Short term lets - licensing scheme part 2: supplementary guidance for licensing authorities, letting agencies and platforms

4. Setting licence fees

Balancing costs and revenues

4.1. Licensing authorities are responsible for establishing and running the licensing scheme in their area. This will be a significant undertaking for licensing teams across Scotland and will impose new costs.

4.2. Licensing authorities can recover the costs of establishing and running the scheme through fees^[10]. The aggregate revenue from fees raised by a licensing authority must not exceed the authority’s aggregate costs of establishing and running the licensing scheme.

4.3. Establishment costs include setting up the scheme and recruiting and training staff to operate it. Running costs include such matters as processing applications and renewals, issuing licences, undertaking site visits, handling complaints and other monitoring and enforcement costs, such as verifying any safety or other documentation submitted from time to time.

4.4. Licensing authorities must determine their own fees and fee structures to recover establishment and running costs specific to their area. This means that the fees charged by licensing authority will vary across Scotland, as is the case for HMO licensing and various other civic government licensing functions undertaken by licensing authorities.

4.5. Licensing authorities should consider how to keep costs down through:

• economies of scale;
• integrating service delivery with other housing and licensing functions;
• using online and digital verification where possible, for example through photo and video evidence instead of a visit; and
• taking a proportionate, risk-based approach to checks and verification, for example in considering whether, when and how often visits to premises are needed, especially in more remote and rural areas where the costs of such visits could be higher.

Chargeable activities

4.6. Licensing authorities can charge fees for the following:

• licence applications;
• licence renewal applications;
• issuing of duplicate licences;
• their consideration of a material change of circumstances or in premises and their disposal of the matter;
• issuing a certified true copy of any entry on the public register; and
• visits to premises where the visit is necessary because of a failure of the host or operator (see paragraph 4.14 below).

4.7. Licensing authorities should consider the option of allowing hosts or operators to pay an ongoing subscription in place of the application and/or renewal fee, should they wish to do so^[11]. This can be helpful to hosts and operators in managing cash flow and also to the licensing authority in maintaining an ongoing relationship with the host or operator. However, whether this is feasible will depend on the flexibility in the technology available to the licensing authority and any additional costs incurred by offering this.

4.8. Licensing authorities could choose to separate out the application processing fee (payable on application) and the fee for monitoring and enforcement (which could be payable when application is granted or as subscription). This might facilitate the payment of refunds for refused applications, see paragraph 4.18 below.

4.9. Licensing authorities must not charge:

• hosts or operators for visits to premises where this is a routine part of processing an application or part of the licensing authority’s on-going assurance processes; or
• neighbours or others for handling complaints or objections.

4.10. Licensing authorities could charge for applications to vary the terms of a licence. However, licensing authorities should consider creating the right incentives for hosts and operators to keep them informed.

4.11. Revenue from fines in respect of licensing offences (see chapter 7) do not go to the licensing authority.

Changing the fees

4.12. As the fees are not set out in the 1982 Act or Licensing Order, licensing authorities can increase (or reduce) fees administratively. Licensing authorities must review their fees from time to time to ensure that revenue from fees remains in line with the costs of the licensing scheme^[12]. It is important to note that there may be increases or reductions in both revenues and costs for a number of reasons, including: inflation; changes to levels of short-term let activity; and changes to the licensing authority’s processes and operations.

Publicising the fees

4.13. Licensing authorities must publish their fees in respect of their licensing scheme. Licensing authorities should give reasonable notice of any changes, not least so that applications are submitted with the right fees first time around.

Fees for visits to premises

4.14. Licensing authorities can charge a fee to a host or operator for a visit to their premises, where the visit results from their failure to comply with licence conditions or a complaint relating to the premises which is not frivolous or vexatious. (Note that the Scottish Fire and Rescue Service is the enforcement body for fire regulations more generally.)

4.15. Charging such a fee has the benefits of both providing an incentive to hosts to operate their short-term let compliantly, and with consideration for neighbours, and also helping to avoid the application fees for compliant hosts and operators subsidising the additional work in visiting non-compliant hosts and operators.

4.16. A fee may be charged for an inspection following a complaint, where it is found that there are compliance issues, whether or not those are the issues that were the subject of the complaint. However, no fee should be charged if the complaint was frivolous or vexatious. This is to prevent malicious complaints incurring unjust costs for hosts or operators.

4.17. Where a fee is charged for a visit, the licensing authority must produce a report of its findings to the host or operator within 28 days of the inspection^[13]. Licensing authorities should consider using portable technology so that this report can be produced at the time of the inspection.

Refunds and refused applications

4.18. In general, fees are not refundable.

4.19. Whether or not a licensing application is granted, the licensing authority will incur significant costs in processing the application. Licensing authorities must ensure, prior to an application being granted, the applicant is only charged the costs relating to the processing of their application. The fee charged for the processing of the application itself need not be refunded. But it should not include enforcement costs. This was determined at the Supreme Court in case R v. Westminster City Council (2017)⁵. However, the licensing authority can charge fees to cover enforcement costs once the application is granted (normally through monitoring and/or renewal fees).

4.20. Where a licensing authority refuses to consider an application because the host or operator needs to obtain planning permission (see chapter 6), the licensing authority does not need to refund the fee paid. However, the licensing authority must not charge a further fee in respect of a resubmitted licensing application made within 28 days of planning permission being granted.

4.21. Licensing authorities should publish their policy on refunds so that hosts and operators are clear on the position before they make an application.

Parameters for setting fees

4.22. Licensing authorities may take account of the following criteria in determining the amount of the different fees set out at paragraph 4.6 above^[14]:

(i) the size of the premises,

(ii) the number of rooms at the premises,

(iii) the number of guests who can reside at the premises,

(iv) the type of short-term let,

(v) the duration of the period for which the premises are made available for use as a short-term let (but note that licensing authorities cannot set limits on nights on licences for secondary letting), and

(vi) the extent to which the licence holder has complied with the conditions of the licence (which might affect a renewal fee).

4.23. Under (i), (ii) and (iii), licensing authorities can choose to vary fees by size of premises, number of rooms or number of guests who can reside at the premises. Under (iv), they can set different fees for different types of short-term let and they should consider setting lower fees for home sharing and home letting than for secondary letting. Under (v), they can distinguish between home letting and home sharing licences which permit letting in July and August only and those that permit year-round letting, for example. These powers allow licensing authorities considerable discretion in aligning fees with proxies for host revenue, should they wish to do so, and encouraging or discouraging certain types of short-term let activity.

4.24. With regard to unconventional accommodation, licensing authorities can similarly take account of the number of properties on a site in determining the fee, for example charging a higher fee for a single licence for 30 yurts, rather than 15 yurts, in a field.

4.25. Under (vi) licensing authorities can reward compliance. For example, a monitoring or renewal fee could be reduced for a host with a strong compliance record. As well, or instead, a licensing authority might grant longer licences on renewal (which has the effect of reducing the per annum fee cost to the host) if no issues have arisen (see chapter 3).

4.26. Licensing authorities will need to ensure their fees are robust and fair, especially in respect of any changes requested or proposed by the host after a licence has been granted. There will be circumstances in which the change will mean that the host should be paying a different fee, for example because they want to accommodate more guests or operate for more of the year than qualifies for any discount. Similarly considerations apply where a host wishes to resume operation after a period without a licence; licensing authorities must avoid any perverse incentive for hosts to switch on and off a licence to minimise fees.

4.27. There is no legal requirement on licensing authorities to take account of any or all of the criteria at paragraph 4.22.

4.28. Licensing authorities should take account of the following (sometimes competing) considerations when setting fees:

• making the fees as simple to understand as possible, so that hosts and operators can easily determine the fee that they should pay;
• proportionality of the fee to the host or operator’s likely revenue from operating short-term lets at the premises;
• ensuring that the revenue from application fees cover only the application processing costs and not the on-going running and compliance costs, see paragraph 4.19 above; and
• the licensing authority’s policies on the short-term let activities and behaviours which they wish to encourage or discourage, see chapter 3.

4.29. In terms of keeping the fees as simple as possible, this suggests not applying too many criteria and making sure that the criteria that are applied are readily and easily calculated.

4.30. In terms of the likely revenue generated by a short-term let, relevant factors include: location, the size of the property or premises, and seasonality. Large party houses can generate significantly more income than a small two-bed self-catering property. Secondary letting will typically yield greater income than home sharing (or home letting for limited periods).

4.31. The Scottish Government recommends that licensing authorities establish a licence fee structure based on the following:

a) type of licence (see chapter 3) with lower fees for a home sharing and home letting licence than for a secondary letting licence; and

b) guest capacity the intended maximum number of guests, as requested by the host or operator on their application form.

4.32. Note that licensing authority may specify a maximum occupancy that is lower than the number of guests requested at (b) for safety reasons. Licensing authorities should refund the difference in between the fee paid and the fee that would have been paid had the application specified the maximum occupancy figure.

4.33. Within this recommended fee structure, there is still latitude for licensing authorities in terms of the granularity of approach. Licensing authorities can choose to group guest numbers into bands. The choice will depend on local circumstances. An example banded fee structure is set out below:

Guest capacity (people)	Home sharing and home letting licence	Secondary letting licence
1 or 2	£ [ ]	£ [ ]
3 or 4	£ [ ]	£ [ ]
5 or 6	£ [ ]	£ [ ]
7 or 8	£ [ ]	£ [ ]
9 to 12	£ [ ]	£ [ ]
12 to 20	£ [ ]	£ [ ]
20+	£ [ ]	£ [ ]

4.34. The Scottish Government strongly recommends against setting a uniform flat fee for licensing applications. Whilst it would be administratively more straightforward for licensing authorities, it would disproportionately benefit hosts and operators of larger premises and adversely affect home sharing and smaller self-catering operators.

4.35. High fees for home sharing may have unintended consequences. For example, where the cost of a licence was prohibitively expensive for a home share host who relied on short-term let income to pay their mortgage, this could push them into poverty.