What happens if my HMO licence is revoked?

If you own and operate a House in Multiple Occupation (HMO) in the UK, maintaining a valid licence is mandatory. If you find yourself in the position where your local authority has decided to revoke your HMO licence, the consequences are immediate, severe, and predominantly financial. This action signals that your property can no longer legally operate under its current model, forcing immediate changes to tenant arrangements, and potentially resulting in massive fines and obligations to repay past rent.

Understanding What Happens if My HMO Licence is Revoked?

A HMO licence revocation typically occurs when the local authority determines that the landlord or property manager is no longer a “fit and proper person” to hold a licence, or when the property fails significantly to meet minimum safety and management standards mandated by the Housing Act 2004.

Once the local authority issues a formal decision to revoke the licence, you usually have a right to appeal the decision to the First-tier Tribunal (Property Chamber). However, unless a stay (suspension) is granted, the consequences of revocation begin immediately upon the effective date specified by the authority.

The Immediate Legal Consequences

The most pressing issue upon revocation is that operating a licensable HMO without a licence is a criminal offence.

• Ceasing Operation: You must immediately stop operating the property as a licensable HMO. This means you must reduce the number of occupants below the licensing threshold (typically fewer than five unrelated individuals) or face prosecution.
• Criminal Offence: Failure to comply with the revocation order can lead to prosecution and potential unlimited fines, or a financial penalty of up to £30,000 imposed by the local authority.
• Lease Termination: While the revocation itself doesn’t automatically end existing Assured Shorthold Tenancies (ASTs), it makes continuing the tenancy structure highly problematic and non-compliant with housing law. You may need to begin legal procedures to reduce occupancy levels, which can be time-consuming and costly.

Severe Financial Penalties and Rent Repayment Orders (RROs)

The financial fallout from a revoked HMO licence often presents the greatest challenge for property owners.

Fines and Civil Penalties

Beyond the cost of addressing the physical defects that led to the revocation, the local authority can levy substantial fines. These civil penalties can reach up to £30,000 per offence, replacing criminal prosecution in many cases. The authority considers the severity of the offence, the harm caused, the landlord’s culpability, and the financial impact on the landlord when setting the penalty amount.

The Risk of Rent Repayment Orders (RROs)

Perhaps the most devastating financial consequence is the threat of a Rent Repayment Order (RRO). Tenants who resided in the property during the unlicensed period (up to 12 months immediately preceding the RRO application) can apply to the First-tier Tribunal to reclaim rent they paid to the landlord.

If the revocation is upheld, it confirms that the property was being managed unlawfully. This leaves the landlord extremely vulnerable to RROs, which can result in the loss of a year’s worth of rental income. Landlords should understand the criteria and limitations surrounding RROs, as detailed guidance is provided by official sources such as GOV.UK regarding Rent Repayment Orders.

Impact on Property Finance and Mortgages

HMOs are typically financed using specialist buy-to-let or commercial mortgages, which are conditional on the property having the necessary regulatory licences in place. Revocation fundamentally alters the risk profile of the asset.

• Mortgage Default Risk: Your existing lender will almost certainly view the licence revocation as a breach of your mortgage terms. The property ceases to be a legal HMO, potentially voiding the HMO mortgage structure. Lenders may demand immediate repayment of the outstanding balance.
• Insurance Problems: Property insurance designed for a licenced HMO may become invalid if the licence is revoked. Operating an illegal or unsafe property risks nullifying any future claims.
• Valuation Drop: A property that cannot legally be rented out or that is subject to RROs will see its market value severely depressed, especially if it must be sold quickly.

Financing Solutions for Distress Situations

When faced with a sudden demand for funds—whether to pay RROs, satisfy fines, or restructure the property back into compliance—landlords often seek immediate, short-term finance. This is where specialist lending, such as bridging finance, may come into play.

Bridging loans are short-term secured loans designed to provide quick capital, typically for 1 to 18 months, often used to resolve urgent property issues or facilitate a rapid sale or restructuring. These loans can be used to fund remedial work needed to reinstate compliance, or to convert the HMO back into a standard single-let or family property before seeking a long-term conventional mortgage.

Bridging finance is generally structured in two ways:

It is important to note that most bridging loans roll up interest rather than requiring monthly payments. While this can ease immediate cash flow pressures, it means the total debt increases rapidly over the loan term.

You may require a detailed understanding of your credit history when seeking specialist finance, as lenders will assess your financial stability before lending against a distressed asset. Get your free credit search here. It’s free for 30 days and costs £14.99 per month thereafter if you don’t cancel it. You can cancel at anytime. (Ad)

Risk Warning: Specialist property finance, particularly bridging loans, carries inherent risks. Your property may be at risk if repayments are not made. Consequences of default include legal action, repossession of the secured property, increased interest rates, and additional penalty charges, all of which will severely impact your ability to secure future finance.

The Road to Recovery: Appeal and Re-licensing

Revocation is not necessarily the final word. Landlords have two primary avenues for mitigating the consequences:

1. Appealing the Decision

You have a right to appeal the local authority’s decision to the First-tier Tribunal (Property Chamber) within 21 days of the decision being served. An appeal focuses on whether the local authority made an error in law or fact, or if their decision was disproportionate. While the appeal process is pending, the authority may choose to suspend the revocation (a stay), allowing you time to rectify the breaches.

2. Rectification and Re-application

If an appeal is unsuccessful or deemed unviable, the only path forward is to address the underlying issues that led to the revocation. This involves making significant improvements to the property, ensuring all safety standards are met (fire safety, room sizes, amenity provisions), and demonstrating that management failings have been corrected.

Once the property is fully compliant, you may apply for a new HMO licence. However, the local authority will scrutinise this application much more heavily, particularly if the initial revocation was due to the landlord being deemed unfit and proper.

People also asked

Can I still rent out my property if my HMO licence is revoked?

No. If your property falls within the mandatory licensing threshold (typically five or more tenants from two or more households), you cannot legally rent it out as a HMO once the licence is revoked. You must either reduce the number of occupants below the licensable threshold or successfully appeal the decision.

How long does the HMO licence appeal process take?

The appeal is heard by the First-tier Tribunal (Property Chamber). The timescale can vary significantly depending on the tribunal’s workload, but typically, the entire process—from submission to hearing and final determination—can take several months. You must adhere strictly to the 21-day deadline for submitting the appeal.

Will a revoked licence affect my ability to get future financing?

Yes, significantly. Lenders conduct thorough due diligence, and a history of HMO licence revocation signals high regulatory risk and potential management failure. This may result in higher interest rates, stricter collateral requirements, or outright refusal from specialist HMO lenders for several years.

What is the difference between suspending and revoking an HMO licence?

A suspension is a temporary measure, usually giving the landlord a specific timeframe (e.g., three months) to remedy urgent defects while keeping the licence technically active. Revocation is permanent removal of the licence, requiring a completely new application once the property is deemed compliant and the landlord fit to manage it.

Can tenants still claim benefits if the HMO licence is revoked?

Yes, the revocation of the licence does not directly affect a tenant’s eligibility for benefits such as Universal Credit or Housing Benefit. However, if the local authority issues a Rent Repayment Order (RRO), the benefit portion paid to the landlord during the unlicensed period may be recoverable by the authority or the tenant.

Conclusion

HMO licence revocation is a serious regulatory action that transitions the property from a revenue-generating investment into a significant financial liability. Landlords facing this situation must act swiftly to understand the legal ramifications, mitigate financial penalties such as RROs, and secure appropriate advice or specialist financing to either rectify the property and appeal, or dispose of the asset under necessary terms. Ignoring a revocation order carries an extremely high risk of unlimited fines and potential loss of the property.