Council chiefs in Edinburgh were preparing to lend law-breaking landlords £50,000 so they could continue providing substandard temporary accommodation to homeless people, The Herald can reveal.

The loan request came from a handful of B&B owners to cover licensing costs for houses in multiple occupation (HMO) applications—on the night before they were due to be considered.

The plan was backed by council leader Cammy Day, while leaders of other political groups were uncomfortable with the proposal. Ultimately the funding was not provided, and the application fees were met in full by the applicants themselves.

One council source said: “It’s very difficult to see this as anything other than an attempt to make money off the public purse at the time of a homelessness emergency.

“And it’s concerning that council officers and then the council leader buckled only to then be told that the applicants had found the money.”

Many of the city’s B&Bs have operated as temporary accommodation for years due to rising homelessness rates and a shortage of permanent social housing. In the past decade the council has spent millions buying up rooms to ensure people aren’t left sleeping on the streets.

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This type of accommodation was originally intended to be used only for short periods in emergency situations. However, those presenting as homeless can now expect to spend months or even years living in B&Bs and guesthouses due to the scale of the Capital’s housing crisis.

As the properties are used as homes for three or more households they meet the criteria for an HMO licence, but several landlords have refused to make applications despite requests from the council over recent years. This meant they were not only operating unlicenced HMOs – a criminal offence – but being paid by the council to do so.

This arrangement eventually became untenable for the local authority, whose lawyers said all payments to operators of unlawful accommodation had to cease by December. A scramble to find alternative accommodation ensued as charities warned the situation risked people being moved out of the city, or ending up on the streets.

With the threat of steady payments from the council suddenly being cut off came last-minute HMO applications from owners of 12 B&Bs.

These were submitted by those “who have repeatedly refused to apply for two years,” the council’s homelessness director said.

An emergency licensing committee was arranged for last Friday, November 29 – less than 48 hours before the deadline – to issue decisions.

It's now emerged some of the operators contacted the council hours before the meeting was due to kick off demanding cash to cover licensing fees.

An email sent to group leaders from chief executive Paul Lawrence on Thursday night said the council’s housing and homelessness service was “looking to make loans to a small number of businesses who have applied for HMO licences,” adding: “The value of the loans associated with tomorrow’s committee is in the region of £50,000.”

The email, seen by The Herald, said the loans were requested “because of the immediacy of the current position”. It explained that in the event of the application fees not being paid the committee would be unable to grant licences “even if they were minded to do so”.

Mr Lawrence told councillors such a position “would significantly increase the risk of homelessness in the coming days”. 

He said the loans – which it would be a highly unusual step for the council to make – could be paid back on a monthly basis.

However by Friday morning another email was sent confirming that “the fees had been paid overnight and this decision is no longer required,” according to a council source.

Councillor Day supported the plan before it was aborted, while other group leaders expressed reservations and highlighted that the applicants were “not cash poor businesses”.

The source said: “It does surprise me that officers seemed so willing, so quickly to accept this, when hours later the businesses then paid the money.

“It’s very difficult to see this anything other than an attempt to make money off the public purse at the time of a homelessness emergency. And it’s concerning that council officers, and then the council leader, buckled only to then be told that the applicants had found the money.

“I realise we are in an emergency, and of course you have to take urgent decisions, but you also need to maintain a strong line to make sure you’re still spending public money appropriately.”

At the licensing hearings on Friday all 12 B&Bs were granted licences despite most of them falling well below the usual HMO standards for kitchen space, number of bathrooms, safety and other criteria judged as part of the process.

Councillor Margaret Graham accused HMO landlords of “digging their heels in”  when asked to improve health and safety for residents.

It’s not known which applicants were behind the request for a loan. Several have been contacted for comment.

A spokesperson for City of Edinburgh Council said: “We can confirm a confidential briefing was issued by the Chief Executive. We do not comment on confidential briefings.”

Councillor Day said: "Leaders received a confidential briefing on measures to ensure those in temporary accommodation would continue to have somewhere to stay in this cold winter weather and it's disappointing this has been used as a political tool

"Options to provide short term loans of around £1,000 to cover fees were considered but not required by the applicants nor committee.

"My priority has always been to ensure that those who experience homelessness  have a safe warm place to live and am confident the licensing committee has thoroughly considered each application to achieve this."

Teresa Perchard, community councillor for Leith Links, who objected to three of the applicants urgently put before councillors last week, commented: “The council is in my view at best exceptionally naïve if it thinks these operators needed a loan for fees to comply with the law.  This would not be entertained, surely, for any other business or operator that needs a licence whether that be a pub or a short-term let.  

“At worst the council has in this matter colluded with millionaire criminals to cut corners at the expense of tenants and taxpayers. It stinks.”