I thought I would share a recent Empty Dwelling Management Order (EDMO) case that I was involved in, which may be of assistance to other practitioners in the field. The case relates to a property that had been empty for several years due to the previous tenant damaging the property.
The owner lived remotely, was in negative equity, had no funds and was struggling to keep up with the mortgage payments. The property was causing anti-social behaviour issues for the local community and was deteriorating.
This was a case where the Local Authority either intervenes, and tries to find a solution, or it is left to market forces where the owner would eventually default on the mortgage and the property re-possessed. This process would take a considerable period of time, meanwhile the property would become an ever-increasing problem for the local community and result in increased losses for the owner. The approach taken in this case was the use of an Empty Dwelling Management Order (EDMO).
Empty Dwelling Management Orders are governed by the provisions of Section 132 to 138 and Schedule 7 of the Housing act 2004. EDMOs have been around since the inception of the Housing Act 2004 and there have been somewhere in the region of 170 - 190 Interim EDMO (12 months) and 50-80 Final EDMOs (7 years). Considering the Act came into force on the 6th April 2006, the number of EDMOs achieved nationally is less than 15 per annum, with multiple EDMOs being concentrated within a small number of Local Authorities.
EDMOs were meant to be a half-way house between a voluntary leasing scheme and compulsory purchase orders but, as a tool of the trade, they are cumbersome, clunky and not without risk to the Local Authority. Properties must have been empty for more than 2 years (6 months in Wales) and there are a broad range of exemptions available to owners.
Many Local Authorities are reluctant to use them, but they have their place and are particularly suitable for properties that are in reasonable condition and need minimal works. In this case, the major concern was that the property was mortgaged and in negative equity. There is considerable risk to Local Authorities pursuing an EDMO, where there is a lender involved, so the Local Authority must ensure that the property is worth enough to cover:
- the first mortgage, any non-payments and interest due under the mortgage;
- the cost of the work needed to the property;
- auctioneer costs; and
- a reasonable buffer in case the property sells in auction at a lower value than expected (in the case of any mortgage default).
Government structured the legislation so that they are registerable as a local land charge and the Local Authority can place a restriction at the land registry – but they offer no priority over any existing mortgage. The logic is that the Local Authority expenditure is recovered through the rental income and therefore there is no need to be able to register a specific financial charge against the property.
However, the risk in this case, and in many cases, is that the Local Authority undertakes the works and the mortgage company steps in to recover their monies as a result of breach of the mortgage conditions. The lender may notify the Local Authority of the sale at the 11th hour – making negotiation very difficult.
Consequently, there is a significant risk that the monies expended by the Local Authority will be lost or at the very least difficult to recover. It is a major flaw with the legislation and many Local Authorities may not be unaware of the risk
So how do we square the circle?
Over the years, I have provided training to many Local Authorities on enforcement, with particular reference to empty properties. One matter that is regularly raised is whether Improvement Notices under the Housing Act 2004 can be used to deal with empty properties. There is often a reluctance or unwillingness by Private Sector Housing Officers to use Improvement Notices in such cases. The perception is that you cannot use Improvement Notices on empty properties as there is no risk because there is no occupier. That interpretation is not correct.
The Housing Health and Safety Rating System (HHSRS) requires Officers to inspect properties having regard to the vulnerable age group for that particular hazard i.e. Excess Cold - over 65’s; Damp and Mould - under 14’s etc. The scores come out as either category 1 or category 2 hazards (HHRSR Guidance). It is only when the Local Authorities consider the most appropriate course of action that we have to consider the current occupier or lack of occupier.
The statutory Section 9 Enforcement Guidance is less than helpful regarding the use of Improvement Notices in relation to empty homes, stating that Local Authorities will need to take care that they deal with the hazards in an appropriate way. It would be helpful if the guidance was reviewed to provide greater emphasis and support of the use of Improvement Notices in such cases.
Local Authorities have a range of enforcement options that must be considered when pursuing action under the Housing Act 2004:
- Hazard Awareness Notice (HAW)
- can usually be discounted on the basis that there are significant works needed to the property and may present a risk to other parties. The HAN is no more than an informal notification, which is not a local land charge.
- Emergency Remedial Action / Emergency Prohibition Order
- would generally be discounted as the property needs to have a category 1 hazard and represents an imminent risk (unlikely if there is no occupier).
- Demolition Order / Clearance
- can usually be discounted on the basis that the property is not beyond economical repair.
- Improvement Notices
- Prohibition Order
The options will normally narrow down to either an Improvement Notice or Prohibition Order.
From a practitioner’s point of view, the use of a Prohibition Order which just prevents the property from being occupied is of no value. However, if the property is in derelict condition and there is no prospect of the property ever being occupied - then a Prohibition Order may be considered appropriate.
If the Local Authority served an Improvement Notice requiring the full renovation of the property, then the recipient of the notice may appeal to the First-tier tribunal (Property Chamber). It would be a matter for the Tribunal to consider the merits of the case and whether the Improvement Notice was proportional and reasonable in the circumstances.
However, it may be possible to take a staged approach. If the property was a derelict terraced property, which was not secure and presenting a risk to neighbours and the local community (damaged windows / doors and slates falling off the roof). It may be reasonable to serve an Improvement Notice to deal with the risk of slates onto the public highway to secure the property. All other works could be put on another Improvement Notice and suspended until there is a change of ownership or the property becomes occupied.
This would only require the owner to undertake limited works to protect residents and secure the property which is to the owner’s benefit. This be a more nuanced approach to justify the service of an Improvement Notice.
In this case there was a significant risk that if the Local Authority completed works through the EDMO and the owner defaulted on their mortgage. The mortgage company would repossess the property and all monies from the sale would go to the 1st lender.
The problem is that the EDMO does not offer the Local Authority any priority over existing charges. However, if the Local Authority utilised Improvement Notices and carried out the works in default, then followed this up with an EDMO on completion of the works, the Local Authority should be able to register a charge against the land registry title in priority of the existing mortgage, thus ensuring that the public funds expended by the Local Authority were fully protected. The rationale is set out in more detailed in the attached Tribunal decision.
In this case, it was done with the agreement of the owner who was fully involved throughout the process.
Despite it only being a First-tier Tribunal decision (not binding and informative at best) it was very supportive of the approach taken by the Local Authority.
I have also attached another recent First-tier tribunal case (Dec 2018) that supported the use of improvement notices in relation to an empty property.