Excessive and unjust – Upper Tribunal decision on council’s civil financial penalty policy
This landmark judgement by the Upper Tribunal brings further clarity to how civil financial penalties for HMO licensing offences should be calculated.
In March 2022, Leicester City Council imposed a civil financial penalty of £29,817 under section 72(1) of the Housing Act 2004. It was a two storey property containing five rooms. The council carried out an unannounced inspection in August 2021 and believed the property to be occupied by five people, thereby requiring a mandatory HMO licence.
The landlord disputed there was anyone occupying the fifth room, a small box room measuring less than 5m2. They insisted there had only ever been four tenants, which meant the property fell below the threshold for HMO licensing in Leicester.
Whilst council officers never met or traced the fifth tenant, their investigation compiled circumstantial evidence together with witness testimony from one tenant. They concluded the room had been occupied and the landlord had removed the fifth tenant on the day of the inspection.
London Property Licensing was instructed to represent the landlord and lodged an appeal against the final notice. Following a hearing on 12 July 2022, the First-tier Tribunal found the offence proved on one day only. The Tribunal varied the final notice and reduced the penalty to £3,900.
Leicester City Council appealed to the Upper Tribunal on four grounds:
- The Tribunal were wrong to conclude the offence was limited to one day.
- The Tribunal misunderstood the council’s policy and failed to give it due weight.
- The Tribunal were wrong to discount the council’s investigation costs from the level of penalty imposed.
- The Tribunal’s decision was wrong in law and had failed to consider the seriousness of the landlord’s conduct.
Upper Tribunal hearing
The Upper Tribunal hearing took place at the Royal Courts of Justice in London on 2 May 2023 before Martin Roger KC, Deputy Chamber President.
Both parties were represented by Counsel: Mr Justin Bates representing the council and Mr Archie Maddan representing the landlord. The decision was made on 7 June 2023.
Period of the offence
Whilst the Upper Tribunal did not agree the offence was limited to one day, the judgement is unclear on the precise period of offence. Suffice to say, the Deputy Chamber President considered the offence to be long standing based on evidence from one tenant living in the property.
Failure to give the council’s policy due weight
This ground of appeal was dismissed. The First-tier Tribunal had given the council’s policy due weight but had disagreed with it.
Both the First-tier and Upper Tribunal disagreed with the council’s policy which placed all offences of operating a House in Multiple Occupation without a licence into the ‘very high’ category of harm, equivalent to class 1 harm with the risk of death or very serious injury. The implications of this policy decision being that all HMO licensing offences would result in a high financial penalty regardless of the circumstances.
The Deputy Chamber President noted the council’s policy appeared to conflate distinct considerations, namely the seriousness of the offence and the harm caused by its commission. He found the approach adopted did not follow statutory guidance issued by the Ministry of Housing, Communities & Local Government.
At para 54 of the decision, the Deputy Chamber President explains:
“As a result, offences with strikingly different consequences to which one would expect different degrees of seriousness and penalties should attach, have been deemed worthy of the same penalty. That was the approach which the FTT found difficult to accept, and I share its concern“.
Whilst acknowledging it is for local housing authorities to adopt their own policy, he offers some words of advice in para 55:
“‚Ä¶in principle it would seem to me that a better approach would be for the seriousness of each relevant housing offence to be reflected in either a starting level or in a maximum (and possibly a minimum) penalty. Around that starting point or within that range the actual or potential harm to tenants, the culpability of the offender and any mitigation could then be taken into account to determine the appropriate penalty for the particular offence being considered. That might require a different grid to be devised to reflect different offences, but it might avoid some of the difficulties identified in this case.“
Discounting the council’s investigation costs from the level of penalty imposed
This ground of appeal was dismissed.
The Upper Tribunal found there is no statutory power to add the council’s enforcement costs to the level of penalty imposed. The Tribunal contrasted civil financial penalties with section 49 of the Housing Act 2004 which permits councils to charge for certain other enforcement action.
It is already the case that the council can retain the civil financial penalty in full and invest it back into their housing enforcement activity. As such, the decision must be correct to avoid double recovery.
The decision was wrong in law
This final ground of appeal identified several factors which it was contended had been overlooked by the First-tier Tribunal and were supplementary to the issues referred to above. This was taken into account in reviewing the penalty imposed.
Upper Tribunal decision
Having considered all the issues, it fell to the Upper Tribunal to remake the decision.
In doing do, the Deputy Chamber President concluded at para 61 “‚Ä¶The Policy produces a penalty which is greater than is required to achieve the objectives of appropriate punishment and deterrence and which I consider to be excessive and unjust.“
The methodology he used to recalculate the penalty is useful to follow:
“64. Having regard to the matters identified in the Council’s policy an offence of failing to licence an HMO should, in my judgment, be treated as one of moderate seriousness for
which the appropriate penalty will begin at between £8,000 and £12,000. That figure is consistent with other cases in which this Tribunal has determined for itself the appropriate
sanction in a licensing case (in which final penalties of £5,000, £6,000 and £12,000 have been imposed). Bearing in mind the seriousness with which the Council takes this offence
it is appropriate to start at the top of that range.“
The Tribunal went on to conclude that specific harm was caused to two occupiers of Room 5 for a period of up to thirty months. That harm was the result of occupying a room which was too small to provide acceptable living accommodation. To reflect that specific harm, he adjusted the penalty upwards by £3,000.
The Tribunal also concluded that the offence was deliberate and the landlord took active steps to cover up the presence of the fifth tenant and failed to cooperate with the Council’s investigation. To reflect high culpability and these aggravating factors, he added a further £3,000.
Having considered all the circumstances, the original penalty of £29,817, which had been reduced to £3,900 by the First-tier Tribunal, was increased to £18,000.
This case will provide important reading for local authorities up and down the country. Any local authority that places certain offences into high harm bands regardless of the circumstances will need to amend their policy. Likewise, any policy decision to add enforcement costs to the level of penalty imposed must be discontinued.
Other landlords or agents issued with high penalties in similar circumstances may also have grounds to appeal, or to negotiate a lower penalty, in line with this decision.
It also acts as an important reminder that landlords must ensure compliance with local authority licensing schemes. If problems arise and landlords are unsure how to act, they should seek professional or legal advice at the earliest opportunity to help get the issue resolved.
The full judgement of Leicester City Council v Morjaria  UKUT 129 (LC), number LC-2022-501 is available here.
The author of this blog, Richard Tacagni MCIEH CEnvH, is Managing Director of London Property Licensing and acted as the landlord’s representative, supported by Mr Archie Maddon of 5 Pump Court Chambers before the Upper Tribunal. He can be contacted here.
For all the latest news and comment, you can sign up for the free London Property Licensing newsletter here.