Financial Penalties – not limited to just landlords and agents?

Thursday, November 26th, 2020 - By Robin Stewart, Solicitor, Anthony Gold

The Housing and Planning Act 2016 introduced a power for local authorities to impose fines of up to £30,000 on landlords and agents who commit a ‘relevant housing offence’ under section 249A(2) of the Housing Act 2004.

These civil penalties, alongside banning orders and enhanced rent repayment orders, have changed the landscape for enforcement in the private rented sector. At a time when local government budgets are stretched thin, these penalties are particularly important because councils can keep the money raised from fines to use it for further enforcement work.

In this article I will explore the limits of financial penalties and consider how they can be imposed on ‘secondary offenders’.

Beyond Landlord and Agents

Section 249A(2) Housing Act 2004 allows local authorities to impose financial penalties on a person who has committed a ‘relevant housing office’, which means one of the following offences:

(a) Failure to comply with an improvement notice,
(b) Failing to hold an HMO licence where required, or breaching a condition or such a licence,
(c) Failing to hold a selective licence where required, or breaching a condition or such a licence,
(d) Failure to comply with an overcrowding notice, or
(e) A breach of the regulations made under s234 Housing Act 2004 (the “HMO Management Regulations”).

These are offences which are, by their nature, almost exclusively committed by private landlords and letting agents. However, it is important to keep in mind that there is nothing in the Housing Act which expressly limits financial penalties to only landlord and letting agents. This has one particularly surprising consequence: the HMO Management Regulations mostly place duties on managers of HMOs, but they also place duties on occupiers of HMOs. A breach of any of those duties is a criminal offence under section 234 of the Housing Act 2004 and is a ‘relevant housing offence’. This means that, in theory at least, a tenant could be punished with a civil penalty of up to £30,000. It is not very likely that any local authority would use their power in this way, but this does illustrate that their power to impose fines extends beyond landlords and agents.

As emphasised by the Upper Tribunal in a recent rent repayment order appeal Rakusen v Jepson [2020] UKUT 298 (LC), various offences under the Housing Act 2004 can be committed by a ‘superior landlord’ (i.e. not the direct landlord of the people in occupation, but their landlord’s landlord). One frequently seen scenario is property owners who grant a tenancy to a ‘rent-to-rent’ business which itself grants subtenancies to tenants to create an HMO. In that example if the property is unlicensed, both the property owner and the rent-to-rent business can commit the offence of being in control of an unlicensed HMO under section 72(2) of the Housing Act 2004.

Company Directors and Managers

Where a landlord or agent is a company (or ‘body corporate’), section 251 of the Housing Act 2004 provides that if the company commits the offence with the consent or connivance of a director, or is attributable to any neglect on the part of a director, that director also commits the offence. In Sutton v Norwich City Council [2020] UKUT 90 (LC) the Upper Tribunal held that this provision was not limited to criminal cases, and this allowed a financial penalty to be imposed on a director of a company who commits one of the relevant offences stated above.

In practice, section 251 tends to only be used to impose penalties on directors of limited companies, but the scope of section 251 is actually much wider than this; it also includes managers and persons ‘purporting to act’ in the capacity of a director or other similar officer. This means that a senior manager who is not formally a director (a ‘de facto director’) or someone who controls a company without having any formal management position (a ‘shadow director’) could also be fined. However this is still subject to the requirement that the individual is proved to be personally responsible for the offence through their own ‘consent, connivance or neglect’.

Consent, Connivance and Neglect

Consent, connivance and neglect are not the easiest concepts to apply, and neither the Housing Act 2004 itself or case law under it give any assistance on what those words mean in this context. However, these are terms which appear in various criminal laws and there is more guidance from the Court of Appeal Criminal Division from health and safety cases. One particularly important principle which emerges from that body of case law is that the size of a company will affect how much evidence is required to prove that a particular director is personally culpable. In some cases it will be very difficult for a director to disassociate themselves from the company’s offending, but the burden of proof will still lie with the local authority.

Aiders and Abettors

If section 251 allows a penalty to be imposed on a director of a company which commits a ‘relevant housing offence’ to face a financial penalty, then other types of ‘secondary offender’ recognised in criminal law might also be liable for financial penalties. In the criminal courts a person who assists or encourages someone else to commit an offence can themselves be convicted as an ‘aider or abettor’.

For summary offences (i.e. those tried only in the Magistrates Courts), section 44(1) of the Magistrates Courts Act 1981 provides that a person who “aids, abets, counsels or procures the commission by another person of a summary offence shall be guilty of the like offence“. The crucial point is that under s44(1) MCA 1981 the person guilty of ‘aiding or abetting’ the primary offender is deemed to have committed the same offence. This might allow financial penalties to be imposed directly on individuals who encourage or assist others to carry out unlawful evictions, manage unlicenced and unsafe HMOs, or breach licence conditions.

The most important consequence of this could arise where there has been a breach of a licence condition. Under section 72(3) Housing Act 2004 a licence holder, or a person on whom restrictions or obligations under a licence are imposed, will commit an offence if they fail to comply with any licence condition. This means that another person, who is responsible for the breach but is not the licence holder, might escape punishment. If local authorities can impose a financial penalty on persons who ‘aid or abet’ a breach of licence conditions, this would be a small but significant expansion of their enforcement powers.

The author of this blog, Robin Stewart, is a Solicitor in the Housing team at Anthony Gold. His email is ros@anthonygold.co.uk.

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. This article does not represent legal advice and should not be treated as such.

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