Financial Penalty Rejected Due to Premature Action by Local Authority

OUTCOME: Allowed

FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY) Case Reference : LON/OOAS/HNA/2019/0111 Property : 7 [ADDRESS] [POSTCODE] Appellant/applicant : [redacted]

: [COUNSEL] of Counsel Respondents : [redacted]

: [COUNSEL] of Counsel Type of [NAME]

Tribunal Members : Appeal against a financial penalty under s.249A and schedule 13A of the [NAME] 2004

Judge Professor Robert Abbey and [NAME] and Date of Hearing : 10 [ADDRESS] [POSTCODE] 4 December 2019 Date of Decision : 18 December 2019

DECISION

Decision

1. The appeal by the appellant against the imposition of a financial penalty by the London Borough of [NAME] under section 249A and schedule 13A of the [NAME] 2004 is upheld. The decision by the London Borough of [NAME] to impose a financial penalty is denied to the intent that there shall be no financial penalty levied against the appellant.

Introduction

2. This is an appeal by [APPELLANT] against the imposition of a financial penalty made by the London Borough of [NAME] under section 249A and schedule 13A of the [NAME] 2004. The Financial Penalty Notice from the local authority was dated 8 August 2019 and is in the sum of £9,666.67. The Hearing 3. The appeal was set down for hearing on 9 December 2019 when [NAME] was represented by Ms [COUNSEL] of Counsel. Mr [COUNSEL] of Counsel appeared on behalf of the [COMPANY]. Background 4. [NAME] legislation is set out in the appendix to this decision.

5. The background to the imposition of the penalty was primarily set out in two witness statements of Mr [NAME] dated 9 October 2019 and 3 December 2019, who is an EHRB registered Environmental Health Officer and who is in the employ of [NAME] as a [NAME] [NAME] in the [NAME] and who gave oral evidence at the hearing.

6. He confirmed that on 7 May 2019 he visited the property to see if the property was operating as an unlicensed HMO. Having so inspected he was of the view that the property meets requirements of a licensable HMO under section 254 of the [NAME] 2004. He considered that the applicant was to be held jointly liable for managing an unlicensed HMO which is an offence under section 72(1) of the [NAME] 2004 and for Management Regulation breaches.

7. On 6 June 2019 the respondent issued a “Declaration of a House in Multiple Occupation pursuant to section 255 of the [NAME] 2004. On 10 June 2019 a Notice of Intention to impose a financial penalty was served for failure to licence a licensable HMO and breach of Management Regulations. On 8 August 2019 A Notice of Decision to impose a financial penalty was served.

8. The respondent asserted that on 7 May 2019 the property was not licenced as an HMO and the property was occupied by 3 or more unrelated tenants who shared kitchen and bathroom facilities. The applicant confirmed that there was no HMO licence and none had been applied for and that there was never any intention to create an HMO at the property. The Appeal and the law

9. At the core of this dispute is the fact that on 6 June 2019 the respondent issued a “Declaration of a House in Multiple Occupation pursuant to section 255 of the [NAME] 2004. To understand the concerns raised by this it is first important to appreciate what section 255 states, (with bold emphasis applied by the Tribunal) – 255 HMO declarations (1)If a local [NAME] authority are satisfied that subsection (2) applies to a building or part of a building in their area, they may serve a notice under this section (an “HMO declaration”) declaring the building or part to be a house in multiple occupation. (2)This subsection applies to a building or part of a building if the building or part meets any of the following tests (as it applies without the sole use condition)— (a)the standard test (see section 254(2)), (b)the self-contained flat test (see section 254(3)), or (c)the converted building test (see section 254(4)), and the occupation, by persons who do not form a single household, of the living accommodation or flat referred to in the test in question constitutes a significant use of that accommodation or flat. (3)In subsection (2) “the sole use condition” means the condition contained in— (a)section 254(2)(d) (as it applies for the purposes of the standard test or the self-contained flat test), or (b)section 254(4)(e), as the case may be. (4)The notice must— (a)state the date of the authority’s decision to serve the notice, (b)be served on each [NAME] within the period of seven days beginning with the date of that decision, (c)state the day on which it will come into force if no appeal is made under subsection (9) against the authority’s decision, and (d)set out the right to appeal against the decision under subsection (9) and the period within which an appeal may be made.

(5)The day stated in the notice under subsection (4)(c) must be not less than 28 days after the date of the authority’s decision to serve the notice. (6)If no appeal is made under subsection (9) before the end of that period of 28 days, the notice comes into force on the day stated in the notice. (7)If such an appeal is made before the end of that period of 28 days, the notice does not come into force unless and until a decision is given on the appeal which confirms the notice and either— (a)the period within which an appeal to the Upper Tribunal may be brought expires without such an appeal having been brought, or (b)if an appeal to the Upper Tribunal is brought, a decision is given on the appeal which confirms the notice. (8)For the purposes of subsection (7), the withdrawal of an appeal has the same effect as a decision which confirms the notice appealed against. (9)[NAME] may appeal to the appropriate tribunal against a decision of the local [NAME] authority to serve an HMO declaration. The appeal must be made within the period of 28 days beginning with the date of the authority’s decision. (10)Such an appeal— (a)is to be by way of a re-hearing, but (b)may be determined having regard to matters of which the authority were unaware. (11)The tribunal may— (a)confirm or reverse the decision of the authority, and (b)if it reverses the decision, revoke the HMO declaration. (12)In this section and section 256 “[NAME]”, in relation to an HMO declaration, means any person who, to the knowledge of the local [NAME] authority, is— (a)[NAME] having an estate or interest in the building or part of the building concerned (but is not a tenant under a lease with an unexpired term of 3 years of less), or (b)[NAME] managing or having control of that building or part (and not falling within paragraph (a)). (13)For the purposes of this section and section 256, “appropriate tribunal” means— (a)in relation to a building in England, the First-tier Tribunal or, where determined by or under Tribunal Procedure Rules, the Upper Tribunal; and (b)in relation to a building in Wales, a residential property tribunal.

10. On 5 September 2019 the applicant submitted an appeal to the Tribunal against the Final Penalty Notice.

Decision and Reasons

11. On considering all the evidence, the Tribunal immediately identified a problem with the chronology of events leading up to the imposition of the financial penalty. The problem relates to the timing of the various statutory events.

12. The Declaration served by the respondent stated that (with bold applied by the Tribunal) “The property….is declared a house in multiple occupation. On 06 June 2019 the London Borough of [NAME], the local [NAME] authority declared that this building…. Is a house in multiple occupation and that this notice of declaration is served. If no appeal is made against this notice then this declaration shall become operative on 04 July 2019, being not less than 28 days after the decision to serve this notice was made.” The effect of this was to say that the respondent considered the property to be an HMO and that the notice gives the recipients 28 days to appeal against the Declaration failing which the property will conclusively become an HMO after that notice period.

13. The problem that the Tribunal identified is that on 10 June 2019 a Notice of Intention to impose a financial penalty was served for failure to licence a licensable HMO and breach of Management Regulations; the 10 June being well within the 28 day period stipulated in the Declaration. (The 28 day period would not expire until 4 July 2019.) This was then followed on 8 August 2019 by a Notice of Decision to impose a financial penalty, (served on that date). As is contemplated by statute the financial penalty follows the notice of intention.

14. Unfortunately for the respondent the Tribunal takes the view that the serving of the Notice of Intention was premature. The Declaration period of 28 days had not elapsed. Because it had not elapsed the property simply could not have been an HMO until the 28 day period had elapsed. Otherwise what was the purpose of the [NAME] of the Declaration? It was to put the property owner on notice that the Council believed it to be an HMO and that there was a period of 28 days to accept or reject this declaration. However, to take steps before the expiry of the 28 days on the assumption that the property was an HMO was not proper given that the possible HMO might still be challenged. Therefore to serve the Notice of Intention was wrong and anything flowing from it had to be wrong too. A financial penalty was wrong as until the 28 day period had expired there was no HMO and therefore no possible unlicensed HMO could be identified.

15. Finally to confirm this the Tribunal quotes from the explanatory notes to the Act, (with bold applied by the Tribunal) – Section 255 provides that where an LHA is satisfied that although not exclusively occupied by people as their main or only home, a building is occupied to a significant degree by such persons (and otherwise the

occupation and building satisfies the HMO tests) it may issue a declaration that the building is an HMO. This could be used, for example, where it is not entirely clear that a building was being predominantly used as a hotel catering for short term guests or as a hostel accommodating permanent residents. An HMO declaration puts beyond doubt that such a building is to be regarded as an HMO. It must serve the declaration on the [NAME] persons as defined in the section and they have a right of appeal against the [NAME] of a declaration. The declaration does not come into force until the appeal process is finished, if on appeal the decision to make it is confirmed.

16. Accordingly the process must finish for there to be an HMO. In this case the Tribunal are of the view that the process had clearly not finished when the respondent took the next step of issuing a Notice of Intention.

17. Therefore the Tribunal has decided not to uphold the Final Penalty Notice. Consequently, the appeal by the appellant against the imposition of a financial penalty by the London Borough of [NAME] under section 249A and schedule 13A of the [NAME] 2004 is upheld. The decision by the London Borough of [NAME] to impose a financial penalty is therefore dismissed.

18. Rights of appeal are set out in the annex to this decision.

Name: Judge Professor Robert Abbey Date: 18 December 2019

Annex Rights of appeal

By rule 36(2) of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013, the tribunal is required to notify the parties about any right of appeal they may have. If a party wishes to appeal this decision to the Upper Tribunal (Lands Chamber),then a written [NAME] for permission must be made to the First-tier Tribunal at the regional office which has been dealing with the case. The [NAME] for permission to appeal must arrive at the regional office within 28 days after the tribunal sends written reasons for the decision to the [NAME]. If the [NAME] is not made within the 28 day time limit, such [NAME] must include a request for an extension of time and the reason for not complying with the 28 day time limit; the tribunal will then look at such reason(s) and decide whether to allow the [NAME] for permission to appeal to proceed, despite not being within the time limit. The [NAME] for permission to appeal must identify the decision of the tribunal to which it relates (i.e. give the date, the property and the case number), state the grounds of appeal and state the result the party [NAME] the [NAME] is seeking. If the tribunal refuses to grant permission to appeal, a further [NAME] for permission may be made to the Upper Tribunal (Lands Chamber).

[NAME] 2004 249A Financial penalties for certain [NAME] offences in England (1)The local [NAME] authority may impose a financial penalty on [NAME] if satisfied, beyond reasonable doubt, that the person's conduct amounts to a [NAME] [NAME] offence in respect of premises in England. (2)In this section “[NAME] [NAME] offence” means an offence under— (a)section 30 (failure to comply with improvement notice), (b)section 72 (licensing of HMOs), (c)section 95 (licensing of houses under Part 3), (d)section 139(7) (failure to comply with overcrowding notice), or (e)section 234 (management regulations in respect of HMOs). (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 [NAME] authority, but must not be more than £30,000. (5)The local [NAME] authority may not impose a financial penalty in respect of any conduct amounting to a [NAME] [NAME] 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)The Secretary of State may by regulations make provision about how local [NAME] authorities are to deal with financial penalties recovered. (8)The Secretary of State may by regulations amend the amount specified in subsection (4) to reflect changes in the value of money.

(9)For the purposes of this section [NAME]'s conduct includes a failure to act. Schedule 13A Notice of intent 1Before imposing a financial penalty on [NAME] under section 249A the local [NAME] 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. 3The 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 [NAME] 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 5After the end of the period for representations the local [NAME] 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.

6If the authority decides to impose a financial penalty on the person, it must give the person a notice (a “final notice”) imposing that penalty. 7The 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. 8The 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 [NAME] 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 [NAME] authority's decision, but (b)may be determined having 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 [NAME] authority could have imposed. Recovery of financial penalty 11(1)This paragraph applies if [NAME] fails to pay the whole or any part of a financial penalty which, in accordance with this Schedule, the person is liable to pay. (2)The local [NAME] authority which imposed the financial penalty may recover the penalty or part on the order of the county court as if it were payable under an order of that court. (3)In proceedings before the county court for the recovery of a financial penalty or part of a financial penalty, a certificate which is— (a)signed by the chief finance officer of the local [NAME] authority which imposed the penalty, and (b)states that the amount due has not been received by a date specified in the certificate, is conclusive evidence of that fact. (4)A certificate to that effect and purporting to be so signed is to be treated as being so signed unless the contrary is proved. (5)In this paragraph “chief finance officer” has the same meaning as in section 5 of the Local Government and [NAME] 1989. Guidance 12A local [NAME] authority must have regard to any guidance given by the Secretary of State about the exercise of its functions under this Schedule or section 249A

FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY) Case reference : LON/OOAS/HNA/2019/0111 Property : 7 [ADDRESS] [POSTCODE] Applicant : [redacted] : [COUNSEL] of Counsel Respondent : [redacted] : [COUNSEL] of Counsel Type of [NAME] : Appeal against a financial penalty under s.249A and schedule 13A of the [NAME] 2004 Tribunal members : Judge Professor Robert Abbey and [NAME] of Hearing and date : 10 [ADDRESS] [POSTCODE] 4 December 2019 Date of Costs Decision : 23 March 2020

[NAME] for costs 1. An [NAME] was made by the Applicant under Rule 13 of the Tribunal Rules in respect of the Applicant’s costs. The Tribunal subsequently received a schedule of costs totalling £15704. This is the amount listed by the Applicant and includes the Tribunal fees of £300. The details of the provisions of Rule 13 are set out in the appendix to these Directions and rights of appeal made available to parties to this dispute are set out in an Annex.

2. Before a costs decision can be made, the tribunal needs to be satisfied that there has been unreasonableness. At a second stage it is essential for the tribunal to consider whether, in the light of unreasonable conduct (if the tribunal has found it to have been demonstrated), it ought to make an order for costs or not. It is only if it decides that it should make an order that a third stage is reached when the question is what the terms of that order should be.

3. The applicant filed with the tribunal the applicant’s written costs [NAME] and comments/observations thereon were requested of the Respondent and these were received by the Tribunal.

4. It now falls to us to consider the costs [NAME] in the light of the written submissions before us. We do this but in the context of the circumstances of the original decision.

DECISION 1. The tribunal’s powers to order a party to pay costs may only be exercised where a party has acted “unreasonably”. Taking into account the guidance in that regard given by HH Judge Huskinson in [COMPANY] v Belmont Hall & [ADDRESS], [COMPANY] v Brickman LRX/130/2007, LRA/85/2008, (where he followed the definition of unreasonableness in Ridehalgh v Horsefield [1994] Ch 205 CA), the tribunal was not satisfied that there had been unreasonable conduct so as to prompt a possible order for costs.

2. The tribunal was also mindful of a recent decision in the case of [ADDRESS] Company (1985) [COMPANY] v Mrs [NAME] [2016] UKUT 0290 (LC) which is a detailed survey and review of the question of costs in a case of this type. At paragraph 24 of the decision the Upper Tribunal could see no reason to depart from the views expressed in Ridehalgh. Therefore following the views expressed in this recent case at a first stage the tribunal needs to be satisfied that there has been unreasonableness.

3. At a second stage it is essential for the tribunal to consider whether, in the light of any unreasonable conduct it has found to have been demonstrated, it ought to make an order for costs or not; it is only if it decides that it should make an order that a third stage is reached when the question is what the terms of that order should be.

4. In Ridehalgh it was said that “"Unreasonable" also means what it has been understood to mean in this context for at least half a century. The expression aptly describes conduct which is vexatious, designed to harass the other side rather than advance the resolution of the case, and it makes no difference that the conduct is the product of excessive zeal and not improper motive. But conduct cannot be described as unreasonable simply because it leads in the event to an unsuccessful result or because other more cautious legal representatives would have acted differently. 5. [ADDRESS] decision is of paramount importance in deciding what conduct might be unreasonable. I have mentioned the approach of the Upper Tribunal in this decision but I think it appropriate to quote the [NAME] section of the decision in full:- “An assessment of whether behaviour is unreasonable requires a value judgment on which views might differ but the standard of behaviour expected of parties in tribunal proceedings ought not to be set at an unrealistic level…..“Unreasonable” conduct includes conduct which is vexatious, and designed to harass the other side rather than advance the resolution of the case. It is not enough that the conduct leads in the event to an unsuccessful outcome. The test may be expressed in different ways. Would a reasonable person in the position of the party have conducted themselves in the manner complained of? Or Sir [NAME] “acid test”: is there a reasonable explanation for the conduct complained of?” 6. It seems to Tribunal that therefore the bar to unreasonableness is set quite high in that what amounts to unreasonableness must be quite significant and of serious consequence. This being so the Tribunal must now consider the conduct of the parties in this dispute given the nature of the judicial guidance outlined above.

7. The Applicant maintains that the Respondent was unreasonable in the conduct of the dispute. The basis for the applicant’s claim is that the Notice of Intention served by the Respondent was premature so the appeal succeeded as a matter of law. The applicant says that because the action by the respondent was not justified in law then this was unreasonable conduct by the respondent.

8. The Respondent asserts that the decision of the Tribunal “reflects the reality that the Respondent was unsuccessful due to a technical non-compliance with the statutory regime”. The Council says that in essence the Respondent was unsuccessful on a narrow technical point and that this failure did not amount to unreasonable conduct. The Tribunal considered the paperwork from the original decision and als0 the Applicant’s comments and the Respondent’s observations. However, the Tribunal was not satisfied that there was enough information or detail to persuade it that there had been unreasonable conduct on the part of the Respondent. The Tribunal was of the view that in the context of the circumstances of this case, the [NAME] of a mistake about the law when dealing with a complicated area of legislation should not be considered to be unreasonable conduct.

9. Taking into account all that the parties have said about the case and the actions of the parties involved, the Tribunal cannot find evidence to match the high bar of unreasonable conduct set out above. The tribunal was therefore not satisfied that stage one of the process had been fulfilled in that it found there has been no unreasonableness for the purposes of a costs decision under Rule 13 on the part of the applicant. The conduct may have been mistaken but it was not vexatious or such that following the legal tests the tribunal might consider such conduct unreasonable.

10. In the circumstances the tribunal determines that there be no order for costs pursuant to Rule 13.

11. However, Rule 13 does allow for the refund of Tribunal fees. Rule 13(2) states that “The Tribunal may make an order requiring a party to reimburse to any other party the whole or part of the amount of any fee paid by the other party which has not been remitted by the Lord Chancellor.” There is no requirement of unreasonableness in this regard. Therefore in this case the Tribunal considers it appropriate that the Respondent refund the Applicant’s fee payments of £300.

12. In the circumstances the tribunal determines that there be an order for the refund of the [NAME] fee in the sum of £300 pursuant to Rule 13(2).

Name: [NAME]: 23 March 2020

Appendix

The Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013 S.I. 2013 No. 1169 (L. 8)

Orders for costs, reimbursement of fees and interest on costs 13. (1) The Tribunal may make an order in respect of costs only— (a) under section 29(4) of the 2007 Act (wasted costs) and the costs incurred in applying for such costs; (b) if [NAME] has acted unreasonably in bringing, defending or conducting proceedings in— (i) an agricultural land and drainage case, (ii) a residential property case, or (iii) a leasehold case; or (c) in a land registration case. (2) The Tribunal may make an order requiring a party to reimburse to any other party the whole or part of the amount of any fee paid by the other party which has not been remitted by the Lord Chancellor. (3) The Tribunal may make an order under this rule on an [NAME] or on its own initiative. (4) [NAME] [NAME] an [NAME] for an order for costs— (a) must, unless the [NAME] is made orally at a hearing, send or deliver an [NAME] to the Tribunal and to the person against whom the order is sought to be made; and (b) may send or deliver together with the [NAME] a schedule of the costs claimed in sufficient detail to allow summary assessment of such costs by the Tribunal. (5) An [NAME] for an order for costs may be made at any time during the proceedings but must be made within 28 days after the date on which the Tribunal sends— (a) a decision notice recording the decision which finally disposes of all issues in the proceedings; or (b) notice of consent to a withdrawal under rule 22 (withdrawal) which ends the proceedings. (6) The Tribunal may not make an order for costs against [NAME] (the “[NAME]”) without first giving that person an opportunity to make representations. (7) The amount of costs to be paid under an order under this rule may be determined by— (a) summary assessment by the Tribunal; (b) agreement of a specified sum by the [NAME] and the person entitled to receive the costs (the “[NAME]”); (c) detailed assessment of the whole or a specified part of the costs (including the costs of the assessment) incurred by the [NAME] by the Tribunal or, if it so directs, on an [NAME] to a county court; and such assessment is to be on the standard basis or, if specified in the costs order, on the indemnity basis. (8) The Civil Procedure Rules 1998(a), section 74 (interest on judgment debts, etc) of the County Courts Act 1984(b) and the County Court (Interest on Judgment Debts) Order 1991(c) shall apply, with necessary modifications, to a detailed assessment carried out under paragraph (7)(c) as if the proceedings in the Tribunal had been proceedings in a court to which the Civil Procedure Rules 1998 apply.

(9) The Tribunal may order an amount to be paid on account before the costs or expenses are assessed.

ANNEX - RIGHTS OF APPEAL

1. If a party wishes to appeal this decision to the Upper Tribunal (Lands Chamber) then a written [NAME] for permission must be made to the First-tier Tribunal at the Regional office which has been dealing with the case.

2. The [NAME] for permission to appeal must arrive at the Regional office within 28 days after the Tribunal sends written reasons for the decision to the [NAME].

3. If the [NAME] is not made within the 28 day time limit, such [NAME] must include a request for an extension of time and the reason for not complying with the 28 day time limit; the Tribunal will then look at such reason(s) and decide whether to allow the [NAME] for permission to appeal to proceed despite not being within the time limit.

4. The [NAME] for permission to appeal must identify the decision of the Tribunal to which it relates (i.e. give the date, the property and the case number), state the grounds of appeal, and state the result the party [NAME] the [NAME] is seeking.