Financial Penalties Upheld for Unlicensed Flats in First-tier Tribunal Decision

OUTCOME: Dismissed

© CROWN COPYRIGHT 2022

FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY)

Case Reference

:

CHI/29UN/HNA/2021/0005-9

Properties

:

10, 12, 17, 19, 21 [NAME], 3-[ADDRESS], Margate, Kent [POSTCODE]

Applicants

:

[redacted]

:

Mr [COUNSEL], instructed by [COUNSEL] [COMPANY]

Respondents

:

[redacted]

:

Mr [COUNSEL]. Instructed by [NAME]

:

Appeal against a financial penalty – s.249A Housing Act 2004

Tribunal Members

:

Judge M Loveday Mr T Sennett MA [NAME] and venue of hearing

:

30 November 2021 (remote hearing)

Date of Decision

:

14 January 2022

DETERMINATION

Decision 1. These are five linked appeals against financial penalties under s.249A of the Housing Act 2004 (“the Act”). The penalties were imposed for of- fences of managing unlicensed premises under s.95(1) of the Act.

Background 2. The Applicant is the freehold owner of [NAME], 3-[ADDRESS], Margate, Kent [POSTCODE]. Although the Tribunal did not inspect the premises, it is common ground that they comprise a mid- terrace period house on basement and four upper floors that has been converted into some 22 flats. The appeals relate to the following five flats: Flat 10 1 bedroom 1st floor flat (rear) Flat 12 2-bedroom 1st floor flat (front) Flat 17 1 bedroom 3rd floor flat (front) Flat 19 2-bedroom 3rd floor flat (front) Flat 21 1 bedroom 4th floor flat (rear) The penalties were each imposed by the Respondent Housing Authority by notices dated 16 March 2021.

3. The appeal notice was dated 24 March 2021, at which time the Applicant was unrepresented. Directions were given on 13 August 2021, and the Applicant served an informal statement of case prepared by one of its di- rectors in accordance with those directions. The Respondent filed a statement of case on 16 September 2021, and the Applicant responded on 20 September 2021. A hearing was originally listed for 22 October 2021, but at a late stage the Applicant instructed solicitors. As a result, on 19 October 2021 the Tribunal stood out the hearing and [NAME] permis- sion for the Applicant to file an amended statement of case raising (in particular) the new issue of law set out below. The amended statement of case dated 18 October 2021 (settled by counsel) and the Respondent’s

amended statement of case dated 5 November 2021 therefore formed the basis of the re-arranged remote hearing on 30 November 2021.

4. At the hearing, the Applicant was represented by Mr [COUNSEL] of counsel, who called [NAME] from the Applicant’s director Mr [APPELLANT]. The Respondent was represented by Mr [COUNSEL] of counsel, who called [NAME] from two council officers, [NAME] [COUNSEL] [NAME] and Mr [COUNSEL]. The Tribunal is grateful to both counsel for their help- ful and economic oral submissions and their detailed written skeleton arguments.

The [NAME]

[NAME] [NAME] 5. [NAME] [NAME] [NAME] is a Senior Licensing Officer and qualified Environ- mental Housing Officer who has worked for the Respondent for the last 8 years. She mainly relied on the contents of the Respondent’s statement of case dated 16 September 2021, which she signed with a statement of truth.

6. In 2011, the Respondent designated parts of the electoral wards of Mar- gate Central and Cliftonville West as a selective licencing area. That des- ignation lasted until 20 April 2016, when the scheme was extended to 20 April 2021. All privately rented premises within the relevant area (in- cluding [NAME]) required a licence

7. [NAME] [RESPONDENT] dealt with the Respondent’s dealings with Mr [RESPONDENT], who in his personal capacity owned c.37 [NAME] rented dwellings within the cur- rently designated selective licensing area. [NAME] [NAME] had met Mr [NAME] on 8 November 2013 to discuss licensing of those properties. Following that meeting, Mr [NAME] made licensing applications for his own premises, and [NAME] [NAME] [NAME] was that the front page of those licences clearly stated that selective licenses were not transferable. After the new scheme

was adopted in 2016, Mr [NAME] made further applications in relation to c.25 flats.

8. [NAME] [RESPONDENT] explained the Respondent’s approach to payment of licence fees. A fee was payable for each licence application and licences were usually granted for a period of five years. However, the council offered an alternative payment method for landlords with portfolios of 15 or more properties. Such landlords were given an opportunity to pay 25% of all licence fees on initial application on the proviso that the remaining 75% would be paid within 12 months. If a landlord chose to take ad- vantage of the alternative payment method, the licences would only be granted for a period of one year, to help ensure the outstanding amounts were paid. Once the remaining 75% was received, the licences would be varied to extend them for an extra four years, so they were valid for a to- tal of five years. In fact, although Mr [NAME] took advantage of this scheme, and in September 2017 paid 25% of the fees for his multiple licences, the Respondent did not receive the balance of the 75% licence fees. As a re- sult, Mr [NAME] was only granted 1-year licences for his personal portfolio.

9. The Applicant has been the registered freehold proprietor of [NAME] since 11 February 2020. On 24 July 2020, the Re- spondent wrote letters to the Applicant stating that it was actively en- forcing the licensing policy, pointing out that an offence had been com- mitted, and asking for further information. On 27 August 2020, the Re- spondent sent further letters asking the Applicant to apply for a selective licence. On 22 January 2021, the Respondent served Notices of Intent stating that it intended to impose penalties of £10,000 for each flat. In each case, the letters and notices were addressed to the Applicant’s reg- istered office at 3 [ADDRESS] [POSTCODE], and the Ap- plicant produced certificates of posting for these letters.

10. [NAME] [NAME] stated that on Monday 25 January 2021 she received a tele- phone call from Mr [NAME]. Mr [NAME] confirmed he had received the Notices of Intent in respect of properties at [NAME]. He ex- plained to her that the Applicant purchased the property in February 2020. During the conversation Mr [NAME] also confirmed he had received letters sent to the Applicant in respect of selective licensing but con- firmed he had not acted on them. He stated the selective licencing des- ignation was due to expire in April 2021, but [NAME] [NAME] reminded him that an application was still required in respect of any rental property in the designated area up until April 2021. [NAME] [APPELLANT] then explained to Mr [APPELLANT] that the Applicant had the right to make written representations against the proposal to impose a financial penalty.

11. [NAME] [NAME] completed pro forma Financial Penalty Proposal Forms, as- sessing the appropriate penalty at £10,000 for each of the five flats. [NAME] [NAME] [NAME] was that when completing the pro formas, she applied the Respondent’s 2019 Financial Penalty policy (see below). [NAME] [RESPONDENT] also produced office copy entries for the freehold title and copies of each of the [NAME] documents referred to above for the Tribunal. On 16 March 2021, the Respondent served final notices under s.249A of the Act n re- lation to the five flats.

12. In cross-examination, [NAME] [RESPONDENT] was asked why the Respondent had only imposed financial penalties on some of the 22 flats. She confirmed penalties were only made where the Council was able to gain access to a flat. Since she had been unable to get into the [NAME] flats in the block, the penalties were limited to the five flats where access was achieved.

13. [NAME] [NAME] was asked about the telephone conversation with Mr [NAME] in early 2021 referred to above. She remembered the call, but she did not believe Mr [NAME] said he thought there was already a licence in place for [NAME]. If he had said that, [NAME] [NAME] would have ex- plained that licenses were not transferable. [NAME] [RESPONDENT] was re-examined

on the point by the Respondent’s counsel, and confirmed the call took place after the Notices of Intent were sent in January 2021.

14. When questioned by the Tribunal, [NAME] [NAME] stated that although she had not produced a copy of any of the licence application forms, from memory she could say they clearly stated on the front of the licence that a licence was not transferable. [NAME] [NAME] was also asked about her as- sessment of the level of penalty. When addressing the question of culpa- bility, [NAME] [NAME] had considered (but rejected) a score of “Very High” or “Medium”.

15. Since the penalty was imposed, the Applicant had applied for a licence and the Respondent issued one with effect from 1 April 2021 – although no copy of that licence was produced. However, the Council did general- ly allow a single licence to cover two or more flats in a block. Essentially, it charged a single fee for licensing the first flat, and then a reduced rate for second and subsequent flats. But the licence itself would identify the flats – in this case [NAME] would state “Flats 1-22 Wil- liam [NAME]”.

Mr [RESPONDENT] 16. Mr [RESPONDENT] is the Respondent’s [NAME] manag- er, and [NAME]’s line manager. He is a member of the [NAME] and a Chartered Environmental Health Practitioner with 25 years’ experience. He signed the pro forma Finan- cial Penalty Proposal Forms and the Notices of Intent, and effectively he corroborated [NAME] [NAME] [NAME].

17. In cross-examination, Mr [NAME] accepted that many local authorities operated their licensing schemes on the basis of one licence per flat. But most of the rental properties in Cliftonville were rentals of an entire house – and flats were comparatively rare in this particular designated area. When the scheme was introduced, the Council looked at s.79 of the Act and consulted. As a result of that consultation, it became clear that

landlords were not overly keen on making numerous applications for li- censes for individual flats. Where a single application could be made and there was a reduction in administration, it therefore seemed sensible to allow multiple applications on the same form. This was the scheme that was adopted, although in reality it covered only a small percentage of properties in the area. If a landlord still wanted to apply for an individu- al licence for a single [NAME] flat, it could still do so. However, when de- ciding to impose a penalty, the procedure was different. The Council had to investigate to a criminal standard and apply the statute. It determined that each of the 5 flats was an individual “house” which was not licenced. Since there was no reasonable excuse for controlling each of the 5 unli- censed “houses”, the Respondent served five Notices of Intent.

18. In response to questions from the Tribunal, Mr [NAME] stated that [NAME]’s licence for a block of flats looked very different to a single li- cence for a house. It looked more like an HMO licence, with a schedule of properties attached, with flat numbers and a description.

Mr [APPELLANT]

19. Mr [APPELLANT] is a director of the Applicant. He relied in part on the contents of the Statement of Case which he signed in August 2021. He stated that when the Applicant bought the property in 2020, the vendors [APPELLANT] and their agents [NAME] informed him “that the building was licensed”. The premises were in poor condition. The Applicant had undertaken extensive works to the front elevation, amounting to £19,000. At the start of 2021, Mr [NAME] was contacted by the company accountant and told they had received notices that the Re- spondent was imposing financial penalties in respect of five flats. There was then “contact” with [NAME] [NAME] by “via email and telephone”. Mr [NAME] stated that “our point was that there was no reason to get a licence on 5 flats when [the Applicant only] needed one for all 22”. The Applicant was quoted £5,700 for a licence, but it “could not apply for a license as no payment schemes were in place permitting this and the council would

not allow it.” Once funds were available to the Applicant, it applied for the licence, and this was eventually granted with effect from 1 April 2021. There was a large commercial loan on the building (£1,100,000) and a further ‘bounce back’ loan of £50,000 to be repaid.

20. Mr [NAME] also confirmed the [NAME] in the amended Statement of Case (which was supported by a statement of truth dated 21 October 2021). This document necessarily mainly dealt with legal submissions. But Mr [NAME] [NAME] [NAME] that after acquiring [NAME], the Applicant “granted tenancies of individual flats within” the block. The company “wrongly believed” that the licence obtained by its predecessor in title “was transferable to the Applicant”. The cost of internal works was given as £150,000, excluding the £19,000 referred to above.

21. In cross-examination, Mr [APPELLANT] stated that when the Applicant acquired the premises in 2020, he was aware it was subject to selective licensing because it fell within a selective licensing area. He had had previous meetings with the Council about selective licensing – in particular, he recalled a meeting with [NAME] [NAME] about his personally owned proper- ties in around November 2013. They had to come to an agreement about fees. He had held various selective licences over the years from 2011-13 and then from 2013 onwards under the current scheme, paying 25% down and 75% balance after a year. He accepted the licenses stated “on their face” that they were not transferable. After buying the property, Mr [NAME] had no discussions with the Council about new licenses because the property had an existing licence on it. At that time, he was not aware a licence was not transferable. But he now knew it was not transferable. The building was initially full of illegal occupiers, so the Applicant had had to empty the whole building.

22. As to the “contact” with [NAME] [NAME] by “via email and telephone”, he had spoken to her on Friday 22 January 2021. Before that, the Council may well have sent emails and letters to the company’s registered office, but he had not received them. After the Applicant received the Notices of In-

tent in January 2021, he phoned [NAME] [NAME]. She explained that a licence was needed, and the Applicant completely agreed with this. Between then and March 2021, discussions continued about the fees which were due, but the Respondent refused to accept 25% on account or [NAME] payment terms. The Applicant did not have the full £5,700 licence fee. After the conversation, the application forms were completed, the fees paid, and the flats were licensed with effect from 1 April 2021. Mr [NAME] accepted that when speaking to [NAME] [NAME] on 25 January 2021, he made no representations at all about the Notices of Intent.

23. Mr [NAME] explained the rental position with the flats at [NAME]. He initially charged £450-£500pw for a 2-bedroom flat and £350pw for a 1-bedroom flat. He accepted this meant in cash terms, the licence fees were less than a week’s gross rental income. But there were substantial loans on the building plus the cost of works. 19 flats were now occupied, although rents had since risen to £575pw for a 1-bedroom flat and £650pw for a 2-bedroom flat. At the date of purchase, [NAME] did not ask the vendors for a copy of the licence. The Applicant was a member of the [COMPANY] and received its news- letter and advice.

24. The Tribunal asked Mr [NAME] about the apparently contradictory answers that the previous licences stated “on their face” that they were not trans- ferable, but that he believed (at least until January-March 2021) that the licence in this case was transferable. He explained that since the tribunal application was made, he had gone back and read the old licences, and they did indeed say on their face that they were not transferable. But he had not seen this wording on the old licences until he went back and re- read them.

Findings of fact 25. It can be seen from the above that very little of the [NAME] was disput- ed. As to the points that were in issue, the Tribunal finds:

(a) The Tribunal prefers [NAME] [NAME] [NAME] that the telephone conversation between Mr [NAME] and [NAME] [NAME] in early 2021, it took place on Monday, 25 January 2021. More significantly, it prefers the [NAME] (at para 10 above) about what was said. [NAME] [NAME] account of the conversation was far more detailed, was essentially consistent with the Notices of Intent served a few days before, and she [NAME] her [NAME] confidently. By contrast, Mr [NAME] [NAME] was essentially improbable. Had he stated that the Applicant believed there was an existing licence, it is likely [NAME] [NAME] would have immediately explained that licences were not transferable – as she did on [NAME] occasions. (b) Although the Tribunal would have preferred to see copies of ear- lier licences granted to Mr [APPELLANT] personally, and to the Applicant’s predecessors in title relating to [NAME], there was essentially no dispute between the parties that all the Re- spondent’s licences carried warnings on the first page that they were not transferable. (c) The letters of 24 July 2020 and 27 August 2020 were properly posted to the Applicant’s registered office, which were the offices of the Applicant’s accountants. There is no [NAME] they were not received by the accountants, so we find that they were so deliv- ered. However, we accept the [NAME] of Mr [NAME] that he person- ally did not see the two letters. The Tribunal does not know whether the breakdown in communications was as a result of the accountants not forwarding the letters, or whether they were for- warded to someone [NAME] than Mr [NAME], or that they were lost in the post etc. But in any event, that communication breakdown occurred after the letters were received at the registered office.

The legislation 26. The selective licensing scheme appears in Pt.3 of the 2004 Act. For an area to be designated for selective licensing, s.80(1) requires that a number of conditions must be met. The chosen area must be, or be likely

to become, an area of “low housing demand” and the designation must contribute to the improvement of the social or economic conditions in the area.

27. Section 79(1) provides for “houses to be licensed by [NAME] where … (a) they are houses to which this Part applies” and “(b) they are required to be licensed under this Part …” Section 79(2) pro- vides that: “(2) This Part applies to a house if– (a) it is in an area that is for the time being designated under sec- tion 80 as subject to selective licensing, and (b) the whole of it is occupied either– (i) under a single tenancy or licence … or (ii) under two or more tenancies or licenses in respect of different dwellings contained in it …”.

Section 85(1) has a general requirement that “every Part 3 house must be li- censed”. The offence itself is at s.95(1): “(1) [NAME] commits an offence if he is a [NAME] of or managing a house which is required to be licensed under this Part (see section 85(1)) but is not so licensed”.

Section 91 contains general requirements about the licences, which in- clude the following: “(1) A licence may not relate to more than one Part 3 house. (2) A licence may be granted before the time when it is required by virtue of this Part but, if so, the licence cannot come into force until that time. (3) A licence— (a) comes into force at the time that is specified in or determined under the licence for this purpose, and (b) unless previously terminated by subsection (7) or revoked un- der section 93, continues in force for the period that is so specified or determined. (4) That period must not end more than 5 years after— (a) the date on which the licence was granted, or (b) if the licence was granted as mentioned in subsection (2), the date when the licence comes into force. … (6) A licence may not be transferred to [NAME]. (7) A licence may not relate to more than one Part 3 house.”

The relevant definitions are set out in s.99: “99. Meaning of “house” etc In this Part– ‘dwelling’ means a building or part of a building occupied or intended to be occupied as a separate dwelling; ‘house’ means a building or part of a building consisting of one or more dwellings; and references to a house include (where the context permits) any yard, garden, outhouses and appurtenances belonging to, or usual- ly enjoyed with, it (or any part of it).”

As to the [NAME], etc, this is dealt with in s.263: “263 Meaning of “[NAME]” and “person managing” etc. (1) In this Act “[NAME]”, in relation to premises, means (unless the context otherwise requires) the person who re- ceives the rack-rent of the premises (whether on his own account or as agent or trustee of [NAME]), or who would so receive it if the premises were let at a rack-rent. (2) In subsection (1) “rack-rent” means a rent which is not less than two-thirds of the full net annual value of the premises. (3) In this Act “person managing” means, in relation to premises, the person who, being an owner or lessee of the premises— (a) receives (whether directly or through an agent or trustee) rents or [NAME] payments from— (i) … (ii) in the case of a house to which Part 3 applies (see section 79(2)), persons who are in occupation as tenants or licensees of parts of the premises, or of the whole of the premises; or (b) would so receive those rents or [NAME] payments but for [NAME] entered into an arrangement (whether in pursuance of a court or- der or otherwise) with [NAME] who is not an owner or les- see of the premises by virtue of which [NAME] receives the rents or [NAME] payments; and includes, where those rents or [NAME] payments are received through [NAME] as agent or trustee, [NAME]. … (5) References in this Act to any person involved in the manage- ment of a house in multiple occupation or a house to which Part 3 applies (see section 79(2)) include references to the person manag- ing it.”

“249A Financial penalties for certain housing offences in England (1) The local housing authority may impose a financial penalty on [NAME] if satisfied, beyond reasonable doubt, that the person's conduct amounts to a relevant housing offence in respect of premises in England. (2) In this section “relevant housing offence” means an offence under— … (c) section 95 (licensing of houses under Part 3), (3) Only one financial penalty under this section may be imposed on [NAME] in respect of the same conduct. (4) The amount of a financial penalty imposed under this section is to be determined by the local housing authority, but must not be more than £30,000. (7) The Secretary of State may by regulations make provision about how local housing authorities are to deal with financial penalties recovered.

Sch.13A provides for appeals against financial penalties to the Tribu- nal. In the event of such an appeal, it is provided by para 10(3) of Sch.13A that the appeal: “(a) is to be a re-hearing of the local housing authority's decision, but (b) may be determined [NAME] regard to matters of which the au- thority was unaware”.

Can a flat be a “house”? 28. As explained above, this is an appeal against five separate penalties for individual flats. The Applicant contends that its conduct did not amount to a relevant housing offence, because the individual flats in re- spect of which notices were served were not “houses” within the mean- ing of the Act. This raises an important point of principle relating to blocks of flats, namely the meaning of the word “house” in s.95(1) of the Act. It should be said that although the Respondent argued the flats at [NAME] each constituted a separate “house”, neither counsel suggested that any one of the penalties could be upheld if the Respondent was wrong about this. In [NAME] words, the parties appeared to agree that (if determined in favour of the Applicant) the issue of law was capable of providing a complete defence to all five penalties.

The Applicant’s case 29. The Applicant essentially advanced three propositions.

30. First, the purpose of Pt.3 of the Act was to enable [NAME] to protect the health of occupiers of housing in their areas and to combat anti-social behaviour. It was no part of the purpose of Pt.3 of the Act to provide local housing authorities with a source of revenue.

31. Secondly, s.99 was ambiguous. The ambiguity was resolved by reading the provision so that a “house” meant either: (a) “a building … containing one or more dwellings”, or (b) “part of a building containing one or more dwellings”. The disjunctive “or” was of huge importance. It showed the draftsman intended to make clear that a “house” could not be both of those things at once. In [NAME] words, if “part of a building” met the definition of a “house”, then the building itself could not also be a “house”. Likewise, if a single “dwelling” within a “building” satisfied the definition, then the whole “building” could not be a “house”. A “house” could consist of “one or more dwellings”, but the language did not allow for a “house” to con- sist of more than one “house”.

32. This analysis was supported by the language of the offence and the of- fender in s.95(1). The [NAME] was “a [NAME] of or man- aging a house”. The “[NAME]” was “the person who re- ceives the rack-rent of the premises … or who would so receive it if the premises were let at a rack-rent”: see s.263(1) of the Act. The “person managing” meant an “owner or lessee [who] … Receives (whether direct- ly or through an agent or trustee) rents or [NAME] payments from … per- sons who are in occupation as tenants or licensees of parts of the prem- ises, or of the whole of the premises”. Counsel referred to the decisions of the Upper Tribunal in Hastings BC v Braer Developments Ltd [2015] UKUT 0145 (LC)1, and [NAME]) [COMPANY] v Haringey LBC

1 Concerning the validity of an Improvement Notice under s.11 of the Act.

[2015] UKUT 0104 (LC)2. In particular, in Braeer, the Deputy President stated at [47] that:

“47. … The regime established by Part 1 of the 2004 Act is intended to protect the occupiers of residential property, and targets the person receiving the rent paid by the occupier, or the most appro- priate owner of the property, as the recipient of improvement no- tices. In this case those persons are the lessees.”

33. The Applicant submitted that an offence was committed in the following circumstances: (a) Where a single person (“A”) owned the freehold/leasehold inter- est in a building (which was therefore a “house”), and it contained flats which were let on short lets or licenses, that person con- trolled or managed the building. If the building as a whole was unlicenced, A committed an offence. (b) Where A granted long leases of a single dwelling for a peppercorn ground rent to “B” (or a headlease of multiple dwellings to “C”), A would no longer be entitled to receive the rack-rent for the flats. [NAME] would be the persons [NAME] [NAME] of and managing part of the building. If the building was in an area of selective li- censing, and neither B nor C obtained a licence, A would plainly not commit an offence. But [NAME] would commit an offence. Counsel argued that if the definition of “house” was limited to a “building”, then in (b), no-one would commit an offence even though the whole building would satisfy the definition of “house”. That is be- cause there would be no-one [NAME] [NAME] of or managing the whole of the building, and because [NAME] would each be a [NAME] of or managing only ‘part’ of a building.

34. It was submitted that in light of this, the interpretation of section 99 must involve what the Applicant described as a “top-down” exercise, and not a “bottom-up approach”. The proper approach was to start with the

2 Concerning a Rent Repayment Order for an unlicensed HMO.

“building”. If there was [NAME] who met the definition of person hav- ing [NAME] of or managing the building, then that building alone would be a “house”, and it would not be possible for any smaller part of it also to be a “house”. [NAME] [NAME] was such a “house”, not the individual flats within it.

35. Thirdly, the Respondent’s contention effectively meant that both a building containing flats and the flats themselves could both be a “house”. This was legally unstainable, since a licence could not relate to more than one “house”: see s.91(1) of the Act. Moreover, different hous- ing authorities might take a different view as to whether a flat or a block of flats was a “house”. The application of the statutory definition would thus depend on an entirely arbitrary exercise of discretion by housing of- ficers. The Act created an offence, and the well-known principle against doubtful penalisation applied: see for example, [NAME] on Statutory In- terpretation (7th Ed.) at 27.1.

The Respondent’s case 36. It is meant as no disrespect to the Respondent to say that its argument was far shorter. It contended that a single flat could be a house within the definition at s.99 because a flat was “part of a building”. If the whole of that flat was “occupied … under a single tenancy or licence”, it had to be licensed under s.79(2)(b)(i) of the Act. An offence was committed un- der s.95(1) where the flat constituting such a “house” was subject to a se- lective licensing regime, and the relevant person in [NAME] had not li- censed it.

37. In his closing submissions, Mr [NAME] relied on the definition of the of the person in [NAME] of the house who committed the offence set out in s.263 of the Act. He summarised the policy behind the penalty provi- sions in s.263(1) and (3) as one of “follow the money”. Mr [NAME] also suggested the Council’s policy in respect of the grant of licences was con- sistent with s.91(1) of the Act. He relied upon various absurdities which

he said would arise from the Applicant’s approach: (a) A [NAME] letting say 22 flats in different buildings would continue to be subject to 22 potential offences, whereas a [NAME] owning a similar number of flats in a single building would only be liable for one offence. (b) In buildings containing self-contained flats, where the freehold is subject to a number of leasehold interests that are owned and let out by different [NAME] landlords, the enforcement of selective li- censing would not be possible. (c) A [NAME] letting a leasehold flat in a building containing [NAME] flats would not be able to apply for a selective licence for their property if a self-contained flat cannot be a “house”. (d) Counsel described a building under the [NAME] of a non- responsive [NAME] which contained only a small number of flats. If [NAME] of [NAME] letting was obtained for one flat alone, one could not enforce the licensing regime in relation to the [NAME] flats. The Tribunal’s decision 38. Although the rival approaches to the meaning of the legislation have been characterised as “top down” and “bottom up”, the Tribunal finds these labels are of limited assistance in this instance and are only likely to obscure the process of interpretation. However, it is plainly necessary to consider the meaning of the various provisions by reference to the stages necessary to establish whether an offence has been committed under s.95(1) of the Act.

39. The starting point is plainly s.95(1) itself. This comprises three elements: (a) The offence is committed by “a [NAME] of or man- aging” relevant premises. (b) The relevant premises must be a “house which is required to be

licenced” under s.85(1). (c) The relevant premises must “not [be] licenced”.

40. As far as the first element of s.95(1) is concerned, the [NAME] must be a [NAME] or managing the house3. As Mr [NAME] stressed, the [NAME] of or managing a house is defined in s.263 by reference to the right to receipt of a rack rent. The draftsman therefore focussed on at least the potential for profit-making (as the Respondent put it, the financial penalties in the Act “followed the money”). In the case of blocks of flats, this would suggest an [NAME] would generally be the immediate landlord of an individual flat or flats, rather than any headlessee or freeholder.

41. For present purposes, the main issue is with the second element. Is each of the five flats at [NAME] a “house which is required to be licenced” under s.85(1)? The licensing requirement in s.85(1) applies to a “Part 3 house”, which is defined by 85(5)(a) as “a house to which this part applies”. When one turns to s.99, a flat is plainly “part of a building”. A flat also “consists of one … dwelling”, because it is a “part of a building occupied or intended to be occupied as a separate dwelling”. Prima facie a flat therefore falls within the definition of a “house” in s.99. The plain and ordinary meaning of s.99 is therefore that each flat at [NAME] is a “house” for the purposes of Pt.3 of the Act.

42. The Tribunal finds there are three [NAME] considerations which support this conclusion: (a) It is true that in layman’s terms, a “flat” (in the sense of a unit of residential accommodation severed horizontally from [NAME])

3 The [NAME] major significance of being a “[NAME]” or “managing” a Pt.3 house is that this person is usually (but not always) the licence holder: see s.89.

might not ordinarily be described as a “house” (in the sense of a residential structure with a roof and elevations). But under hous- ing legislation, it is not unusual to find the term “house” used in relation to a flat. Indeed, this is expressly the position with HMOs under Pt.2 of the Act: see s.254. There is therefore no reason why a s.99 “house” is also not apt to include what a layman would or- dinarily describe as a “flat” or maisonette. (b) The only textbook commentary that the Tribunal is aware of ex- pressly states that: “House means a building or part of a building consisting of one or more dwellings.

Accordingly, a self-contained flat may be a house as may a number of flats situated above commer- cial premises. References to a house include (where the con- text permits) references to any yard, garden, outhouses and appurtenances belonging to, or usually enjoyed with, the house or any part of it.”: [NAME] at [1-4182.185].

(c) The Tribunal accepts the first of the absurdity arguments sug- gested by Mr [RESPONDENT]. It cannot be right that a [NAME] letting multiple flats in different buildings would continue to be subject to multiple penalties, whilst a similar landlord owning a similar number of flats in a single building would be liable for on- ly one offence. (d) Neither of the two authorities relied upon by the Applicant relate to Pt.3. of the Act. But both tend to support the Respondent’s “follow the money” analysis.

43. The Applicant’s arguments were attractively put, but ultimately the Tri- bunal cannot agree with them. The word “or” in the s.99 definition of “house” is disjunctive, but that does not take things any further. The word is simply included to show that a “house” can comprise something [NAME] than an entire building. Neither is there any tension between the two references to “part of a building”. The “part” of the building com- prising the “house” may of course be more extensive than the part com- prising the dwelling”. For example, a single floor of a building may be a

“house” containing several separate flats or “dwellings”.

44. More fundamentally, the Tribunal does not agree that the Respondent’s analysis provides for any possible overlap or uncertainty. It may well be that both a house containing flats, and the flats themselves might at the same time be “houses” as defined by s.99. But the Tribunal considers this is the reason for s.91(7). This prevents the grant of a licence relating to more than one Part.3 house. In a block containing flats, each of which is a Pt.3 house, s.91(7) may well prevent the grant of a licence for the whole house. It may well therefore be that the Respondent’s concession- ary scheme, which permits single licences covering multiple premises, may offend against s.91(7) - but that is not relevant to question whether an offence has been committed under s.95(1). This is because the basis of the offence is that no licence is in place for the relevant premises. The only consideration is whether those premises are a “house” (as defined by the statute) for which a licence is required.

45. Moreover, there is no overlap in offences. Any possible such overlap is removed by s. s.263, which effectively provides for one offence per prop- erty which is let. The person who commits an offence must always be the person in receipt of the rack rent etc., which in the case of a block of flats, means a landlord of a flat – not the block owner. The offence is therefore tied to the premises which are let, which (in the case of a block containing several flats) will usually mean a flat, not the block.

46. It follows from this that a literal interpretation of the penalty regime does not offend against the principle against doubtful penalisation. But if it did, the Tribunal would tend to prefer the meaning of the legislation to correspond with an offence being committed by those in [NAME] of each individual flat within a block. That result is perhaps closer to the policy objectives stated in the two cases referred to by the Applicant.

47. Finally, it is irrelevant (i) whether the Applicant’s predecessor in title held a single or multiple licences for [NAME] or (ii)

whether the Respondent has issued the Applicant with a single licence or multiple licences. Even had the Tribunal been shown these licences, they would not have helped decide whether there was a house which was un- licenced. As explained, different considerations may apply to whether one a licence may be granted to [NAME] in respect of premises and whether [NAME] commits an offence in relation to premises. In this case it is not disputed that during the relevant period there was no valid licence for the block or the flats at [NAME].

48. The Tribunal therefore rejects the main legal argument advanced by the Applicant. Each flat was a “house” for the purposes of s.95(1) of the Act. Reasonable excuse 49. Under s.95(4), it is a defence that the Applicant had a reasonable excuse for [NAME] [NAME] of or managing the house in the circumstances men- tioned in s.95(1). The relevant principles were set out by the Upper Tri- bunal in Sutton and [NAME] v Norwich City Council [2020] UKUT 90 (LC) at [215] to [221]. The Tribunal must apply the civil standard of proof. Lack of knowledge or belief can be a relevant factor to consider when determining whether or not someone has a reasonable excuse, but this must be an honest belief. Additionally, there have to be reasonable grounds for the holding of that belief. In connection with the similar de- fence under s.30 of the 2004 Act, the Upper Tribunal stated as follows: “219. Knowledge on the part of the manager that a building is a section 257 HMO, or that the 2007 Regulations exist, is not a con- dition of the obligations imposed by them. Nor is such knowledge an element of the offence of breaching the Regulations. The offence is one of strict liability, subject to the defence of reasonable excuse. … 221. It is possible to conceive of circumstances in which a lack of knowledge of the facts which caused a house to be an HMO might provide a reasonable excuse for non-compliance with the 2007 Regulations. For example, in [COMPANY] v Sal- ford City Council, to which we have already referred, the manager's defence was that he had been unaware that the HMO was occupied by more than one household, and so he did not take the additional steps required by the relevant regulations; that defence failed on the facts, but if the manager’s [NAME] had been accepted it might have succeeded. This is not that sort of case. FLAL was aware of all

the facts which caused Max House to be a section 257 HMO; its de- fence is that it was unaware of the consequences of those facts. The maxim that ignorance of the law is no defence is a familiar one. Just like a [NAME], a company cannot fall back on its own omission to inform itself of its responsibilities as a “reasonable excuse” for its failure to comply with them.”

The Tribunal also notes that under s.249A(9) of the Act, for the purposes of ascertaining whether the Applicant’s conduct amounts to an offence under s.95, that conduct may include “a failure to act”. The “reasonable excuse” defence must therefore be read in the light of that provision. Moreover: (a) It should always be remembered that the offence to which the de- fence of [NAME] a reasonable excuse relates is intended to create an offence of strict liability. (b) The offence itself is not framed in terms of failure to apply for a licence. The prohibited activity is controlling premises without a licence and the reasonable excuse must therefore relate to con- trolling the premises without a licence. This is not necessarily the same thing as [NAME] a reasonable excuse for not applying for a licence.

50. In succinct closing submissions, Mr [NAME] relied on the following mat- ters: (a) At the time of the offending conduct, the Applicant’s director Mr [APPELLANT] believed there was a licence in place. He therefore believed there was no need to apply for a licence. Mr [NAME] himself accepted that his previous licences stated on their face that they were not transferable, but Mr [NAME] had not read those words at the relevant time. (b) The Notices of Intent were given on 22 January 2021, which ef- fectively crystallised the offence. The offence was as stated in the Notices of Intent and conduct after that point became irrelevant. (c) If it was permissible to look at conduct after 22 January 2021, the Applicant’s conduct from that point was reasonable. Once the er-

ror was pointed out to Mr [APPELLANT], the Applicant acted promptly and applied for a licence.

The Tribunal’s decision 51. The Tribunal has no hesitation in rejecting the defence of reasonable ex- cuse. The Applicant was aware of all the facts which caused the flats at [NAME] to be licensable; its defence is that between 11 February 2020 and 22 January 2021, it was unaware of the consequenc- es of those facts.

52. As to ignorance of s.91(6), the statutory provision could not be clearer, and expresses in plain English that “A licence may not be transferred to [NAME]”. The maxim that ignorance of the law is no defence is a familiar one. Just like a [NAME], a company cannot fall back on its own omissions as a “reasonable excuse”: Sutton (supra) at [221]. Mr [RESPONDENT] accepted he was an experienced landlord, and that he had longstanding experience of this very licensing area. Mr [NAME] had had previous licences, which he admitted stated clearly on their face that li- censes were not transferable. Mr [NAME] admitted he did not read those li- cences and did not seek a copy of the relevant licence for these particular premises when the Applicant bought them. Mr [APPELLANT] also had access to advice through a [COMPANY]. The Applicant therefore had ready access to information about the correct legal position regard- ing the transfer of licences. The suggestion Mr [NAME] had not read the pre- vious licences, sought a copy of the existing licence or asked for advice from others may well be excuses, but they cannot possibly amount to “reasonable” ones.

53. In some cases, it might well be a reasonable excuse for an [NAME] to be excused from committing an offence because it relied on misleading ad- vice from a professional adviser or the local housing authority itself. But there was no suggestion that in this case the Applicant was given mis-

leading advice about the licensing regime by its legal advisers or by Council officers.

54. Accordingly, the Tribunal finds the Applicant had no reasonable ex- cuse for [NAME] [NAME] of or managing each flat without a licence be- tween 11 February 2020 and 22 January 2021.

55. As to events after 22 January 2021, the Tribunal accepts the offence “crystallised” when the Notices of Intent were given and that [NAME]’s conduct after that date is not directly relevant to whether the stat- utory defence is made out. But conduct after 22 January 2021 may be relevant to mitigation or aggravation of the offence and/or the level of penalty imposed. The Tribunal has already set out its findings of fact in relation to the conversation on 25 January 2021 (see para 25(a) above). After that, the Applicant contends it acted promptly to put a licence in place, and this came into effect on 1 April 2021. Mr [NAME] [NAME] was the 2-month delay was due to lack of funds to pay the full £5,700 licence fee. But it is clear from the level of rental income that the Applicant re- ceived a substantial weekly income from [NAME] alone – even if this was the only finance available to the Applicant (which seems unlikely). The Tribunal does not therefore find this a particularly convincing or indeed a reasonable excuse for not obtaining a licence un- til 1 April 2021. Level of penalty 56. Para 12 of Sch.13A to the Act requires a local housing authority to have regard to any guidance given by the Secretary of State about the exercise of its functions under Sch.13A or s.249A. Such guidance is to be found in “Civil penalties under the Housing and Planning Act 2016 ‒ Guidance for Local Housing Authorities”, which was re-issued in April 2018. Para 3.5 says that housing authorities “should develop their own policy on determining the appropriate level of civil penalty in a particular case” and lists several factors to be considered:

• Severity of the offence • Culpability and track record of the [NAME] • The harm caused to the tenant • Punishment of the [NAME] • Deter the [NAME] from repeating the offence • Deter others from committing similar offences • Remove any financial benefit the [NAME] may have obtained as a result of committing the offence

57. At the hearing, counsel agreed that the proper approach was for the Tribunal to apply the Respondent’s local policy adopted in its “Pri- vate Sector Housing Policy for imposing financial penalties under the Housing Act 2004 and Housing and Planning Act 2016 (1 April 2019)”. The approach to such policies was summarised by Judge Cooke in [NAME] v Waltham Forest LBC [2020] UKUT 35 (LC); [2020] 1 WLR 3187, a case which involved appeals against penalties imposed under section 249A of the 2004 Act. At [54], the judge stated: “The court is to start from the policy, and it must give proper con- sideration to arguments that it should depart from it. It is the ap- pellant who has the burden of persuading it to do so. In consider- ing reasons for doing so, it must look at the objectives of the policy and ask itself whether those objectives will be met if the policy is not followed.”

Judge Cooke also considered the weight to be attached to the local housing authority’s decision in any appeal at [62]: “the court is to afford considerable weight to the local authority's decision but may vary it if it disagrees with the local authority's conclusion”.

58. The 2019 policy sets out a conventional approach to assessment similar to that adopted by [NAME] local housing authorities. The first stage is to determine the starting point for the financial penalty by considering (a) the severity of the offence, (b) culpability, (c) track rec- ord, (c) portfolio size and (d) risk of harm. This was then reviewed in

the light of considerations such as hardship etc., to determine whether the penalty should be adjusted. Each factors is assigned a value within formulae set out in the Policy.

59. The [NAME] produced copies of the “Financial Penalty Proposal Forms” for each of the five flats. These were initially completed on 21 January 2021, and signed by the [NAME] on 11 March 2021. The forms were effectively ‘score sheets’, showing how officers applied each of the criteria in the 2019 policy to arrive at the financial penalty of £10,000 per flat.

60. There was no suggestion the Tribunal should depart from the Re- spondent’s 2019 policy (an argument Judge Cooke suggested might quite properly be advanced). Instead, [NAME] help- fully indicated that its challenge was limited to the Culpability ‘score’ in the Financial Penalty Proposal Forms. Both counsel agreed the Tri- bunal need therefore only reconsider this element of the assessment, before applying the remaining agreed elements of the assessment to arrive at the appropriate financial penalty. Although the Tribunal is of course re-determining the level of penalty, this plainly shortened the issues that had to be considered afresh in relation to that issue.

61. In relation to “Culpability”, the relevant part of the 2019 policy is at paras 27-31:

“Culpability

27. Culpability is a key factor in determining the severity of an of- fence. Therefore, the level of any penalty will initially be set by calculating the culpability category, which then determines the culpability premium. There are four culpability categories, name- ly: ● Very High; ● High; ● Medium; ● Low.

Very High 28. This category applies to offences where the [NAME] has delib- erately breached or flagrantly disregarded the law. This category is subject to a 100% culpability premium.

High 29. This category applies to offences where the [NAME] had fore- sight of a potential offence, but through wilful blindness, decided not to take appropriate and/or timely action. This category is sub- ject to a 80% culpability premium.

Medium 30. This category applies to offences committed through an act or omission that [NAME] exercising reasonable care would not commit. Any person or [NAME] legal entity operating as a landlord or agent in the [NAME] rented sector is running a business and is expected to be aware of their legal obligations. This category is subject to a 60% culpability premium.

Low 31. This category applies to offences where there was fault on the part of the [NAME], but significant efforts had been made to se- cure compliance with the law, but those efforts were not suffi- cient. This category may also apply to situations where there was no warning of a potential offence. This category is subject to a 40% culpability premium.”

Mr [NAME] argued that the offence fell within the “Medium” category, which would produce a penalty of £7,500 for each flat. The offence was committed through an omission which did not amount to “wilful blindness” etc. Mr [NAME] suggested the appropriate category was “High”, as found by the [NAME] which produced the penalty of £10,000. The reasoning for this assessment in the Financial Penalty Proposal Forms was that: “the [NAME] sector landlord has failed to apply for a selected li- cence despite being given opportunities to apply for a selective li- cence prior to the offence date. The [NAME] sector landlord had foresight of a potential offence but through wilful blindness, de- cided not to take appropriate action.”

The Tribunal’s decision 27. When considering paras 27-31 of the Respondent’s policy the Tribunal is acutely aware that the policy document should not be subjected to

the same kind of textual analysis one might undertake when interpret- ing a statute or a contract. The policy is intended as practical guidance for officers and the public. But if one can discern any key distinction between paras 29 and 30 of the policy, it is the element of wilfulness. The word “wilful” appears in para 29 and the reference in para 30 to “[NAME] exercising reasonable care” is clearly intended to distinguish the “Medium” category from that kind of wilful behaviour. But even within para 29, it is stressed that a “legal entity operating as a landlord or agent in the [NAME] rented sector is running a business and is ex- pected to be aware of their legal obligations”.

28. The Tribunal makes one comment about the reasons given by the of- ficers in assessing the appropriate category. The Tribunal has found (para 25(c) above) that the letters of 24 July and 27 August 2020 were not received by Mr [NAME]. Culpability is not therefore to be assessed in the light of the two reminders sent in the summer of 2020.

29. However, the Tribunal ultimately finds the offence sits more easily within the “High” category of culpability. The offences were not some- thing which [NAME] exercising reasonable care would commit and are better characterised as wilful blindness. The reasons are as follows: (a) The Applicant is a substantial professional landlord, with suffi- cient financial resources to obtain proper advice (whether legal advice or advice from a [COMPANY]). Knowledge of the licensing system is a key part of its business. A reasonable landlord of the Applicant’s size would make ap- propriate enquiries about licensing requirements. [NAME] did not. (b) The Applicant was well aware the premises were in an area which required licensing – and Mr [NAME] himself had licences for his properties. Again, a reasonable landlord active in this selective li- censing area would make reasonable enquiries about its licensing requirements. The Applicant did not.

(c) The suggestion Mr [APPELLANT] did not read the licenses for [NAME] premises can only really be described as negligent or careless. Licenses are important documents with serious potential legal consequences. (d) Similarly, Mr [NAME] stated that he relied on the existing licence for the premises, but accepted the Applicant did not seek a copy when it bought the premises. Given that the Applicant’s case was that it believed the existing licence covered the building, failure to obtain a copy of the licence is again wilful blindness. That licence would of course (by common agreement) have stated on its face that it was not transferable.

62. It follows from this that culpability falls within the “High” catego- ry in para 29 of the 2019 policy. If the Tribunal applies this finding to the penalty matrix, it produces a financial penalty of £10,000 for each offence. Conclusions 63. The Tribunal rejects the legal argument that financial penalties may not be imposed in relation to the individual flats at [NAME]. Each flat is a “house” for the purposes of s.95(1) of the Housing Act 2004.

64. The Tribunal finds that the Applicant’s defence that he had a rea- sonable excuse under s.95(4) of the Act is not made out.

65. The appropriate financial penalty for each offence is £10,000.

Judge Mark Loveday 14 January 2022

Appeals

1. [NAME] wishing to appeal this decision to the Upper Tribunal (Lands Chamber) must seek permission to do so by making written application to the First-tier Tribunal at the Regional office which has been dealing with the case.

2. The application must arrive at the Tribunal within 28 days after the Tri- bunal sends to the person making the application written reasons for the decision.

3. If the person wishing to appeal does not comply with the 28-day time limit, the person shall include with the application for permission to ap- peal a request for an extension of time and the reason for not complying with the 28-day time limit; the Tribunal will then decide whether to ex- tend time or not to allow the application for permission to appeal to pro- ceed.

4. The application for permission to appeal must identify the decision of the Tribunal to which it relates, state the grounds of appeal, and state the result the party making the application is seeking.