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Change to Planning Law for HMOs - City of York Council's Article 4 Direction

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Background

For planning purposes properties are allocated into classes of use. Prior to 6th April 2010, there was a single use class (C3) which consisted of houses or flats lived in by a single person; by a family; or by a group of up to six unrelated sharers who lived as a single household. You could change between these uses without needing planning consent.

Originally planning law used different definitions to those which apply for housing and environmental health purposes. As far as bedsits were concerned, before 6th April 2010 all bedsits (irrespective of the number of occupants) were treated as houses in multiple occupation (HMOs) for planning purposes so, in theory, planning permission would have been required to change the use of a C3 house to bedsits.

However, from 6th April 2010 the Labour government introduced a change in the planning legislation.  A new use class was created which now consists of any house or flat rented out in the private rented sector which is not occupied by a family, where the number of occupants is between three and six. For these purposes "family" is defined in the same way as under the Housing Act 2004 for housing and environmental health purposes. Thus the 2004 Act definition of a HMO now applies for planning purposes as well.

What this means therefore is that shared houses and flats lived in by unrelated persons were taken out of class C3 and, together with small bedsits (those with between three and six occupants), now have their own use class (C4). Those properties which were already used in this way as at 6th April 2010 were automatically transferred into this new use class C4. Single family homes and flats remain in the modified class C3.

Basically, under the Labour plans introduced from 6th April 2010, planning permission for change of use was needed for any property being changed from owner occupation to a House in Multiple Occupation (HMO), for occupation by three to six non-related parties if there was a material change of use involved. The C3 class became dwelling houses only and the C4 class all shared properties, ie HMOs under the Housing Act definition.

Following the change in government, in June 2010, Housing Minister Grant Shapps announced a change to these plans and, from 1st October 2010, the blanket need for planning permission was removed. However, recognising that a high concentration of shared homes can sometimes cause problems, instead he introduced the option for councils to control this by giving them freedom to choose areas where landlords must submit a planning application to rent out a property. To specify an area, the council must issue an Article 4 direction, with a year's notice to avoid compensation claims. In his explanation Grant Shapps said:

"I'm giving councils the power to decide whether to use the planning system to control the spread of shared housing where it is a problem. This will give them the flexibility to make decisions that are right for their communities, rather than stifling the rental market with unnecessary costs and red tape."


Summarising the changes

It is worth summarising the effects of the changes.

After 6 April 2010, if there was a material change of use involved, if you wanted to change the use of an existing single family dwelling to a use which is now within the new C4 use class, you had to apply for and obtain planning permission. However , if you wanted to change the use the other way around from a class C4 HMO to a single family dwelling house then planning permission was automatically granted by what is known as the General Development Order. These rules were not retrospective so planning permission was not needed for any small HMO (within class C4) which was already in that use as at 6th April 2010. It did not matter how long it had been used in this way.

Under the new system from 1 October 2010, the use classes have not been altered. What has happened is that planning permission is now automatically granted by the General Development Order where an existing single family dwelling house (C3) is used as a small HMO (within class C4) or vice versa. Previously it was only where you went from C4 back to a C3 a single family dwelling that the automatic planning permission was given. Now it is granted where the change of use is either way.

Also, before the adoption of the Housing Act 2004 definitions for planning purposes, an inspection of the property could determine whether it was an HMO. Generally speaking, you would not need to meet the occupants to see if they shared the house or lived in separate bedsits. However, to be certain now, you have to consider any relationships and family connections between the occupants.


City of York Council's implementation of an Article 4 direction

On 1 November 2011, the Labour controlled City of York Council confirmed the previous Liberal Democrat Council's decision to implement an Article 4 direction across the whole of the City, with effect from 20 April 2012. Again, these rules are not retrospective so planning permission is not needed for any small HMO (within class C4) which is already in use as at 20 April 2012. It does not matter how long it had been used in this way, the property has established use.


Is an Article 4 direction justified in York?

Several representations against the introduction of this Article 4 direction were made, but any opposition was relatively low key and ineffective. Several factors suggest that a sledgehammer is being used to crack a nut.

The 6 April 2010 changes were made because of parliamentary concern about concentrations of HMOs and "studentification", leading to parking and amenity pressures and places being deserted out of term time. This seems strange as the Rudd Report said the "studentification" of areas was a very minor problem only affecting 59 out of 8,000 boroughs. This hardly seems to be justification to make such a significant change in the law. There was also genuine concern over a proliferation of ill-kept houses in poor condition with large daily rents being charged to people in housing need, which hardly applies in York.

The government guidance issued in respect of the introduction of an Article 4 direction requires strong justification in the form of evidence of compelling reasons. For example, the relevant authority should have evidence that without withdrawing the permitted developments rights, local amenities or the visual impact of the area would be harmed.

Even if there are small pockets in York where such action is justified (and this is questionable), it is difficult to believe the whole of York needs such a policy. It could be argued that City of York Council has acted against the spirit and intention of the relevant legislation. In fact, the Council's own report dated 10 January 2011 found no evidence or justification for an Article 4 direction and recommended further consultation. This was ignored, and on 20 April 2011 the required twelve months notice was given.


What are the likely effects of the Article 4 direction in York?

Without being political, it is possible to make one general, or perhaps cynical, observation. Wherever local or national government seek to influence outcomes via policy or legislation, often there appears to be unexpected or unwelcome results. For example, the policy in York requiring any significant development to include an element of "affordable housing" is blamed by many for stifling new house building.

There is no doubt that the number of HMOs has increased, but this has all operated on the back of the normal free market forces of supply and demand. The adoption of the Article 4 direction will influence supply and demand in many ways. The following are examples of possible effects.

  1. With a doubt as to whether required planning permission will be granted, an investor is unlikely to make an offer on a house unless it is an established HMO, or a property with permission already granted.

  2. There is a real possibility that house values will diversify. A house with established HMO use could become worth more, whilst the value of a similar owner-occupied house in the same street may reduce significantly. Ironically, those who have campaigned for these controls could suffer financially when selling their homes.

  3. Those houses with established HMO status in the areas popular with sharers are likely to attract higher rents. In contrast those on a smaller budget are more likely to have to travel further.

HMOs are a vital part of the private rented sector offering affordable accommodation for those on low incomes, the unemployed people, migrant workers etc, especially in York where there is a shortage of housing and average earnings are relatively low. In fact there is a shortage of reasonably priced accommodation for working sharers and this new policy is unlikely to help.

Interestingly, an application for change of use to an HMO does not currently require a fee. However, it is understood that discretionary powers to charge a fee may follow soon. It is unlikely that City of York Council will ignore such powers.


City of York Council 's criteria for considering a planning application

On 10 January 2012 City of York Council met to discuss details of how they will assess applications for change of use once the Article 4 direction comes into force. To summarise a long policy document briefly, three options were considered; a neighbourhood area approach, a street level approach or a combination neighbourhood and street level approach. It was decided that a neighbourhood approach with a 20% trigger factor would be recommended. If confirmed, this means that when a planning application is received the surrounding neighbourhood (comprising, say, 600 to 900 properties) will be reviewed. A threshold of 20% will apply. The implication is that if more than 20% of houses in the neighbourhood are already HMOs the application is unlikely to succeed, this preferred policy being:

"In assessing planning applications for HMOs that fall within a neighbourhood area with less than 20% of properties being HMOs and particularly in marginal cases where a neighbourhood area is approaching the 20% threshold the Council will seek to ensure that the change of use will not be detrimental to the overall residential amenity of the area. In considering the impact on residential amenity attention will be given as to whether the applicant has demonstrated the following:

The recommended approach was confirmed in a Council meeting at 5.30pm on 3 April 2012.


Landlord expanding his portfolio

Consider the position of a landlord seeking to expand his portfolio or a new investor seeking his first investment property in York. If he is a cash buyer he can make an offer on a property subject to planning permission being granted. However, few owner occupiers would be willing to wait several months whilst a planning application was processed.

If the buyer needs a loan can he realistically consider a house without existing C4 status? Investment property mortgage offers are not easily obtained in the current economic and financial climate. No lender would consider a property without the relevant planning permission. Furthermore, in reality, an offer for a loan may well expire before a planning application is processed.

Even if a purchaser is attracted to a property and willing to make an offer subject to planning permission being granted, who pays for and processes the application? If permission is granted there is the risk the vendor will then ask for a higher price or another party will make a higher offer. If it is City of York Council's intention to virtually stop the expansion of the private rental sector then it is quite likely they have achieved their aims. It is only to be hoped that they have fully understood the likely impact of their policy.


What about students?

So far in this article, apart from one reference to parliamentary concern about "studentification", we have not used the "S" word. It has to be remembered that the new legislation is aimed at all HMOs and not just student houses. However, you only have to attend a planning meeting of City of York Council to realise that a small minority of committee members struggle to hide an obvious prejudice against students. Fortunately for them, or unfortunately depending on your point of view, there is no specific legislation preventing such prejudice. Furthermore, it seems there are sufficient members on the committee who appear to have a more balanced outlook to prevent this prejudice affecting the decisions.

Having said that, it seems an inescapable fact that it is the growth in student occupied HMOs that has caused City of York Council to adopt an Article 4 direction. There is clearly a vocal minority that wish to control where students can live and apparently the council believes that the city wide Article 4 direction is an essential way forward, rather than consultation or more targeted policy.

It has to be remembered that the Universities and other educational establishments contribute significantly to the economy of York and the students are an essential part of that contribution. It has been claimed that the two main universities and their students generate over £400 million for the local economy and employ more than 4,000 people directly. We happily accept the jobs, status and reputation associated with these organisations but it seems some would prefer it if we could have these without the inconvenience of having to house the students. There seem to be many opinions of where students should not live, but little consensus on how or where we should house the student population.

To illustrate this point, ironically, one City of York councillor who campaigned for the introduction of an Article 4 direction has spoken out against the 20% threshold claiming such a threshold would be counterproductive by pushing HMOs from areas already heavily populated by students into areas which currently have much lower percentages, such as his own parish of Osbaldwick. It would seem this councillor may have expected the Article 4 direction would stop virtually any further HMOs. Instead, he may well have scored a home goal.


One way only!

If you accept that planning permission is required, care needs to be taken not to lose existing C4 status. This is because a change of use back to C3 status is granted automatically. Therefore, if a landlord fails to find a group of unrelated sharers one year and rents to a family then the C4 status will be lost and council tax records can prove it. For council tax purposes it is established that if you have an exempt student let followed by another exempt student let, any void in between is itself exempt. By implication this is for short periods only. Similarly, if a gap was for most of the summer for major renovation work there should be no problem. However, if the landlord allowed a relative use of the house for a short holiday between lets arguably the C4 status would be lost. It would be hoped that common sense would prevail and the overall pattern of use would be what mattered, but from experience with planning matters this cannot necessarily be taken for granted.


Keep your records

One thing that seems certain is that if you have a house already in use as a C4 property on 20 April 2012, then it makes sense to keep your records in case you later need to prove the status at this date. To be absolutely certain you may wish to retain original tenancy agreements and bank statements etc from 20 April 2012 onwards to prove continuous C4 use. If your HMO requires a licence you may think further proof is not required, but it is the use of the property that matters, which is not demonstrated by having a licence.

If ever you sell a C4 property the solicitor acting for the buyer is likely to require a Certificate of Lawful Use.   These can be obtained from City of York Council's Planning Department.


Meeting the deadline

Some final points about the 20 April 2012 cut off date need to be appreciated and have not necessarily been clearly or correctly spelt out by other commentators. As far as City of York Council is concerned, it is the use of the property of that day that matters. If a landlord has recently bought a house which is being worked on and entered into a tenancy agreement before 20 April 2012 but which starts after this date, they have not met the deadline and planning permission is still needed. Furthermore, for the 20 April 2012 deadline, a property containing the owner and up to two lodgers does not constitute an HMO.


Summary

It is doubtful that the Article 4 direction will be the panacea some are expecting. The number of students to be housed will not alter as a result. In reality, all that may change is where those students live and how much they have to pay. Some unexpected or unwelcome results seem almost certain.

All the above assumes that with the Article 4 direction in force planning permission for a change of use will be needed. However, there is an argument that this is not the case and Article 4 could be just ignored for many properties where a landlord is seeking to rent for the first time after 20 April 2012. An article explaining this may be posted if sufficient interest is expressed.

Finally, it should be emphasised that the C4 category only applies for houses occupied by six unrelated sharers. Even before the 2010 changes in planning rules, an HMO occupied by more than six unrelated sharers was deemed to be in a different category. Many believe it is a fact that these have always needed planning permission and even advice from York Residential Landlords' Association suggest this is so. However, this is also a grey area.


This article was written in April 2012 and certain points may be superseded.



Constructive feedback on this information would be welcomed. If you have any comments please email admin@apyork.com giving details of your suggested corrections or additions and clearly stating your name and interest (eg tenant, landlord or planning advisor). Your comments will be considered when the article is next updated.