Financial Penalty Reduced for Unlicensed Property Management

OUTCOME: Allowed in Part

1

FIRST-TIER TRIBUNAL [NAME] CHAMBER ([NAME]) Case reference : BIR/00FY/HNA/2022/0014 Properties :

79 [ADDRESS], [POSTCODE]

Applicant : [redacted] : Mr [COUNSEL], counsel Respondent : [redacted] Representative : Mrs [COUNSEL], Solicitor Type of application : Appeal against a financial penalty under section 249A of the Housing Act 2004 Tribunal member : Judge C Goodall Mr A Lavender

Date and place of hearing : 17 May 2022 by video hearing platform Date of decision : 13 June 2022

DECISION

© CROWN COPYRIGHT 2022

2 Background

1. Nottingham City Council (“[NAME]”) imposed a financial penalty on [COMPANY], trading as [NAME] (“[NAME]”), by a final notice dated 30 November 2021, in respect of an allegation that [NAME] were a “[NAME] of a [NAME], namely 79 [ADDRESS] [POSTCODE]” (“the [NAME]”) which it “failed to licence under section 85 of the [Housing Act 2004] which is an offence under section 95(1) of the Act”. The penalty was for £3,680 on the face of that notice, but the breakdown and explanation of that amount showed the penalty as £3,870.

2. [NAME] appealed against the penalty out of time, but time was extended by order of Judge Barlow on 28 February 2022, who also gave directions for the future conduct of the appeal.

3. Both parties provided bundles of documents to the [NAME] and to the Tribunal. On 17 May 2022, the Tribunal conducted an oral hearing by video. [NAME] called evidence from Mr [NAME] and Mr [NAME]. Mr [NAME] had not submitted a witness statement. He is a director of [NAME], and works on compliance issues with Mr [NAME], who had provided a statement, and the Tribunal considered that it was in the interests of justice to allow him to supplement [NAME]’s evidence so that we heard [NAME]’s full case. Ms [NAME], a compliance officer with [NAME], gave evidence for [NAME]. [NAME] were represented by Mr [COUNSEL] of counsel. [NAME] was represented by Ms [COUNSEL] of [NAME]’s Legal Department.

4. Closing submissions were provided in writing after oral evidence had concluded, due to time restraints.

5. The Tribunal has carefully considered the written documentation and oral evidence. Our decision on the appeal, and the reasons for it, are given below.

The Law

6. The relevant sections of the Housing Act 2004 (“the Act”), so far as this application is concerned are as follows-

79 Licensing of houses to which this Part applies

(1) This Part provides for houses to be licensed by local housing authorities where—

(a) they are houses to which this Part applies (see subsection (2)), and

3 (b) they are required to be licensed under this Part (see section 85(1)).

(2) This Part applies to a house if—

(a) it is in an area that is for the time being designated under section 80 as subject to selective licensing, and

(b) the whole of it is occupied either—

(i) under a [NAME] tenancy or licence that is not an exempt tenancy or licence under subsection (3) or (4)…

85 Requirement for Part 3 houses to be licensed

(1) Every Part 3 house must be licensed under this Part unless—

(a) it is an HMO to which Part 2 applies (see section 55(2)), or

(b) a temporary exemption notice is in force in relation to it under section 86, or…

(c ) a management order is in force in relation to it under Chapter 1 or 2 of Part 4.

95 Offences in relation to licensing of houses under this Part

(1) [NAME] commits an offence if he is a [NAME] of or [NAME] a house which is required to be licensed under this Part (see section 85(1)) but is not so licensed.

(2) …

(3) In proceedings against [NAME] for an offence under sub-section (1) it is a defence that, at the material time-

…

(b) an application for a licence had been duly made in respect of house under section 87,

and that … application was still effective.

(4) In proceedings against [NAME] for an offence under subsection (1) or (2) it is a defence that he had a reasonable excuse—

(a) for [NAME] [NAME] of or [NAME] the house in the circumstances mentioned in subsection (1), or

4 (b) for failing to comply with the condition, as the case may be.

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 usually enjoyed with, it (or any part of it).

263 Meaning of “[NAME]” and “person [NAME]” etc

(1) In this Act “[NAME]”, in relation to premises, means (unless the context otherwise requires) the person who receives 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 [NAME]” 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) in the case of a house in multiple occupation, persons who are in occupation as tenants or licensees of parts of the premises; and

(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 order or otherwise) with [NAME] who is not an owner or lessee 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

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.

(5) The local housing authority may not impose a financial penalty in respect of any conduct amounting to a relevant housing offence if—

(a) the person has been convicted of the offence in respect of that conduct, or

(b) criminal proceedings for the offence have been instituted against the person in respect of the conduct and the proceedings have not been concluded.

(6) Schedule 13A deals with—

(a) the procedure for imposing financial penalties,

(b) appeals against financial penalties,

(c) enforcement of financial penalties, and

(d) guidance in respect of financial penalties.

…

7. Schedule 13A of the Act provides:

SCHEDULE 13A Financial penalties under section 249A

6 Notice of intent

1 Before imposing a financial penalty on [NAME] under section 249A the local housing authority must give the person notice of the authority's proposal to do so (a “notice of intent”).

2 (1) The notice of intent must be given before the end of the period of 6 months beginning with the first day on which the authority has sufficient evidence of the conduct to which the financial penalty relates.

(2) But if the person is continuing to engage in the conduct on that day, and the conduct continues beyond the end of that day, the notice of intent may be given—

(a) at any time when the conduct is continuing, or

(b) within the period of 6 months beginning with the last day on which the conduct occurs.

(3) For the purposes of this paragraph [NAME]'s conduct includes a failure to act.

3 The notice of intent must set out—

(a) the amount of the proposed financial penalty,

(b) the reasons for proposing to impose the financial penalty, and

(c) information about the right to make representations under paragraph 4.

Right to make representations

4 (1) [NAME] who is given a notice of intent may make written representations to the local housing authority about the proposal to impose a financial penalty.

(2) Any representations must be made within the period of 28 days beginning with the day after that on which the notice was given (“the period for representations”).

Final notice

5 After the end of the period for representations the local housing authority must—

(a) decide whether to impose a financial penalty on the person, and

(b) if it decides to impose a financial penalty, decide the amount of the penalty.

7

6 If the authority decides to impose a financial penalty on the person, it must give the person a notice (a “final notice”) imposing that penalty.

7 The final notice must require the penalty to be paid within the period of 28 days beginning with the day after that on which the notice was given.

8 The final notice must set out—

(a) the amount of the financial penalty,

(b) the reasons for imposing the penalty,

(c) information about how to pay the penalty,

(d) the period for payment of the penalty,

(e) information about rights of appeal, and

(f) the consequences of failure to comply with the notice.

Withdrawal or amendment of notice

9 (1) A local housing authority may at any time—

(a) withdraw a notice of intent or final notice, or

(b) reduce the amount specified in a notice of intent or final notice.

(2) The power in sub-paragraph (1) is to be exercised by giving notice in writing to the person to whom the notice was given.

Appeals

10 (1) [NAME] to whom a final notice is given may appeal to the First- tier Tribunal against—

(a) the decision to impose the penalty, or

(b) the amount of the penalty.

(2) If [NAME] appeals under this paragraph, the final notice is suspended until the appeal is finally determined or withdrawn.

(3) An appeal under this paragraph—

(a) is to be a re-hearing of the local housing authority's decision, but

8 (b) may be determined [NAME] regard to matters of which the authority was unaware.

(4) On an appeal under this paragraph the First-tier Tribunal may confirm, vary or cancel the final notice.

(5) The final notice may not be varied under sub-paragraph (4) so as to make it impose a financial penalty of more than the local housing authority could have imposed

7. There have been a number of relevant cases on the reasonable excuse defence in section 95 of the Act. Those brought to the Tribunal’s attention by the parties are:

(a) [NAME] v Thurrock Council [2021] EWCA Civ 1871. [ADDRESS] of Appeal case established that the question for the Tribunal to consider is whether there was a reasonable excuse for [NAME] to have had [NAME] of the [NAME] without a licence. The key passage is:

31. There is no definition of "reasonable excuse" in the 2004 Act . However, it seems to me that the plain meaning of the words used in the sub-section as a whole and taken in context is that there is a defence if, viewed objectively, there is a reasonable excuse for [NAME] [NAME] of or [NAME] an HMO without a licence. It seems to me that it is obvious, therefore, that the reasonable excuse must relate to activity of controlling or [NAME] the HMO without a licence. It is that activity which is the kernel of the offence in section 72(1).

…

34. However, the offence to which the defence of [NAME] a reasonable excuse relates, is not framed in terms of failure to apply for a licence. The prohibited activity is controlling or [NAME] an HMO without a licence. The reasonable excuse is framed expressly in terms of the offence itself. It must relate to the prohibited activity. As the UT Judge pointed out at [38] of her decision, not applying for a licence and controlling or [NAME] an HMO without a licence are not the same thing. They are not logically concomitant: [NAME] might have a perfectly reasonable excuse for not applying for a licence which does not (everything else being equal) give that person a reasonable excuse to manage or [NAME] those premises as an HMO without that licence.

(b) [COMPANY] v Salford City Council [2020] UKUT 81(LC). This case established that the burden of showing a reasonable excuse is on the Appellant, on a balance of probabilities.

9 (c) D’[NAME] v D’Andrea [2021] UKUT 144 (LC), in which a reasonable excuse defence succeeded when a local authority representative informed the landlord that no licence was needed.

(d) Thurrock Council v Daoudi [2020] UKUT 209 (LC), in which judicial comment to the effect that lack of knowledge of the requirement to licence might in certain circumstances constitute a reasonable excuse.

Facts

8. On 1 August 2018, a selective licensing scheme, under section 80 of the Act, came into force in respect of a designated area in Nottingham which included the [NAME]. By virtue of this designation, any privately rented properties under a [NAME] tenancy which is not an exempt tenancy or a licence became licensable under the scheme. This was not disputed.

9. A copy of a tenancy agreement for the [NAME] dated 12 March 2008 was produced by the Respondent (it [NAME] been provided to the Respondent in response to a requirement to produce it, dated 2 July 2021). The agreement is for a letting of the whole of the [NAME] for a term of six months. The tenancy agreement was signed on behalf of the freehold owner of the [NAME] (“the Owner”) whose address is given as c/o [NAME]. [NAME] are named as the landlord’s agent in the agreement. Rent is required to be paid to the Landlord’s Agent.

10. Official copies from H M Land Registry confirmed that the Owner has a long leasehold interest in the [NAME] expiring in 2083.

11. In a response to a notice under section 16 of the Local Government (Miscellaneous Provisions) Act 1976 from the Owner, confirmation is provided that the current tenant as at 2 July 2021 is the same tenant as was granted the tenancy under the agreement dated 12 March 2008.

12. [NAME] is the appointed manager of the [NAME], which is confirmed in a management agreement dated 9 August 2006 made between the Owner and [NAME]. Paragraph 4.3.1 confirms that [NAME] “will receive the rent on your behalf” and forward the balance after commission and any [NAME] deductions to the Owner.

13. [NAME] is a franchised estate agent and [NAME] manager. Two directors attended the hearing, Mr [NAME], and Mr [NAME]. In evidence, they told the Tribunal that they employed a [NAME] Manager whose job was to manage the office operations, including reading and dealing with all incoming post. If the [NAME] Manager had a concern about any incoming post, he would escalate the item for the attention of Mr [NAME], who would action it as necessary.

10 14. The Tribunal was informed by [NAME] that it manages around 250 properties. [NAME] personnel were aware of the selective licensing scheme; indeed in their written and oral evidence, Mr [NAME], confirmed that they provided no less than seven advice guides to their clients on selective licensing between 7 February 2017 and 16 October 2018, and facilitated face to face meetings for clients with [NAME] on the subject, and provided a monthly newsletter. They attended all the consultation meetings held by [NAME] as it was planning the introduction of the scheme. Their case is that by virtue of these communications to the Owner, she would have been aware of her obligation to licence the [NAME].

15. Mr [NAME] evidence was that in the first two months of the scheme coming into effect, [NAME] advised them that only the owner of a [NAME] could make an application to licence it - in his words, the applicant’s “name had to be on the deed”. He told us that at least in the early days of the scheme, [NAME]’s procedures caused him concern. He was aware of contradictions in the requirements needed for an application for a licence. [NAME] could not make applications for a licence either on their own or a clients behalf because they could not make payment of the fee, as a bank card was required rather than payment being possible with a BACS payment, which would be the more likely payment procedure available to an agent. They did not possess all the information required by [NAME], such as whether clients were on the sex offenders register, CRB checks, details of insurance arrangements, copies of the title deeds, and photo ID of the [NAME]. It seemed to be impossible to save applications on [NAME]’s computer system, and there was no way of pre-empting all the information that was required.

16. For these reasons, [NAME] eventually decided, in the early days of the scheme, that they would not become involved in the actual application process, but would advise their clients of the need to licence their properties.

17. [NAME] produced an annual document for their clients which they describe as a “[NAME] passport”. The [NAME] passport for 2021/22 for the [NAME] has been provided to the Tribunal. It was sent under cover of a letter dated 19 May 2021. It contains information relating to selective licensing, which confirms that the [NAME] is in an area of selective licensing, and in the reply to a box labelled “Valid Selective License Held?”, the entry is “LL application”.

18. [NAME]’s evidence was therefore that from inception of the selective licensing scheme, they had informed the Owner of her obligation to licence the [NAME], and they had no reason to believe that she had not done so. They considered that [NAME] expected and required that the landlord should apply for and obtain the licence.

19. However, no evidence was before the Tribunal of any contact by [NAME] with the Owner regarding licensing prior to July 2021, apart from the generic

11 advice summarised above, the [NAME] passport, and an email of 11 March 2021 which, in the Tribunal’s bundle, has no content.

20. [NAME] were investigating properties in the selective licensing area around the [NAME] through a desktop study in or around June 2021. They had reason to believe, from this study and from a Council Tax search, that the [NAME] was occupied by a tenant, and was managed by [NAME], so that it might require a licence.

21. On 1 July 2021, Ms [NAME] made a phone call to [NAME] during which they confirmed that they managed the [NAME]. She said there was no licence in place and an application for a licence would need to be submitted as soon as possible.

22. On 2 July 2021, [NAME] wrote to [NAME]. They sent three documents. The first was a letter, addressed to the Company Secretary or Clerk at [NAME], which was headed:

“Licensing of your [NAME]”

23. The first paragraph of the letter stated:

“Enquiries have identified you as the [NAME] agent of the above [NAME] which is required to be licensed… However, the council’s records show that the [NAME] is not licensed and an application for a licence has not been received.”

24. The letter continued later as follows:

“It is a criminal offence to operate a licensable [NAME] without a licence. Failure to apply for a licence could result in a Civil Penalty Notice of up to £30,000 or a prosecution at court which could incur an unlimited fine…”

25. In bold type, made more prominent by being in a box with a heading in a large font size, the letter stated:

“You must submit a licence application within 10 days of the date of this letter or make an application for a temporary exemption. Should you fail to do so, the Council may take enforcement action against you for the total period of time the [NAME] has been unlicensed.”

26. The [NAME] two documents were firstly a notice under section 16 of the Local Government (Miscellaneous Provisions) Act 1976 seeking details of the nature of [NAME]’s interest in the [NAME], details of all [NAME] interests in it, and details of persons who manage it and who occupy it, and secondly a Notice under section 235 of the Act seeking copies of the tenancy agreements and the management contract. The section 235 notice was addressed to [NAME] as “[NAME] who has an estate or interest in the premises”.

12

27. The letters were accompanied by a guidance note headed “Guidance Notes for Landlords” giving generic information about [NAME]’s licensing schemes. The third scheme identified is the selective licensing scheme. The note informs landlord’s that if “you” privately rent “your” [NAME], and you are not within either of the [NAME] schemes but the [NAME] is in a selective licensing area “you” will be required to apply for a licence.

28. There is no evidence of any pro-active response on the part of [NAME] to the 2 July correspondence from [NAME]. In evidence, Mr [NAME] said he believed the letter was a copy for their information of a letter to the Owner, to whom he considered it primarily applied. [NAME] were not unduly concerned to hear that the [NAME] was not licensed as they understood applications took around 16 months to process.

29. It became apparent during cross-examination that the post at [NAME]’s office was opened by the [NAME] Manager and it would only be shown to Mr [NAME] or Mr [NAME] if he considered that it required escalating to director level. The letters of 2 and 22 July 2021 were not so escalated, so Mr [NAME] and Mr [NAME] were not aware of them at the time.

30. [NAME] were then contacted by the Owner on 5 July 2021 who said “I received a notice from [NAME] about producing documents for their Environmental Health Community Protection unit... The Council demand that I send them the current tenancy agreement and the management agreement for the [NAME]. I think this is something [[NAME]] do.”

31. The [NAME] [NAME] Manager responded to the Owner the same day confirming he would send the tenancy agreement and recommending that the Owner send the [NAME] passport to [NAME]. In a later email that same day, the [NAME] Manager sent the Owner a copy of the tenancy agreement and also attached a letter “with reference to the selective licence your [NAME] requires”.

32. On 6 July 2021, there were further email exchanges between the [NAME] Manager and the Owner. In the first, the [NAME] Manager reminded the Owner she needed to apply for a licence and gave a link to [NAME]’s web-site for further information. Later that day, the [NAME] Manager provided copies to the Owner of an EPC and EICR and confirmed there was no need for a gas safety certificate as there is no gas in the [NAME]. This would suggest that the Owner was, that day, at least assembling the documentation needed to apply for a licence. [NAME] were not copied in to these emails.

33. Mr [NAME] and Mr [NAME] told the Tribunal that the [NAME] Manager knew it was not possible for [NAME] to apply for a licence itself. It had no interest in the [NAME]. He thought that the Owner was applying for the licence. They were critical that none of the correspondence from [NAME] made it explicit that [NAME] were “on the hook” in relation to the obligation

13 to licence. They accepted that their [NAME] Manager did not realise the seriousness of the situation. The [NAME] Manager did not give evidence, so the evidence given to us by Mr [NAME] and Mr [NAME] of his state of mind through this process is not direct evidence.

34. Ms [NAME] evidence is that no application for a licence had been made by 21 July 2021, so she rang [NAME] for an update. She was told that they had made the Owner aware that a licence application needed to be submitted for the [NAME].

35. The documentary evidence suggests that [NAME] had also sent an email to [NAME] on 21 July 2021, for [NAME] emailed the Owner on 21 July 2021 to say “we’ve received the attached email from the council with regards to your selective licence.” No email of that date was provided to the Tribunal and the [NAME] witnesses did not know of one. Whatever it said, there were two emails exchanged between the [NAME] Manager and the Owner about it, in which the [NAME] Manager recommended that the Owner should reply or he could reply “cc’ing you in”. This strongly suggests there was an email.

36. What is clear is that on 22 July 2021, [NAME] sent further correspondence which appear to have been letters sent by post to [NAME] and probably to the Owner as well. Ms [NAME] said this was a “final warning letter” introduced into their normal procedure due to the Covid pandemic, giving a final opportunity to apply for a licence to avoid further enforcement action.

37. The letter is again addressed to [NAME]. There is no reference on it to it being a copy of a letter sent to the Owner. It is again headed “Licensing of your [NAME]”. In large bold type, given prominence by being in a box, right at the top of the letter, the words “Action Required” appear.

38. The core content of the letter is:

“You were given a deadline of 10 working days to submit a licence application. According to our records checked 22 July 2021 we have not received a licence application for the [NAME], therefore the [NAME] is operating without a licence.

The Authority has noted that despite previous correspondence to you regarding the requirement to licence your rental [NAME], a licence application has still not been submitted. The Authority is providing you with a final period for you to submit a licence application, the deadline for receipt in 10 working days. If at that point in time you have still not made an application the Council may take enforcement action against you for the total period of time the [NAME] has been unlicensed.”

39. Again, there is no evidence of a direct response by [NAME] to this letter.

14 40. The Tribunal does however have copies of emails on 6, 9 & 19 August 2021 between [NAME] and the Owner. [NAME] was not copied in to these exchanges. On 6 August 2021, [NAME] confirmed they had received a copy of the tenancy agreement and completed section 16 information request from the Owner, but they told the Owner that they had not received a licence application. The Owner replied on 9 August 2021 to say she had sent all the “documentation for the application” in the post.

41. On 19 August 2021, [NAME] emailed the Owner to say that no paper application for a licence had been received. Details of how to apply for a paper application form were given, as were detail of how to contact the licensing team directly. The Owner replied asking for information on specifically what [NAME] required her to do.

42. [NAME] responded by asking the Owner to clarify what documentation had been sent. Clearly one pack of documentation had been sent and received as acknowledged in the [NAME] email of 6 August. It is not possible to establish whether the Owner had sent a second pack which had been lost in the post, or whether she was referring to the pack of documents that was received when she said she had sent “all the documentation for the application” in the post. One way or [NAME], the emails are confusing, and the Owner ended up emailing [NAME] on 20 August 2021 simply saying “please send a list of the documents you require”.

43. [NAME] replied on the same date and explained that the selective licensing application is separate to the requests under section 16 and section 235 and that it can be completed online or a paper application form can be requested.

44. [NAME] may have been unaware of the emails exchanges between 6 and 19 August 2021 referred to above, [NAME]’s evidence is that Ms [NAME] phoned [NAME] again on 19 August 2021 to inform them that a licence application had still not been received. She said she was told [NAME] would advise the Owner how to submit an application.

45. The [NAME] [NAME] Manager emailed the Owner on 20 August 2021 to say [NAME] had chased the selective licence application. He recommended that the Owner provide [NAME] with an update. The Owner replied to explain she had sent [NAME] “everything you sent me” but [NAME] say they didn’t receive it. She said she would send it again digitally, but she is not clear what they require. She said she had asked again for a list of documents.

46. By the end of 20 August 2021, the Owner said she didn’t know what documents [NAME] required, and [NAME] said they didn’t know what documents the Owner was saying she had already sent. Neither was able to answer the others query. Confusion reigned.

47. The mystery of the missing documents was solved on 26 August 2021. [NAME] telephoned [NAME] to say the documents that had been sent had been

15 received. [NAME] (still under the signature of the [NAME] Manager) then emailed the owner with the news (cc to [NAME]). The email continued:

“However they need you to complete the online licensing application, this is the main outstanding area.”

48. A link to the application form was provided which leads directly to an application process for a selective licence.

49. In what we assume was the same call from [NAME] to [NAME], [NAME] also requested outstanding information that had been requested in the 2 July 2021 letter. They also emailed further copies of the notices to them that day.

50. On 2 September 2021, Ms [NAME] made a phone call to [NAME] to tell them that no application for a licence had been made, to ask for the outstanding documentation that had been requested on 2 July 2021, and to remind them of their duty to licence as a [NAME] agent.

51. On 6 September 2021, [NAME] emailed [NAME] to repeat their request for full compliance with the statutory notices under sections 16 and 235, and reminding them that it is an offence to fail to comply. [NAME]’s evidence is that they received a phone call later that day to advise that the documentation would be sent that day. [NAME] confirmed that the outstanding documentation was received on 10 September 2021. From [NAME]’s point of view, the crucial document was a copy of the management agreement, which confirmed that [NAME] receive the rack rent for the [NAME].

52. On 14 September 2021, [NAME] made a decision to take further enforcement action, [NAME] reviewed their policy and tested that decision against the Code of Crown Prosecutors evidential and public interest tests.

53. On 17 September 2021, Ms [NAME] checked to see if a licence application had been received. None had.

54. We interrupt this chronological narrative to record Ms [NAME] generic evidence concerning licence applications. She told us that guidance on [NAME]’s website confirms that anyone can be an applicant for a licence as long as they have the information required by [NAME] about the [NAME] and personnel. A lot of applications for licences have been made by managers. Ms [NAME] confirmed that no application for a licence had been made for the [NAME] before she started to chase an application on 1 July 2021. She confirmed that no financial penalties would have been imposed had [NAME] (or indeed the Owner) complied with the time limit set out in the letter of 2 July 2021.

55. Ms [NAME] confirmed that she is not part of the licensing application process team so is not aware of the detailed requirements for submission

16 of a licence. She accepted the possibility that a manging [NAME] application for a licence might have to be supported by an Owner’s declaration.

56. On 27 October 2021, a Notice of Intent to impose a financial penalty was served on [NAME]. The Notice was addressed to [NAME]. It stated clearly that [NAME] was satisfied beyond reasonable doubt that [NAME] had committed an offence and that a financial penalty was being imposed, the amount of which was to be £4,910.00. The specific allegation in the Notice was:

“You as a [NAME] of a premises, namely 79 [ADDRESS], [POSTCODE], failed to licence it under section 85 of the Act which is an offence under section 95(1) of the Act.”

57. The Notice explained that representations could be made concerning the proposed financial penalty within 28 of the Notice. It also contained an Appendix giving reasons for [NAME]’s decision to impose a financial penalty.

58. There is documentation in the bundles that suggests that the Owner was also served with a Notice of Intent to impose a financial penalty. The penalty sum was £6,000.00. There is no further information clarifying whether a Final Notice was served on the Owner.

59. On 3 November 2021, the Owner submitted an application to licence the [NAME].

60. No representations were received from [NAME] following the Issue of their Notice of Intent. A Notice of final decision to impose a financial penalty was served on 30 November 2021, addressed to [NAME]. This Notice imposed a financial penalty of £3,680.00, though an accompanying financial penalty calculation gave the penalty as £3,870.00. It also specified the offence and gave reasons for the penalty. Details of appeal rights were also given, as was information about how to pay, the time by when the penalty should be paid, and the consequences of failure to pay.

61. The calculation of the penalty was explained in Schedule B of the Final Notice. [NAME] considered [NAME]’s culpability level to be High, and the seriousness of harm element to be in Band C (see [NAME]’s policy position set out below). This placed the offence in Band 3, which carried a mid-point starting point penalty of £4,500.00. Mitigating factors reduced this to £3,000.00. Aggravating factors increased it to £3,600.00. Financial benefit was calculated as £270.00. This resulted in a penalty of £3,870.00.

62. Mr [NAME] and Mr [NAME] evidence was that they did not understand the Notice of Intent and the Notice of final decision to be applicable to [NAME]. They considered that they were copies of notifications to the Owner and they did not consider that a financial penalty was being imposed upon [NAME]. In fact, it was not until 12 January 2022 that [NAME] realised a financial penalty was being imposed, at which point they sought permission to appeal.

17

Submissions

63. On behalf of [NAME], Mr [NAME] made thorough and detailed written submissions. An overview follows which does not do justice to the detailed submissions, but we restrict the content of this decision for reasons that will be apparent below. In overview:

(a) Between 1 August 2018 and 1 July 2021, [NAME] reasonably believed that the Owner was making the application for a licence, and that [NAME] expected licence applications to be made by landlords. [NAME] had made the Owner aware of her obligation to licence. [NAME] procedures put hurdles in the way of [NAME] being able to make licence applications on their own behalf.

(b) After 1 July 2021, [NAME] was doing everything it could to procure a licence application from the Owner. Only one application was required, and if the Owner made the application, there was no requirement for [NAME] to do so. Mr [NAME] drew the Tribunal’s attention to the eight interactions between [NAME] and the Owner between 5 July and 26 August 2021 in which she had been reminded that she needed to apply for a licence. In one of those interactions, on 6 July 2021, [NAME] provided relevant documents to the Owner to use in her application. Mr [NAME] also pointed out that [NAME]’s evidence established that they were never clear that a penalty was being imposed upon them until 12 January 2022.

64. [NAME] also made written submissions. [NAME] urged the Tribunal to take the view that the constituent elements of an offence under section 95 of the Act had been made out as from 1 August 2018 and the issue was whether there was a reasonable excuse for [NAME] failing to apply for a licence. As to the period prior to 1 July 2021, [NAME] referred to the failure by [NAME] to check whether an application had been made.

65. Regarding the period after 1 July 2021, [NAME] submitted that the evidence showed a failure by [NAME]’s [NAME] Manager to appreciate the import of the letters received. The point was made that [NAME] had decided not to call the [NAME] Manager, who was the person who handled the correspondence and negotiations between 1 July 2021 and the imposition of the financial penalties, and the person who should have explained why [NAME] did not make an application for a licence.

Quantum of the financial penalty – [NAME] policy

66. The financial penalty imposed was either £3,680 or £3,870. Both amounts were stated in the documentation provided to the Tribunal. To understand how [NAME] arrived at any figure, reference must be made to the Safer Housing Enforcement Policy document setting out [NAME]’s financial penalty model, from which the figure for a financial penalty is derived. The

18 Tribunal has been provided with version 2 of this policy, dated 17 December 2020.

67. The policy seeks to define a “just and proportionate” penalty for any offence, the maximum penalty for any one offence being £30,000. The maximum is reserved for the very worst offences. The level of penalty is informed by reference to seven factors, being severity (or seriousness), culpability, extent of harm, punishment, deterrence of offender, deterrence of others, and removal of financial benefit.

68. References in the policy to “landlords” include a [NAME] of [NAME].

69. Two of these factors – severity and culpability -are given more detailed analysis.

70. Severity or seriousness segregates offences into three levels, being levels A, B and C. The levels use the HHSRS rating system, with Class I and Class II harms being in level A, Class III and Class IV harms being in band B, and all [NAME] cases being in Band C.

71. Four levels of culpability are identified, being Very High, High, Medium, and Low.

72. Very High culpability means a deliberate breach or flagrant disregard for the law. High means actual foresight or wilful blindness to risk of offending with a landlord being reckless as to whether harm is caused. Medium means that an offence has been committed through an act or omission which [NAME] exercising reasonable care would not commit, such as failure to take reasonable care to implement and enforce systems to avoid the offence. Low means an offence with little or no fault on the part of the landlord.

73. The seriousness level and the culpability band selected for an offence are then used to fix a financial band into which a financial penalty will fall, with a starting point being at the mid-point in each band. There are 5 bands.

74. Further adjustments are then made to reflect aggravating and mitigating factors. A non-exhaustive list of these factors is provided.

75. Finally an addition to the financial penalty is made being a percentage of the amount of financial benefit an offender has derived from or during the commission of the offence. The percentage added depends into which of the penalty bands the offence falls, with 20% deduction for Band 1, rising to 100% for Band 5.

Discussion and determination – commission of an offence

19 76. A [NAME] of or [NAME] a [NAME] which is required to be licensed commits an offence under section 95 of the Act if the [NAME] is not licensed.

77. In this case, there are 6 elements to the offence:

(a) That the [NAME] must be a “house”;

(b) That the [NAME] must be in area which the local authority has designated as an area of selective licensing;

(c) That the [NAME] is let under a [NAME] tenancy or licence that is not an exempt tenancy or licence;

(d) That the [NAME] is not licensed;

(e) That [NAME] is “a [NAME]” of the [NAME];

(f) That there is no reasonable excuse for [NAME] [NAME] [NAME] of the [NAME] without it being licensed.

78. The Tribunal is satisfied beyond reasonable doubt that the elements (a) to (e) in the preceding paragraph are all met, such that the offence under section 95 of the Act is made out, subject to the reasonable excuse defence.

79. [NAME] accepted that the [NAME] was in an area designated for selective licensing, satisfying element (b). The evidence to support the [NAME] elements is the documentary and oral evidence. The tenancy agreement, which is a tenancy of a dwelling to a [NAME], confirms elements (a) and (c). The flat is part of a building, consisting of a dwelling, which therefore falls under the definition of “house” in section 99 of the Act. The Tribunal accepts the evidence of [NAME] that the [NAME] was not licensed at the material times set out in the evidence, satisfying element (d). The management agreement between the Owner and [NAME] confirms that [NAME] receive the rack rent, meaning that by virtue of section 263 of the Act it is [NAME] in [NAME] of the [NAME], satisfying element (e).

80. The issue is thus whether there is a reasonable excuse for failing to licence the [NAME] (element (f).

81. The Tribunal agrees with Mr [NAME] that there are two distinct periods for consideration, namely from the date the selective licensing scheme came into effect (1 August 2018) until 30 June 2021, and the period 1 July 2021 when direct contact was made with [NAME] until 3 November 2021 when an application for a licence was finally made.

1 August 2018 to 30 June 2021

82. Our task is to assess whether [NAME] had a reasonable excuse for being in [NAME] of the [NAME] during this period without a licence in place. The

20 burden of establishing a reasonable excuse is upon [NAME] on the balance of probabilities.

83. During this period, [NAME]’s case is that they had informed the Owner that she should apply for a licence and had no reason for believing she had not done so. Of course, had she made an application, no offence under section 95 would have been committed.

84. Not only did [NAME] believe that the Owner would have made an application, but their case is also that [NAME] was specifically eliciting applications from [NAME] rather than [NAME]. Their evidence was to the effect that there were insuperable obstacles in the way of licensing applications by [NAME], at least in the early days of the scheme, and indeed that they were expressly told that only [NAME] could apply for licences. Mr [NAME] evidence in paragraph 15 provides the details of the difficulties that were being experienced.

85. [NAME] say they were unconcerned that the Owner had not provided evidence of [NAME] obtained a licence because licensing applications were taking significant time to process. They were unable to check directly with [NAME] because of data protection issues.

86. [NAME]’s case is that there was no obstacle in the way of [NAME] applications for licences. [NAME] should have known of the obligation for the [NAME] to be licensed, and should have ensured a licence application was made. There were no provisions which prevented [NAME] informing a [NAME] agent whether a licence application had been received.

87. In some respects, the Tribunal does not accept [NAME]’s evidence in relation to this period. In our view it is unlikely that [NAME] were informed that only landlords could apply for a licence, as the Act is clear that the obligation to licence extends to a wider group, including [NAME] if they receive the rack rent. [NAME]’s evidence on this point was vague and unreliable. No date or dates when this advice was provided were given, and no person or document acting on behalf of [NAME] was identified.

88. Nevertheless, we considered that there was a lack of clarity on the part of [NAME] about the application process for [NAME], and there were hurdles placed in their way, including requiring information that was unlikely to be known by [NAME]. We have therefore concluded that it was not unreasonable for [NAME] to have formed a view that [NAME] were not encouraging [NAME] to apply for licences as a first resort, and were encouraging [NAME] to apply instead. Coupled with [NAME]’s belief that the Owner understood that she had an obligation to apply for a licence, and in the absence of any specific communication from [NAME] concerning the absence of a licence for the [NAME], we have reached a finely balanced decision that [NAME] had a reasonable excuse for not themselves applying for a licence in the period 1 August 2018 to 30 June 2021.

21 1 July 2021 to 3 November 2021

89. The Tribunal’s view is that [NAME]’s reasonable excuse for [NAME] [NAME] of the [NAME] without a licence after 1 July 2021 requires re-evaluating following the contacts it had with [NAME] on and after that date.

90. Ms [NAME] telephone call to [NAME] on 1 July 2021, and the [NAME] letters of 2 July 2021, sent to “The Company Secretary or Clerk”, [NAME] informed the [NAME] [NAME] Manager that the [NAME] was not licensed. In our view, a degree of knowledge and awareness of the consequences following from the fact that the [NAME] was unlicensed can and should be imputed to the [NAME] Manager and his superiors. In our view, [NAME] should have been aware that as a [NAME] agent in receipt of the rack rent for the [NAME] (and so being [NAME] in [NAME] of the [NAME]), they had a dual responsibility with the Owner to ensure the [NAME] was licensed. Failure to licence it was an offence punishable by criminal conviction or a financial penalty, that offence being committed just as much by [NAME] as by the Owner.

91. In our view, it is significant that [NAME] were so integrally involved in communications to introduce the selective licensing scheme to its clients at its inception. It is reasonable to suppose that this involvement indicated good awareness of how the scheme worked, and the impact of failure to licence.

92. If it was the case that the [NAME] Manager did not realise the consequences of the absence of a licence, it was incumbent upon the [NAME] directors, in our view, to provide adequate training, or alternatively to make arrangements for letters that carried legal risk to be seen by [NAME] who did have the appropriate knowledge of the impact of the letters.

93. We do not find that there was any real ambiguity about the meaning of the letter of 2 July 2021, and we reject the proposition that it was reasonable to construe it as a copy of a letter to the Owner, or that it failed to explain its impact upon [NAME]. In the first place, the letter was addressed to [NAME]. Secondly, it contained the phrase “Enquiries have identified you as the [NAME] agent of the above [NAME] which is required to be licensed…”. This phrase could not apply to the Owner.

94. The letter was sufficiently clear to indicate that the [NAME] was not licensed and that [NAME] had some responsibility on their own account to regularise the position. We are not persuaded that there was any real ambiguity about [NAME] phrases in the letter, such as the reference to “your private rented [NAME]”, that would result in an interpretation by [NAME], as a reasonably competent professional [NAME] agent with knowledge of the selective licensing legislation, to the effect that the letter did not apply to it.

95. In our view, the 2 July 2021 letter alerted [NAME] to a significant commercial and legal risk, and to avoid committing an offence, it was at that point

22 incumbent upon them to ensure a licence application was made within the time limit given in the letter of 2 July 2021, namely 10 days from the date of the letter (i.e. 12 July 2021).

96. [NAME] had two routes available to ensure the [NAME] was licensed. They could apply for a licence themselves, or they could ensure that the Owner applied herself. We reject the suggestion that [NAME] was incapable of applying for a licence itself at this point. There were undoubtedly hurdles to overcome, including the need for some information only in the possession of the Owner, but we have seen no evidence that [NAME] sought this information from the Owner, which they could have done. While there may have been concerns over making an application online there was the opportunity to make a paper application. Alternatively, they could have pro-actively worked with the Owner to ensure that she completed her application. There is no evidence that [NAME] offered to meet the Owner to progress the application together, or sought full details of the problems the Owner was [NAME] with her application, which they could have done.

97. It is very telling to us that at no point did [NAME] engage proactively with [NAME] on their own behalf to explain the hurdles either they or the Owner were [NAME] with the application process. Our view of this case may well have been very different had [NAME] written to [NAME] to say they were aware that the [NAME] should have a licence, that they were potentially liable to obtain it, but that despite their best endeavours, they were unable to complete a licence application, and to explain the reasons for this.

98. In our view, after 12 July 2021, there was no reasonable excuse for [NAME] to continue to have [NAME] of the [NAME] without a licence [NAME] been applied for (which of course is the point at which any offence ceases, by virtue of section 95(3)(b) of the Act).

99. The facts show that [NAME] were then made aware that no licence had been applied for no less than seven times after 2 July 2021, being a telephone call from [NAME] on 21 July 2021, an email on 21 July 2021, the letter dated 22 July 2021, an email on 19 August 2021 and a phone call on the same dated, a telephone call on 26 August 2021, and [NAME] telephone call on 2 September 2021.

100. It does not appear to the Tribunal that the [NAME] staff member who handled this case was sufficiently aware of the requirements of the selective licensing scheme to have realised the consequences of taking the very relaxed approach he did. Unfortunately, he made assumptions to the effect that the correspondence and telephone calls referred to in the evidence did not have an impact upon [NAME]. Sadly, these assumptions were erroneous.

101. In our view the eight contacts [NAME] had with the Owner between 5 July and 26 August 2021 were illustrative of [NAME]’s failure to understand their position. Merely reminding the Owner that she should apply for the licence missed the point. For a reasonable excuse defence to work in that

23 situation, in our view, would have required much more urgent and intense interactions, designed to make sure and certain that a licence application was made. To us, [NAME] should have realised that the Owner was really struggling with her application. They should have intervened positively and decisively to identify what was required to complete an application, and they should have become involved in positively assisting the Owner, rather than merely reminding her she needed to apply for the licence.

102. It was open to [NAME] to pro-actively contact [NAME] to confirm whether the [NAME] had been licenced or whether an application had been received. We do not consider that GDPR requirements would have prevented such information being provided by [NAME]. Since this incident it was given in evidence that [NAME] have changed their policy from accepting assurances that a landlord has applied for a licence at face value, to requiring documentary evidence of such an application being made.

103. Our view is that there was no reasonable excuse for [NAME] to have failed to ensure a licence application was submitted, so as to ensure that the [NAME] was not unlicensed, after 12 July 2021.

104. Our conclusion is that between 12 July 2021 and 3 November 2021, [NAME] committed an offence under section 95 of the Act that, being a [NAME] of a [NAME], namely [ADDRESS], it failed to licence the [NAME] under section 85 of the Act. The defence of reasonable excuse under section 95(4) of the Act did not apply during those dates.

Amount of the financial penalty

105. The Tribunal determines that, an offence under section 95 of the [NAME] been committed, it is appropriate to impose a financial penalty upon [NAME].

106. The Tribunal is satisfied that paragraphs 1 to 8 inclusive of Schedule 13A to the Act were complied with by [NAME]. No issues regarding these procedural requirements was raised by [NAME].

107. We have to consider the imposition of a financial penalty by way of re- hearing. We must confirm, vary, or cancel the final notice.

108. [NAME] heard the evidence and representations of [NAME] during the hearing, we take a different view from [NAME] as to the final amount to impose by way of financial penalty.

109. Our conclusion above concerning the reason that [NAME] committed the offence under section 95 was that it failed to fully comprehend the extent of the legal obligation it had to ensure that the [NAME] was licensed. Our view is that failure was a lack of knowledge or training on the part of the office staff, and a lack of adequate systems to bring legal risk to the attention of the directors of [NAME]. We do not consider that there was a

24 deliberate flouting of the licensing law, or that [NAME] was reckless in relation to its legal obligations. We do consider that there was a failure to take reasonable care to implement and enforce proper systems to manage risk and avoid committing an offence.

110. [NAME]’s policy to this case, we agree that the seriousness of harm falls within level C in the policy. We do not agree that culpability fell within the “High” category; the appropriate category in our view is “Medium”. Our conclusion in paragraph 109 above is one of the distinct criteria within the definition of cases that fall into the Medium category.

111. [NAME]’s table for penalty bands, the band for a level C category for seriousness, and category “Medium” for culpability is £1,200 - £3,000, with a starting point of £2,075. We adopt the starting point.

112. Adjusting for aggravating factors, though the list is non-exhaustive, we have not strayed beyond it. The only aggravating factor relevant, in our view, is that poor management practice is indicated, this again being in respect of the failure to put adequate risk management practices in place and to ensure that staff are fully aware of the law. We add £350 to reflect this factor.

113. So far as mitigating factors are concerned, we agree with [NAME] that some reduction in the financial penalty is appropriate to reflect the lack of hazards at the [NAME], eventual compliance with statutory notices, and existence of the required certification to show that installations at the [NAME] were in a safe working condition. We decrease the penalty by £700, being the same proportion of the starting point that [NAME] used in their own calculation.

114. Finally, we add a sum to deprive [NAME] of financial benefit for the period of the commission of the offence (12 July to 3 November). Rent for the [NAME] was £395 per month. [NAME]’s commission was 10%. Vat on the fees has not been taken into account. This is on the basis that vat is paid or remitted to the Government on behalf of the [NAME]. Therefore, the company does benefit directly from the vat. The deprivation rate, according to the [NAME] policy, is 40% for a Band 2 offence. We calculate the addition to be £63.20.

115. The financial penalty is therefore varied to £1,788.20, calculated as follows:

Starting point tariff ......................................... 2,075.00 Add for aggravating factors ............................... 350.00 Deduct for mitigating factors ........................... (700.00) Add for financial benefit ...................................... 63.20 Total ................................................................ 1,788.20

Summary

25 116. We find that [NAME] committed an offence under section 95 of the Act between the dates 1 July 2021 and 3 November 2021.

117. We vary the financial penalty imposed by [NAME] to the sum of £1,788.20.

Appeal

118. Any appeal against this decision must be made to the Upper Tribunal (Lands Chamber). Prior to making such an appeal the party appealing must apply, in writing, to this Tribunal for permission to appeal within 28 days of the date of issue of this decision (or, if applicable, within 28 days of any decision on a review or application to set aside) identifying the decision to which the appeal relates, stating the grounds on which that party intends to rely in the appeal, and stating the result sought by the party making the application.

Judge C Goodall Chair First-tier Tribunal ([NAME] Chamber)