Tribunal Reduces Financial Penalty for Unlicensed Property

OUTCOME: Allowed

FIRST-TIER TRIBUNAL [NAME] CHAMBER ([NAME]) Case Reference : MAN/00CH/HNA/2020/0029

[NAME]

:

10, [ADDRESS] [POSTCODE]

Applicants

:

[redacted]

Respondent

:

[redacted]

Type of Application

:

Appeal against a financial penalty – Section 249A & Schedule 13A to the Housing Act 2004

Tribunal Members

:

Tribunal Judge C Wood Ms S Latham

Date of Decision

:

25 August 2021

Date of Determination : 21 September 2021

ORDER

© CROWN COPYRIGHT 2021

Order

1. In accordance with paragraph 10(4) of Schedule 13A to the Housing Act 2004, the Tribunal varies the final notice dated 6 March 2020 by:

1.1 amending the name of the recipient from Mr. [NAME] and Mrs. [NAME] [NAME] to Mr. [NAME]; and 1.2 by reducing the financial penalty from £8942.25 to £8699.70. Application

2. By an appeal dated 2 April 2020, (“the Appeal”), the Applicants appealed against a financial penalty imposed under section 249(a) of the Housing Act 2004, (“the 2004 Act”), by a final notice dated 5 March 2020, (“the Final Notice”).

3. Directions were issued pursuant to which both parties submitted written representations and a remote video hearing of the Appeal was scheduled for Friday 6 July 2021 at 11:30.

4. Mr. [NAME] attended the hearing in person on behalf of his wife and himself. The Respondent was represented by Mr. [COUNSEL].[NAME] of Counsel and Mrs.[COUNSEL].[COUNSEL] and Mrs.[COUNSEL].[NAME] of the Respondent.

5. Due to technological issues with Mr. [RESPONDENT] IT equipment, the start of the hearing was delayed until 12:00 to afford him time to resolve them. This proved impossible and Mr. [NAME] attended the hearing by telephone.

Law and Guidance - Power to impose financial penalties

6. New provisions were inserted into the 2004 Act by section 126 and Schedule 9 of the Housing and Planning Act 2016. One of those provisions was section 249A, which came into force on 6 April 2017. It enables a local housing authority to impose a financial penalty on a person if satisfied, beyond reasonable doubt, that the person’s conduct amounts to a ‘relevant housing offence’ in respect of premises in England.

7. Relevant housing offences are listed in section 249A(2). They include the offence, under section 95(1) of the 2004 Act, of having control of or managing a house which is required to be licensed under Part 3 of that Act but is not so licensed.

8. Only one financial penalty under section 249A may be imposed on a person in respect of the same conduct. The amount of that penalty is determined by the local housing authority (but it may not exceed £30,000), and its imposition is an alternative to instituting criminal proceedings for the offence in question.

Procedural requirements 9. Schedule 13A to the 2004 Act sets out the procedure which local housing authorities must follow in relation to financial penalties imposed under section 249A. Before imposing such a penalty on a person, the local housing authority must give him or her a notice of intent setting out:

• the amount of the proposed financial penalty;

• the reasons for proposing to impose it; and

• information about the right to make representations.

10. Unless the conduct to which the financial penalty relates is continuing, that notice must be given before the end of the period of six months beginning on the first day on which the local housing authority has sufficient evidence of that conduct.

11. A person who is given a notice of intent has the right to make written representations to the local housing authority about the proposal to impose a financial penalty. Any such representations must be made within the period of 28 days beginning with the day after that on which the notice of intent was given. After the end of that period, the local housing authority must decide whether to impose a financial penalty and, if a penalty is to be imposed, its amount.

12. If the local housing authority decides to impose a financial penalty on a person, it must give that person a final notice setting out:

• the amount of the financial penalty;

• the reasons for imposing it;

• information about how to pay the penalty;

• the period for payment of the penalty;

• information about rights of appeal; and

• the consequences of failure to comply with the notice. Relevant guidance 13. A local housing authority must have regard to any guidance given by the Secretary of State about the exercise of its functions in respect of the imposition of financial penalties. Such guidance (“the HCLG Guidance”) was issued by the Ministry of Housing, Communities and Local Government in April 2018: Civil penalties under the Housing and Planning Act 2016 – Guidance for Local Housing Authorities. It states that local housing authorities are expected to develop and document their own policy on when to prosecute and when to issue a financial penalty and should decide which option to pursue on a case by case basis. The HCLG Guidance also states that local housing authorities should develop and document their own policy on determining the appropriate level of penalty in a particular case. However, it goes on to state: “Generally, we would expect the maximum amount to be reserved for the very worst offenders. The actual amount levied in any particular case should reflect the severity of the offence as well as taking account of the landlord’s previous record of offending.”

14. The HCLG Guidance also sets out the following list of factors which local housing authorities should consider to help ensure that financial penalties are set at an appropriate level:

a. Severity of the offence.

b. Culpability and track record of [NAME].

c. The harm caused to the tenant.

d. Punishment of [NAME].

e. Deterrence of [NAME] from repeating the offence.

f. Deterrence of others from committing similar offences. g. Removal of any financial benefit [NAME] may have obtained as a result of committing the offence.

15. In recognition of the expectation that local housing authorities will develop and document their own policies on financial penalties, Gateshead Council has adopted the [NAME] Guidance (a copy of which is attached at Appendix 3 to the Respondent’s Statement of Case), (“the Policy”). We make further reference to the Policy later in these reasons. Appeals

16. A final notice given under Schedule 13A to the 2004 Act 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. However, this is subject to the right of the person to whom a final notice is given to appeal to the Tribunal (under paragraph 10 of Schedule 13A).

17. Such an appeal may be made against the decision to impose the penalty, or the amount of the penalty. It must be made within 28 days after the date on which the final notice was sent to the appellant. The final notice is then suspended until the appeal is finally determined or withdrawn.

18. The appeal is by way of a re-hearing of the local housing authority’s decision, but may be determined by the Tribunal having regard to matters of which the authority was unaware. The Tribunal may confirm, vary or cancel the final notice. However, the Tribunal may not vary a final notice so as to make it impose a financial penalty of more than the local housing authority could have imposed. Evidence 19. Mr. [NAME] initial submissions are summarised as follows:

19.1 the Final Notice is not regarded as lawful or proportionate;

19.2 it appears that it has been imposed because of the failure to submit papers (the licence application) on time;

19.3 the tenancy has continued throughout and the Tenant has not any complaints. He felt “badgered” by the Respondent and was upset by their involvement;

19.4 as a result of their inspection of the [NAME], the Respondent determined that a new central heating system was required but otherwise the [NAME] was in good condition;

19.5 the Respondent had been advised of the death of Mr. [RESPONDENT] father, and the licence application was late only because of the terrible impact of his illness, and subsequent death, upon him;

19.6 he had now submitted medical evidence regarding the impact upon his mental health, which he had previously withheld because of its sensitivity, but which he considered that the Tribunal should take into account.

20. The submissions of Mr. [RESPONDENT] for the Respondent are summarised as follows:

20.1 the imposition of the financial penalty relates to the commission of an offence under s95(4) of the 2004 Act, failure to licence the [NAME]. The [NAME] is located in a selective licensing area, and a licence was required from 30 October 2018, but a fully-completed application was not received until November 2019;

20.2 the financial penalty was imposed as an alternative to prosecution having regard to the checklist in the Policy for assessing the appropriateness or otherwise of prosecution as against imposition of a financial penalty;

20.3 the following factors were considered of relevance to the decision to impose a financial penalty:

(1) lack of harm to the tenant and to people in the locality by reason of commission of the offence; (2) no history of previous prosecutions or financial penalties; and, (3) as a deterrent against the commission of further offences;

20.4 the level/amount of the financial penalty was also determined in accordance with the Policy to which the Tribunal should have regard, unless it took the view that the Policy departed significantly from the HCLG Guidance;

20.5 having determined that a financial penalty is the appropriate enforcement action, the level/amount is determined by a 5 stage process, as follows: (1) assessment of culpability and harm to determine the starting point for the financial penalty by reference to the penalty matrix. In this case, it was initially determined that the culpability was Level 4 (deliberate) but this was reduced to Level 3 (reckless) following receipt of representations from Mr. [NAME] regarding the period of grieving following his father’s illness and subsequent death in August 2018). (2) Recklessness was appropriate having regard to: (a) the [NAME] was unlicensed for over 12 months; (b) the Applicants knew, or should have known, of their legal responsibilities; (c) they had been notified of the introduction of the selective licensing scheme prior to its commencement on 30 October 2018 and through a series of subsequent reminders; (d) the Applicants own a large number of rental properties;

(e) the Applicants did not respond to the correspondence sent by the Respondent in respect of the defective licence application; (f) a properly-completed licence application was not submitted until after the issue of the (first) notice of intent; and, (g) there is a history of offences: 6 improvement notices within previous 5 years. (3) Harm was determined as low. (4) In accordance with the penalty matrix in the Policy, the financial penalty range was £3000-5000, with a starting point of £4000.

(5) financial circumstances and aggravating/mitigating factors: (a) financial investigation: where a case is determined to be one of “low harm”, it is not the Respondent’s practice to undertake a full financial investigation as it is considered to be disproportionate in the circumstances; (b) aggravating and mitigating factors: it is then necessary to establish if there are any relevant aggravating and/or mitigating factors to be taken into account which would affect (by way of increase or reduction) the “starting point” for the financial penalty; (c) in this case, the following 8 aggravating factors were taken into account: (i) the issue of 5 improvement notices within the last 5 years on other properties owned by the Applicants, together with the issue of the Improvement Notice on the [NAME]; (ii) the failure to comply with 2 of the improvement notices; which resulted in an increase of 40 points (£800). (d) in this case, the following 3 mitigating factors were taken into account: (i) at the time of the issue of the notice of intent dated 19 December 2019, (“the Notice of Intent”), there were no other relevant offences; (ii) the impact on Mr. [NAME] of the illness and subsequent death of his father; and, (iii) a licence application had been made by the date of issue of the Final Notice; which resulted in a deduction of 15 points (£300). Each mitigating factor attracts a deduction of 5 points, so, in this case, a total of 15 points were deducted. (e) The net increase of 25 points resulted in an increase of £500 to the “starting point” of the financial penalty of £4000.

20.6 financial benefit to the Applicant: [redacted] the Respondent regards rent received during the period when a [NAME], which requires to be licensed, is unlicensed as a financial benefit; (2) the rent from the [NAME] was calculated at £92.05 per week; (3) the Respondent determined that it was appropriate to take into account the following periods during which the [NAME] was unlicensed: • 30 October 2018 (commencement of selective [NAME]) – 1 March 2019 (date of submission of 1st licence application) = 17.5 weeks • 12 week processing period (in place of the longer processing period actually taken by the Respondent) • 25 July 2019 (date of return of defective application) – 9 November 2019 (submission of 2nd licence application) = 16 weeks

= a total of 45.5 weeks rounded down to 45 weeks x £92.05 = £4142.25.

20.7 administrative costs: the Policy prescribes fixed costs dependent on the classification of the case. This was classified as medium and the fee was £300.

20.8 the final calculation of the amount of the financial penalty was as follows:

Starting point: 4000.00

Mitigating/aggravating factors: 500.00

Financial benefit: 4142.25

Costs: 300.00

Total financial penalty: 8942.25

20.9 The Respondent was satisfied that the financial penalty was correctly calculated in accordance with the Policy, and that it was proportionate and fair. In particular: (1) The Respondent had taken into account the Applicants’ representations which resulted in the reduction in the level of culpability and also took into account the relevant mitigating factors. (2) In calculating the financial benefit to the Applicants, the Respondent had not included in full the time taken to process the 1st application by reason of delay on the Respondent’s part. (3) The Respondent had followed the Policy and the HCLG guidance including, without limitation, the extent to which both mitigating and aggravating factors were taken into account. (4) Since the issue of the Final Notice, the Applicants have been the subject of further financial penalty notices. If these were now taken into account, it would lead to an increase in the financial penalty of £200.

21. In response to questions from the Tribunal, Ms [RESPONDENT] of the Respondent confirmed as follows:

21.1 the deficiencies in the 1st application included missing information on the form e.g. some parts of the application form were blank/unsigned; the “fit and proper person” section was not completed; lack of detail about how current management was undertaken ego in respect of repairs, internal/external inspections; the section regarding notification of relevant persons was left blank; neither tenancy agreement nor EPC attached; not clear if seeking accreditation but no relevant information provided; no proof of address/photographs as required for ID verification;

21.2 the 1st notice of intent was withdrawn because there was an error within the narrative regarding the start date of the period of commission of the offence: it was stated to be 30 April 2018 instead of 30 October 2018. It was decided to withdraw it and re-issue with the correct date;

21.3 2 sets of representations were received, both of which were reviewed in order to determine: (1) whether they should proceed to the issue of a final notice; (2) if yes, whether any amendments should be made.

21.4 In this case, the level of culpability was reduced from Level 4 (deliberate) to Level 3 (reckless) because: (1) by that time, a further licence application had been received. Level 4 is generally relevant to situations where the offence is continuing at the date of the final notice;

(2) The Respondent had gained a better understanding of impact on Mr. [NAME] of his father’s illness and death and of his legal and religious obligations which provided some explanation why a licence application may not have been made by 30 October 2018; (3) it did not explain why the failure to make a licence application continued for so long, especially having regard to the number of reminders/warnings which had been sent to the Applicants both before, and after, 30 October 2018; (4) it was also noted that the Applicants had continued to receive rent/manage the [NAME]; (5) on balance, it was considered that Level 3 culpability was appropriate.

21.5 With regard to the mitigating/aggravating factors, there were no changes between the Notice of Intent and the Final Notice.

21.6 The 3 mitigating factors were as follows: (1) 1st financial penalty notice: although there were others in process, none had been served at that date; (2) the licence application had been received; (3) death of Mr. [NAME] father (which had been taken into account both in determining the level of culpability and as a mitigating factor).

21.7 The 8 aggravating factors were as follows: (1) 6 improvement notices; (2) in respect of 2 of which there had been no compliance.

21.8 With regard to the issue of the rent as “financial gain”: (1) “financial gain” is not defined in the HCLG Guidance or in the 2004 Act; (2) the Respondent’s interpretation is that it includes income received during the period when a [NAME] which is required to be licensed remains unlicensed; (3) with reference to the decision in London Borough of Waltham Forest v Marshall [2020] which determined that a local authority must be satisfied that the penalty is both proportionate and a sufficient financial deterrent against future offending, in this case the Respondent did not consider that a financial penalty of £4500 would achieve this. Of particular significance was the length of time during which the Applicants had been a landlord, the number of properties within their portfolio, and their track record. It therefore determined to increase the financial penalty by £4800, being the rent received during the relevant periods when the [NAME] was unlicensed.

21.9 There are 2 fees payable for a licence: £190 for the processing element from application to grant/refusal; and a standard fee of £750 for licence issue (although this can be reduced to £550 for an early application).

21.10 It was acknowledged that the rent had been incorrectly calculated at £92.05 per week. The correct figure was £92.30 per week.

22. In response to questions from Mr.[NAME], Ms [NAME] confirmed as follows:

22.1 with regard to what Mr. [RESPONDENT] referred to as the Respondent’s “inconsistent approach” towards communications with his wife, the Respondent is required to use “reasonable efforts” to contact all stakeholders. The initial correspondence was sent to Mr. [NAME] based on the information then available. A subsequent Land Registry search showed Mr.& Mrs. [NAME] as joint owners and so the following correspondence, including the Notice of Intent and the Final Notice were addressed to both of them;

22.2 with regard to the absence of a full financial investigation, the Policy does not require this where the penalty falls within bands 1-3;

22.3 with regard to the Respondent’s failure to take into consideration the financial information since disclosed by Mr. [NAME], e.g., his tax returns, it was noted that these do not provide a complete picture as they do not contain information regarding capital assets, only rental income. If Mr. [NAME] had disclosed all relevant financial information, then the Respondent would have considered it;

22.4 the term “financial gain” is not limited to income. The cost of remedial works, such as the cost of installation of central heating at the [NAME] in compliance with the Improvement Notice, (said to be £1800), would not be taken into account: it was one option open to Mr. [NAME] to remedy the Category 1 hazard identified;

22.5 the Respondent had not ignored the issues raised by Mr. [RESPONDENT] concerning his mental health: they took them into account in reducing the culpability level from level 4 to level 3, and also as a mitigating factor. However, the Applicants still had responsibilities to discharge as landlord. They had not made any contact with the Respondent during 2018. There was no “reasonable excuse” defence, certainly not once the 1st licence application was made;

22.6 with regard to the medical evidence most recently submitted, it was confirmed that, even if this had been submitted earlier, it would not have resulted in any further adjustment to the amount of the financial penalty.

23. The Respondent’s closing submissions are summarised as follows: 23.1 the evidence demonstrates, beyond reasonable doubt, that a relevant offence has been committed; 23.2 it was noted that, in raising the issue regarding the communications with Mrs. [NAME], there is no suggestion by Mr. [NAME] that he did not receive all of the correspondence; 23.3 the offence continued over a long time; 23.4 there were mitigating factors which have been taken into account; 23.5 as a joint owner and joint landlord, Mrs. [RESPONDENT] has some legal responsibility in respect of the [NAME]; 23.6 in accordance with the Policy: (1) it was an appropriate case to issue a financial penalty notice rather than to prosecute; (2) the amount of the penalty had been properly calculated; (3) the Tribunal is entitled to make its own decision using the Policy, to which it should have regard unless it is of the view that it departs significantly from the HLCG Guidance .

24. Mr. [NAME] closing submissions are summarised as follows: 24.1 he acknowledged that an offence had been committed under s95(1) of the Act; 24.2 the “track record” was not an accurate statement because it only focused on the previous 5 years; 24.3 it appears that the Respondent wants to “punish” for not complying with their requirements within their time period. He acknowledged that he should probably have applied for an extension but personal circumstances made compliance difficult at that time. Improvements in management have since been made; 24.4 their joint annual income from their portfolio of properties is £20,000. They have a large family (7 children) and are struggling to make ends meet. The financial penalty equates to 40% of annual income. They do not have any resources from which to make payment. 24.5 The Respondent has collected £millions from their [NAME] and “their coffers are now overflowing”.

Reasons

25. “Person having control”/”person managing” 25.1 The Tribunal accepted the evidence that [NAME]. [RESPONDENT] were joint owners/landlord of the [NAME]. Having regard to the evidence regarding the Respondent’s communications with Mrs. [RESPONDENT], Mr. [RESPONDENT] evidence regarding Mrs. [NAME] limited involvement in the management of the [NAME] and that the licence was applied for, and issued in Mr.[NAME] sole name, the Tribunal considered that it was appropriate, in all the circumstances, to vary the Final Notice from joint names into the sole name of Mr. [APPELLANT]. All further references to “the Applicant” are to Mr.[APPELLANT] alone.

26. “Relevant housing offence” 26.1 The Tribunal was satisfied, beyond reasonable doubt, that the evidence of the Applicant’s failure to obtain a licence was conduct amounting to an offence under s95(1) of the Act, which constituted a “relevant housing offence” for the purposes of s249A of the Act, permitting the imposition of a financial penalty. In this respect, the Tribunal noted the Applicant’s acknowledgment in his oral evidence that an offence had been committed by his failure to obtain a licence for the [NAME].

27. Procedural requirements 27.1 The Tribunal was satisfied that, in respect of the Notice of Intent and the Final Notice, the Respondent had complied with the procedural requirements as required under Schedule 13A to the Act, as follows: (1) the offence under s95(1) of the Act was continuing as at the date of the Notice of Intent; (2) the Notice of Intent and the Final Notice contained the information as required

under paragraphs 3 and 8 of Schedule 13A to the Act; and, (3) the Notice of Intent contained information about the right to make

representations (to which the Applicant had responded by making

representations).

28. Application of the Policy 28.1 Culpability and harm and severity of offence: having regard to the Policy, the Tribunal agreed with the Respondent’s determinations as follows: (1) culpability: that the Applicant’s culpability was properly determined as level 3 (reckless); (2) the harm and severity of the offence: the Tribunal noted the Respondent’s submissions regarding the need to take into account potential, as well as actual, harm and that a Category 1 hazard had been identified at the [NAME]. Balanced against this, the Tribunal noted the Respondent’s acknowledgment that there was no evidence of direct harm and that the required repairs to the heating system at the [NAME] had ultimately been undertaken by the Applicant. On that basis, the Tribunal agreed with the Respondent’s determination that harm and severity of offence should be categorised as low; (3) the Tribunal therefore determines that, on the basis of the penalty bands matrix in the Policy, the appropriate range for the financial penalty is £3000-5000, with a “starting point” of £4000.

28.2 Financial benefit: (1) the Tribunal accepted the Respondent’s interpretation of “financial benefit” as including rent received during the period of commission of the offence; (2) the Tribunal also accepted that the Policy did not impose any obligation on the Respondent to undertake a full financial investigation in circumstances where it was considered disproportionate to do so, and that this was such a case; (3) the Tribunal noted that it had been open to the Applicant to provide such information to the Tribunal as he considered relevant regarding his financial circumstances but that the only documentary evidence provided was copies of tax returns for himself and Mrs. [NAME] for the financial years ended 5 April 2018, 5 April 2019 and 5 April 2020. The Tribunal accepted the Respondent’s objection that this only provided information relating to income, and not assets and was therefore of limited value in establishing for the Tribunal a balanced assessment of their financial position; (4) further, the Tribunal noted that, whilst the tax returns showed taxable profit from [NAME] of £10374 for each of [NAME]. [NAME] for the financial year ended 5 April 2020 (which may have been what the Applicant was referring to when he stated in his oral evidence that the joint family income was £20000), no evidence was provided as to how this was reconcilable with total gross income from rent and income from [NAME] of £29393 for each of Mr. and Mrs [APPELLANT] for the same period, the Applicant’s gross annual business turnover of £80779, and other earned income of £2850. Again, this limited the evidential value to the Tribunal of the tax returns in establishing [NAME]. [NAME] financial position; (5) in the circumstances, the Tribunal was satisfied that there was insufficient evidence regarding the Applicant’s financial circumstances upon which any adjustment to the financial penalty should be made; (6) the Tribunal noted the Respondent’s acknowledgment that it had incorrectly calculated the rent at £92.05 per week instead of £92.30 per week; (7) the Tribunal did not agree with the Respondent’s determination of the relevant periods to be taken into account in calculating the amount of the financial benefit. They noted the Respondent’s concession that the calculation should not be based on the actual period as the significant delays in processing the 1st

licence application were the Respondent’s responsibility. Accepting that in selecting a period other than the actual period in question necessarily involves an element of arbitrariness, the Tribunal did not consider it appropriate for the Respondent to select a period of 12 weeks as this was the maximum “target” period for its processing of a licence application. On balance, the Tribunal considered that a period of 6 weeks was a more reasonable and therefore a more appropriate selection in the circumstances; (8) the Tribunal therefore determined that the relevant periods to be taken into account were as follows: (a) 30 October 2018 – 1 March 2019: 17.5 weeks (b) Nominal period of 6 weeks from 1 March 2019 (c) 24 July 2019 – 9 November 2019: 15.5 weeks;

Making a total of [39] weeks at £92.30 per week = £3599.70.

28.3 Mitigating and aggravating factors: (1) mitigating factors: the Tribunal agreed with the Respondent’s adjustment to the “starting point” to take into account 3 mitigating factors, namely, 1st financial penalty notice, receipt of a licence application prior to the Final Notice and the impact upon the Applicant of his father’s illness and subsequent death; (2) with regard to the additional medical evidence provided by the Applicant, the Tribunal recognised why the Applicant may have been reluctant to disclose this sensitive information at an earlier stage in the proceedings. It was satisfied that the adjustments already made ( i.e. reduction of the level of culpability and inclusion as a mitigating factor) took full account of the impact on the Applicant of his father’s illness and subsequent death, and the knowledge that he had received medical assistance did not warrant any further adjustment; (3) aggravating factors: in accordance with paragraph 10(3)(b) of Schedule 13A of the 2004 Act, the Tribunal determined that it was appropriate to have regard to the issue of 2 further financial penalty notices against the Applicant, making a total of 10 aggravating factors to be taken into account; (4) in accordance with the Policy, the net effect of the mitigating and aggravating factors is to increase the financial penalty by £800.

28.4 Amount of the financial penalty:

The Tribunal therefore determines the calculation of the financial penalty to be as follows: £

Financial penalty “starting point”: 4000.00

Rent/financial benefit: 3599.70

Mitigating/aggravating factors net increase: 800.00

Costs:

300.00

Total financial penalty:

8699.70

28.5 The Tribunal therefore varied the Final Notice by reducing the financial penalty from £8942.25 to £8699.70 (in each case, including £300 in respect of costs).

Tribunal Judge C Wood 25 August 2021