local authorities when assessing applications include the average increase in employee costs which local authorities face in their Non-Housing Revenue Account housing functions (as reported through the Local Financial Returns) and the overall increase in public sector pay over the period. Over the period from 2006-2016, these measures have increased by approximately 32% and 26% respectively. The fact that these measures have grown approximately in line with inflation supports the use of inflation as a measure by which to uprate the landlord registration application fee.

Regulations could be drafted in a way that enable fees to be uprated annually, but only on the basis that this is subject to regular review to ensure that the increase by CPI is appropriate. The regulations would require details of the annual increase to be published.

Uprating the principal, property and additional fees by CPI would result in revised fees of approximately £70; £14 and £139 respectively. Annex F provides an estimate of the additional income this would generate to help local authorities with the increased cost of administering landlord registration.

Question 6: Do you think it is reasonable to increase registration fees in line with inflation, to reflect the increased cost to local authorities?

Yes / No / Unsure

Please tick only one box and explain your answer below.

Comments

Proposal - Additional fee

The legislation currently requires an additional fee of £110 to be paid when a landlord re-applies to be registered after an existing registration has expired. In other cases, the fee is applied to landlords who have never previously been registered. In all cases, the legal basis for applying the fee is that an application has only been made after the local authority has issued two separate requests for the person to register. In 2016, 8,146 additional fees were applied to landlords who failed to renew their registration in time; 180 additional fees were applied to landlords who had not previously been registered.

The fee represents the increased work that local authorities have to undertake in order to help non-compliant landlords meet the requirements of registration. The amount of work needed to deal with expired registrations and un-registered landlords varies from case to case. For example, some landlords may renew their registration after receiving a letter or telephone call prompt from the local authority. Other landlords require much greater pre-application support from the local authority in order for them to submit an application for registration.

Therefore, the single rate additional fee currently charged to landlords may not always reflect the amount of work undertaken by the local authority to secure an application for registration. In order to ensure that the fee is proportionate to the work undertaken and complies with the principles of the EUD, regulations could be drafted so that the additional fee is set as a maximum amount. This would enable a local authority to vary or waive the fee according to the additional work undertaken.

Question 7: Do you think it is reasonable for local authorities to charge a lower additional fee, in cases where the maximum set fee exceeds the costs of the work undertaken to prompt a landlord to make an application?

Yes / No / Unsure

Please tick only one box and explain your answer below.

Comments

Landlord Registration fee discounts

Annex E includes a summary of the discounts that may apply, depending on an applicant's circumstances. The way in which discounts are calculated can be complex, difficult to apply and in some cases does not reflect the work that local authorities do to process applications. The consultation seeks views on whether some of the discounts should be discontinued.

It is anticipated that changes to any of the discounts would apply from a specified date in the future. Any discounts already given prior to the specified date would not be affected.

Proposal - Online discount

Where an application for registration is made online, the total fee charged is subject to a 10% discount. The discount for a landlord with a single property is currently £6.60 (£55 principal fee, plus £11 property fee, minus 10%).

The discount was introduced in 2006 to encourage landlords to use the on-line system and reduce the burden on local authorities of manually registering large numbers of landlords and properties. However, now that landlord registration is well established, the majority of people automatically choose the on-line application process as the most convenient way to submit an application.

It was also assumed that an on-line application would mean lower processing costs for local authorities. In practice, local authorities have indicated that applying the on-line discount is problematic. For example, there are many occasions when applicants who have complex circumstances or are not confident in using the on-line system seek assistance when completing the online process. Providing this support can be resource intensive for the local authority and so the 10% discount is not an accurate reflection of the difference in costs between processing on-line and paper applications. In addition, some stakeholders who either choose or need to submit paper applications feel that the 10% discount is unfair and puts them at a financial disadvantage.

Question 8: Do you think that the 10% discount applied to on-line applications should be changed? If so, what should be changed?

Yes / No / Unsure

Please tick only one box and explain your answer below.

Comments

Landlord Registration on-line system

Whilst local authorities must accept paper applications, enabling online applications through the landlord registration website offers a more effective means for the majority of applicants to submit an application for registration.

Historically, the Scottish Government has fully funded the operating and development costs of the online IT system. The benefit of this approach has been to remove the burden for local authorities of having to develop and maintain 32 individual registers and to provide more administrative consistency across Scotland. In the light of budget constraints the Scottish Government needs to consider where it can reasonably recover costs. With the introduction of a new online application system in February 2017, the annual operating costs of hosting the service and providing support desk services is approximately £130,000 per year. This represents an approximate 25% reduction in previous core operating costs.

Proposal - Recovery of support costs

The consultation proposes to include an amount within the principal fee as a reasonable contribution to the core running costs of the on-line system. This is on the basis that these are legitimate service costs that help to keep the overall costs of processing down, so that all applicants can benefit from lower fees.

Based on the number of landlords who applied to be registered in 2016 and 2017, and who paid a principal fee, the additional cost per application would be no more £2.00 over a three year registration period. This equates to approximately £0.67 per year. This figure may be reduced, depending on whether other proposals in the consultation relating to fee discounts are taken forward. For example, division of the support costs across a larger number of fee paying applicants would result in a smaller contribution per applicant. This element of the application fee would be kept under review to see if it exceeds or falls short of the amount required to support the system.

Question 9: What are your views on including an amount in the application fee to cover the operating costs of the on-line registration service?

Please explain your answer below.

Comments

Proposal - Joint owner discount

Where a property is jointly owned, the law requires that all the joint owners must apply to be registered. The regulations currently make provision for one of the joint owners to be nominated as a lead owner. The lead owner is required to pay the principal application fee; the other joint owners receive a 100% discount and do not pay this fee. The discount was originally introduced in 2006 to encourage compliance with the new landlord registration system.

Local authorities must be satisfied that all the joint owners are fit and proper to act as landlords. All applications must be checked to make sure they are complete before the local authority can carry out the assessment as to whether an applicant can be approved and entered on the register. Joint owner applications are complex and often additional work is undertaken to ensure that all joint owners submit an application. Jointly owned property should not be let until all joint owners have applied to be registered.

Where a joint owner applies to be registered the local authority must assess whether the person is fit and proper. In cases where the joint owner currently receives a 100% discount the authority does not receive any income towards the costs of carrying out any of the work that underpins that fit and proper person test.

The consultation seeks views on whether it is reasonable and beneficial for local authorities to receive a principal application fee for joint owner applications that require them to carry out a fit and proper person assessment.

An additional benefit of this proposal would be that the application process would be greatly simplified for both landlords and local authorities, removing the complexities associated with nomination of a lead owner and any subsequent updates to registrations when the lead owner changes. Anecdotal evidence also suggests that in some cases landlords have changed lead owner status to avoid paying the appropriate fees.

It might be argued that removal of the joint owner discount could discourage applicants from declaring the names of all joint owners. There is always a risk that some applicants will try to avoid paying the relevant fee but they are legally required to provide accurate information. It is an offence for applicants to knowingly provide false information and a person guilty of such an offence is liable to a £1,000 fine.

Question 10: Do you think that a local authority should receive an application fee when they carry out a fit and proper person test on a joint owner?

Yes / No / Unsure

Please tick only one box and explain your answer below.

Comments

Proposal - Multiple area discount

Although there is a central on-line system for making applications and searching for information about a landlord or property, each local authority is responsible for preparing and maintaining their own register of private landlords. In practice, each local authority is required to check that applications made in that area are complete and payment has been received; to assess whether the person is fit and proper to let houses; and to make a decision on whether to register a person or refuse an application.

Applicants applying to more than one local authority receive a 50% discount on each on-line application made to multiple local authorities at the same time. The discount also applies to online applications where the person is currently registered, or has submitted an application to another local authority but has not been notified of a decision. The discount is confusing to understand and is complex to administer. Additionally, the discount does not apply to applicants who make a paper application. A person making a paper application must pay the full fee to each local authority that they apply to.

Based on data from the register, the table at Annex G gives an indication of the value of multiple area discounts, using examples where landlords or agents operate in up to 12 local authority areas. The number of people registered across 13 to 31 local authorities drops significantly to the point that only 1 person operates across all 32 local authorities. The table also shows the corresponding value of the uncharged work undertaken by local authorities in the examples provided.

The financial impact of the multiple area discounts on applicants increases in line with the number of local authority areas to which an application is made. The number of applicants who register across multiple local authorities reduces as the number of local authorities increases. Only 1 person was registered across 27, 31 and 32 local authorities. The data indicates that the majority of landlords only own 1 - 3 properties. We think it is therefore likely that it is commercial letting agents who are managing properties for landlords across many of the 32 local authorities.

It should be noted that letting agents are not required by law to register with the local authority; they do so as a business choice. The Housing (Scotland) Act 2014 introduced provisions for a separate letting agent register, to be administered by the Scottish Government. The new register was introduced on 31 January 2018. Anyone operating as a letting agency business must have applied to the Scottish Government to be registered by 1 October 2018. This discount will therefore no longer apply to letting agents once they transfer to the new letting agent register.

Removal of this discount would have a minimal effect on the majority of landlords. The benefits of the proposal would be a simplified fee structure that would ensure that local authorities received the appropriate fee for carrying out the fit and proper person assessment on applicants.

Question 11: Do you think that each local authority should receive the full application fee when a person applies to more than one local authority, and the fit and proper person assessment is required?

Yes / No / Unsure

Please tick only one box and explain your answer below.

Comments

Proposal - Agent fee discount

If a landlord uses an agent to act on their behalf in relation to letting houses, use of that agent must be notified to the relevant local authority. The meaning of 'agent' in relation to landlord registration means anyone who is acting on behalf of the landlord. The 2004 Act does not distinguish between different types of agent, and so this captures commercial letting agent businesses as well as those acting as a power of attorney and family members acting on behalf of relatives. Most agents currently noted on the register are commercial letting agents.

Annex E summarises the fees and discounts that apply:

i. when agent details are included in a new or renewal application;

ii. when a landlord adds an agent to an existing registration.

Landlords receive a 100% discount on the application fee where an agent is already registered in, or has applied to the same local authority as the landlord, or where an agent operating as a business is registered with the Scottish Government. This is because the application fee to meet the cost of the fit and proper person test will have been paid by the agent at the point of application. However there is no corresponding discount for a letting agent who has applied to the Scottish Government to be registered.

The consultation therefore proposes to make provision for landlords to receive a 100% fee discount where an agent has applied to be registered with the Scottish Government. This would mean that the discount is applied consistently, regardless of whether the agent is registered or has applied to either local authorities or the Scottish Government.

Question 12: Do you think that landlords should receive a 100% discount on the application fee for a letting agent who has applied to be registered with the Scottish Government?

Yes / No / Unsure

Please tick only one box and explain your answer below.

Comments

Proposal - Change of circumstance

A person who is registered by a local authority has a duty to notify any change to information provided in their application in relation to their name and address, let property addresses, details of any agent used, the addresses to be used for correspondence, and the prescribed information as set out by Scottish Ministers. (See Annex B).

The 2004 Act permits Scottish Ministers to prescribe fees to accompany notification of a relevant change in circumstance. The fees are currently limited and only permit a fee to be charged when a registered person updates their registration to add details of a property that is not already included on the register. The fee is currently £11.

A registered person can notify many straightforward changes in circumstance directly to a local authority, or by updating their records via the online system, at no cost. However, there are other changes in circumstance which require scrutiny by the relevant local authority, to ensure that the requirements of registration continue to be met. Where the changes are notified via the on-line system, the update provided by the registered person will automatically be referred to a local authority official for further investigation. Such changes in circumstances include:

• applicant's date of birth;
• issue of an HMO Licence;
• convictions;
• antisocial behaviour notices or orders;
• decisions relating to repairing standard enforcement orders;
• refused or revoked licences.

The types of change listed above could have an impact on the fit and proper status of the registered person. It is important that local authorities carry out whatever checks are needed to understand the significance of the change, to be satisfied that the person can remain on the register. The consultation therefore seeks your views on whether fees should be extended to cover wider range of change in circumstance, as a reasonable contribution to the cost of the additional scrutiny undertaken by local authorities.

Question 13: What are your views on charging a fee for specific changes in circumstance to an existing registration?

Please explain your answer below.

Comments

Incentivising landlords

Landlord registration is a key tool for helping to improve standards in the private rented sector. The consultation has proposed that a number of discounts that may currently apply to an application are removed. The basis for these proposals is to ensure that local authorities receive the appropriate fee for the work they do.

However, we are interested to hear stakeholder views on other ways in which landlords might be incentivised to comply with registration requirements and improve standards.

For example, it may be appropriate to offer a discount on the principal fee for landlords who have passed a training course as a member of a recognised accreditation scheme that includes a training requirement. This could encourage landlords to improve their business practices and be applied fairly to the principal fee for both online and paper applications.

Another option might be to offer a discount to encourage landlords and agents to renew their applications within a specified period prior to expiry of an existing registration. This may help to minimise the amount of enforcement work required by local authorities for which they are not currently able to charge non-compliant landlords for.

Question 14: What are your views on offering incentives to landlords and agents to apply for registration and/or improve their practice?

Please explain your answer below.

Comments