Court decides that property licensing fees must be charged in two stages and the names of occupants cannot be demanded on a licence renewal application

Friday, August 10th, 2018 - By Jonathan Manning, counsel for the Claimant and Barrister of Arden Chambers, London and Birmingham

The case concerns R (Gaskin) v Richmond-upon-Thames LBC [2018] EWHC 1996 (Admin)

A three Judge Divisional Court has decided that the HMO licensing scheme under Part 2, Housing Act 2004, is an authorisation scheme for the purposes of the EU Services Directive 2006 (EU Directive 2006/123/EC) and the Provision of Services Regulations 2009/2999 which implemented the Directive in the UK. The Hemming approach (R (Hemming t/a Simply Pleasure v Westminster CC [2017] 3 WLR 317), therefore applies to licensing under Part 2 and, it would seem, Part 3, 2004 Act, meaning that licensing fees must be charged in two stages – an application fee to cover only the costs of obtaining authorisation under the scheme, and a licence fee levied only on successful applicants to cover the remaining costs of administration and enforcement etc.

The court held that Mr Gaskin, who let and managed his HMO, was providing a “service” for the purposes of the Directive, and that therefore the local authority had acted unlawfully in demanding from him an upfront fee of £1,799 to cover the costs of administering the scheme as well as processing licence applications.

Mr Gaskin originally obtained a licence for his HMO in 2009. In 2014, however, when he applied to renew it, a dispute arose between him and the local authority, concerning what information they could require him to provide in his renewal application form, under the Licensing and Management of Houses in Multiple Occupation and Other Houses (Miscellaneous Provisions) (England) Regulations 2006 (SI 2006/373) as amended, and what fee they were entitled to charge him.

The authority refused to process his renewal application unless he provided the names of each occupier and the room they occupied and paid the full fee. He refused. They then prosecuted him for operating an unlicensed HMO (s.72, 2004 Act).

The magistrates’ court refused to entertain his arguments by way of defence to the prosecution (notwithstanding the statutory defence in s.72(4)(b) and (8)) that an application for a licence had been duly made and was still “effective”) which seems questionable in the light of Boddington v British Transport Police [1998] UKHL 13, and so he brought judicial review proceedings.

The claim, other than the point arising under the Directive, was dealt with by the Court in December 2017 (see R (Gaskin) v Richmond Upon Thames LBC [2017] EWHC 3234 (Admin) (read here)), holding that no information other than that specified by the Secretary of State in the 2006 Regulations could be demanded, but that in domestic law, the fee demanded was lawful.

The arguments under the Directive were adjourned to a later hearing, to allow the Secretary of State to be invited to intervene, but he declined the invitation. A differently constituted Divisional Court therefore heard the argument and handed down judgment on 31 July, 2018.

“Service” is defined in Art.4(1), Directive, as: “‚Ķany self-employed economic activity, normally provided for remuneration, as referred to in Article 50 of the Treaty”.

As to the fees which may be charged, Reg.18(4), Regulations (implementing Art 13(2), Directive), provides that any charges incurred under an authorisation scheme must be reasonable and proportionate to the cost of the procedures and formalities under the scheme and must not exceed the cost of those procedures and formalities.

The authority did not seriously dispute that the Part 2, 2004 Act, licensing scheme is an authorisation scheme if Mr Gaskin was providing a service. They did, however, dispute that letting rooms in an HMO was a service. It did not, they argued, have the flavour of a service activity which would generally entail a commercial enterprise performed in an expert manner, providing a service to customers or clients (e.g. legal, medical or car repair services), with internal processes to provide and support it, and typically providing intangible products. They also argued that it was significant that the property rather than the landlord was licensed, and that the HMO was subject to council tax rather than a business tax.

The court, however, accepted Mr Gaskin’s arguments that letting and managing residential property for profit was clearly an economic activity provided for remuneration and therefore within the extremely broad definition of service provided by the Directive.

Moreover, Art.2(2)(j) of the Directive specifically excludes from its scope social services including social housing provided by the government or by organisations mandated by government. There would have been no need for such an exclusion if the provision of housing was not to be considered a service. Various recitals of the Directive supported the broad construction of “service” favoured by the Court, as did the fact that the EU specifically measures private landlord activities as a category of economic activity when compiling its economic statistics (see the references to the “NACE” economic classifications and their UK equivalent in the Judgment at [99]-[102]).

Moreover, the sponsoring Department’s impact assessment of the effect of the Directive, when implementing it in the 2009 Regulations, specifically assessed the NACE category relating to privately let property. It would be surprising for such an assessment to include activities not covered by the Directive. Guidance from that Department and from the EU Directorate-General that had sponsored the Directive, also gave the court comfort as to the approach it adopted.

Comment

Perhaps unsurprisingly, the court was cautious about the terms in which it couched its decision. The decision that letting and managing an HMO constituted a service perhaps leaves the position slightly unclear with regard to whether the activity of letting rooms alone, with management delegated to an agent, constitutes a service, or whether the fact that Mr Gaskin did both made him a service provider where a landlord using a managing agent would not be.

I would suggest that the former interpretation must be correct. The landlord is responsible for the management of the HMO, even if the functions are delegated to an agent. There is no logical basis for dividing them up into those with and those without agents, and it would be completely unworkable for some landlords to fall outside the Directive while others fell within it. It should not be forgotten that the Directive imposes obligations on service providers as well as the “competent authorities” running the authorisation schemes.

Thus it may not matter whether letting is a service when divorced from management, though, for what it may be worth, I think it is. If letting is a service when combined with management, it is hard to see how it ceases to be one just because the management function is delegated to an agent. Moreover, the court relied on the Art.2(2)(j), Directive, exclusion of the provision of some social housing from the Directive’s scope but held that the provision of social housing as a self-employed economic activity for remuneration would be within scope (Judgment, [68]).

The court found comfort in the NACE classification relates to the letting of self-owned property (property management is a separate NACE category). The relief granted included a declaration that “by letting” his HMO, Mr Gaskin was engaging in a service activity.

Be that as it may, the implications of this decision are significant for any local authority that does not currently operate a Directive-compliant fee scheme, not only for Part 2 but also for Part 3 licensing. Landlords who have been unsuccessful in obtaining licences will be likely to try to obtain a refund of the application fees that they have paid, and it will be interesting to see how authorities approach these requests.

The author of this blog, Jonathan Manning, was counsel for the Claimant and is a barrister at Arden Chambers London and Birmingham. His email address is Jonathan.Manning@ArdenChambers.com

Please note that the views and opinions expressed in these blogs are those of the author and do not necessarily represent the views of London Property Licensing. These blogs are designed to stimulate discussion and debate within the property industry.

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