An increasing number of local authorities run licensing regimes to ensure the quality of accommodation provided in Houses in Multiple Occupation (HMOs). An important High Court ruling has, however, established that licence fees levied on landlords must not exceed the actual cost of administering such schemes.

The case concerned a landlord who let out 37 bedrooms in four HMOs. When his local council sought to charge him a fee of £1,799 to renew his licence to operate one of his HMOs for a further five years, he objected and offered to pay £850 – that being the sum that he assessed the renewal ought to cost. That offer was declined and the council proceeded to prosecute him after his licence expired. The criminal proceedings were, however, stayed pending the outcome of his judicial review challenge to the lawfulness of the licence fee.

In upholding his arguments, the Court found that the licensing regime that the council operated under Part 2 of the Housing Act 2004 was an authorisation scheme within the meaning of EU Services Directive 2006/123/EC and the Provision of Services Regulations 2009.

By letting out rooms for profit, the landlord was engaging in a service activity for the purposes of the Directive and the Regulations, which promote free movement of services and the freedom of establishment of service providers. The fee the council sought to charge was unlawful in that it constituted a charge under an authorisation scheme which was unreasonable and disproportionate because it exceeded the real cost of administering the scheme. The landlord was granted formal declarations to reflect the Court’s decision.