Property investors who hold residential freeholds but never inspect their assets could face fines of up to £20,000.

If the property is let to three or more occupiers, forming two or more households as a result, the property needs a licence because it has become a House in Multiple Occupation (HMO) under the terms of Section 56 of the Housing Act 2004.

Investors who are unaware that leaseholders who have bought properties have subsequently rented them out will fall foul of the HMO rules and Portsmouth City Council is warning that from February 26 it intends to get tough on offenders.

It has written to lettings agents across the city stating that it is about to raise licence fees and asking agents to check their registers for any properties they feel may need a licence and to notify the owners as soon as possible.

The letter from Bruce Lomax, private sector housing manager for the council, estimates that only 850 licence applications have been made although the council estimates 3,000 properties are subject to HMO licensing.

Sarah Banks, lettings manager for Town and Country Southern Estate Agents in Drayton, says her agency has always steered away from property shares and other lettings that could have potential problems.

“Freeholders need to be aware of their obligations – if all the flats in a building become let rather than owner occupied the freeholder needs a licence for the building and common areas rather than the individual flats,” she warned.

“If one flat remains owner occupied the freeholder has no problem but if they never visit they will never know. They must proactively check what’s occurring at their properties.

“Freeholds can be sold as an investment and often the original developer will do this by auction after some period of time. Individuals and companies who own these freeholds, or managing agents, are all liable under the law and the council can get a court order to take control of the building if the rules are breached.

“The rules apply to buildings converted almost 25 years ago or before and it’s likely that owners will be unaware of their liability.

“In the last week I have had a flat owner come to me who wanted to let and I asked that he check the situation. It turned out that every flat in the building apart from his was already let to tenants and his letting would have meant the freeholder applying for a licence.

“He is trying to find his freeholder because no reputable managing agent will take on the property and risk the potential £20,000 fine. In the meantime, he can’t let his home. Everyone who buys a leasehold property should always ensure they can contact the freeholder.”

[B]Colin Shairp, proprietor, [URL=””]Town and Country Southern Estate Agents[/URL].[/B]