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Property guardians, council properties, licensable HMOs and RROs against directors

I somehow missed this fascinating rent repayment order application decision back in February, and just had my attention drawn to it by a remarkably dimwitted rule 13 costs application decision on the same case (on which more later on). There are a lot of interesting and important issues addressed in the First Tier Tribunal decision in:

49 Russell Hill Road, Croydon, CR8 2XB ((Housing) Act 2004 and Housing and Planning Act 2016 – Rent repayment orders) (2021) UKFTT LON_00AH_HMK_2020_0021

First off, the usual caution. This is an FTT decision, so not binding at all. Further, permission has been given for an appeal.

This was a rent repayment order application by a number of property guardians who had (and continue) to occupy a former children’s home, owned by LB Croydon. Croydon had entered an agreement with (the late and largely unlamented) Camelot to put guardians in the property in September 2016. On 6 November 2019, Camelot companies entered voluntary liquidation. A ‘new’ company, with the same directors, Watchtower, purportedly took assignment of Camelot’s agreements from the liquidator (as we noted).

This RRO application was brought in respect of the period when Camelot were in charge of the property, on the basis that it was an unlicensed HMO. But it was not brought against Camelot (there not being a lot of point in that), but against Dominic White, a director and CEO of Camelot from January 2019 on (and now a director of Watchtower). (An application against Joost van Gestel CEO and sole shareholder of Camelot Europe, the parent company, was dropped.)

There were a number of novel issues for determination:

i) Did the property require licensing as an HMO despite being owned by Croydon Council (and Croydon’s stated position being that it did not require licensing)?

ii) If so, was there a defence of reasonable excuse?

iii) Could a director of a landlord company have an RRO made against them personally?

iv) If so, should an RRO be made against Dominic White?

Did the property require an HMO licence?

It was common ground that apart from the issue of Croydon’s ownership, the property was an HMO that would fall under mandatory and selective licensing in the area.

It was irrelevant for this purpose whether the occupiers were tenants or licensees, although the Tribunal said:

We tend to the view that they were mere licensees as this was a legitimate sharing arrangement (see A.G.Securities Ltd v Vaughan (1990) 1 AC 417). The right to move an occupier from one room to another is inconsistent with exclusive possession (see Westminster City Council v Clarke (1992) 2 AC 288). Mr Penny did not seek to suggest that the agreement was a sham. We are fortified in our view by the decision of Mr Justice Butcher in Camelot Guardian Management Limited v Heiko Khoo (2018) EWHC 2296 (QB) (NL note here) in which the judge construed an identical agreement and held (at 39) that it created a licence.

Mr White argued that a licence was not needed as the property was owned by the council and Housing Act 2004, Schedule 14, paragraph 2 includes amongst properties that are not HMOs, a building “where the person managing or having control of it is a local housing authority”. Correspondence from LB Croydon stated the same.

Flat Justice, for the applicants, argued that Camelot was the person both “having control” of and “managing” the Property for the purposes of paragraph 2 Schedule 14.

The Tribunal considered the ‘Property Protection Proposal’ which was the agreement between Camelot and Croydon, which provided for a term, and a payment of Croydon of £10 per guardian per week, and decided (and I’ll quote at length because this is key):

Croydon provided Camelot with the keys to the property. It was an essential part of the agreement that Camelot should have exclusive possession to prevent the property from being squatted or vandalised. Camelot agreed to replace the front door lock, add locks to the Guardian rooms and provide Croydon with a set of keys. Mr White described how Croydon would always insist that a Camelot staff member was present when Croydon needed to inspect.

Croydon remained responsible for the cost of utilities. Croydon agreed to ensure that the hot water boiler remained operational throughout. The agreement was premised on Croydon having “a valid gas safety certificate as well as other statutory and regulatory certification in place throughout the period of Camelot’s occupation”.

Camelot undertook to comply fully with all health and safety, environmental health, electrical and gas safety regulations. Camelot undertook to undertake a fire risk assessment prior to occupation and once a year thereafter. However, the maintenance of the fire detection and/or alarm system was for Croydon. Croydon opted to use their own contractors for any emergency repairs.

Mr White assured the tribunal that this was all the documentation relating to the letting. We are satisfied that the agreement created a tenancy between Croydon and Camelot, Camelot having exclusive occupation of the Property for a term and at a rent (see Street v Mountford (1985) AC 809).

Thus Camelot had a tenancy. In terms of ‘having control and managing’:

(i) If Croydon granted Camelot an interest in land, Camelot would be the person both “having control” of and “managing” the Property. Camelot would be the person “having control” as the person who receives the rack- rent of the Property from the guardians. Camelot would also be “managing” the Property as it receives “rents or other payments” from the persons who are in occupation of the HMO as tenants or licences.

(ii) If Croydon merely granted Camelot a personal right in respect of the Property, the position would be different. Croydon would retain legal possession of the Property. Croydon would be the person “managing” the Property as the “owner” who received rents or other payments through an agent from the persons who are in occupation of the HMO as tenants or licences. However, it would still be Camelot who had “control” as the person who received the rack rent. The modest fee of £10 per week per guardian which Camelot paid to Croydon would not amount to a “rack- rent”. Camelot, as agent, was receiving some £40,000 per annum from the Property, whereas Croydon, as principal, was receiving only some £5,000 per annum.

We have found that Croydon granted Camelot an interest in land (see [44] above). We are thus satisfied that Camelot was under a duty to licence the Property. It would have been open to Croydon not to grant such an interest, but rather to utilise Camelot as its managing agent. In such circumstances, there would have been a direct contractual relationship between Croydon, as principal, and the guardians. Our understanding is that this is just the type of relationship that Croydon has sought to avoid.

It didn’t matter – at this point – what Croydon said, a licence was required in law, and no licence had been obtained.

Did Camelot have a defence of reasonable excuse?

Mr White’s evidence was that prior to his joining Camelot in February 2019, Croydon had been asked about a licence by Camelot on several occasions. There was some documentary evidence for this, and indeed a Croydon officer had emailed Watchtower in Dec 2019 saying “I confirm as the property is owned by the Local Authority, it is exempt from licensing”. Camelot were entitled to rely upon this, so a defence of reasonable excuse was made out:

There can be no better excuse for a landlord to fail to licence an HMO than to be told by the relevant local housing authority (“LHA”) that no licence is required.

Thus no offence was committed.

Was any offence committed by the director of Camelot as the landlord personally?

As no offence was committed by Camelot, the answer was no, but the Tribunal addressed the ‘additional hurdle’ of section 251 Housing Act 2004, which provides

(1) Where an offence under this Act committed by a body corporate is proved to have been committed with the consent or connivance of, or to be attributable to any neglect on the part of–

(a) a director, manager, secretary or other similar officer of the body corporate, or
(b) a person purporting to act in such a capacity,

he as well as the body corporate commits the offence and is liable to be proceeded against and punished accordingly.

The applicants had established no consent, connivance or neglect on the part of Mr White as director.

Could an RRO be made against a director?

The Tribunal was not satisfied that it could.

We are satisfied that it is not sufficient for a tenant to establish that a director of a landlord company has committed an offence under sections 75(1) or 95(1) of the 2004 Act. A RRO can only be made against a “landlord”. Were Parliament to have intended this quasi-criminal jurisdiction to extend to a director, clear words would have been required. There is nothing in Part 1, Chapter 1 of the 2016 Act to suggest that this was Parliament’s intention.

The relevant parts of Housing and Planning Act 2016 used ‘landlord’ throughout.

The penal provisions in the 2016 Act provide for the repayment of rent paid by the tenant during the relevant period. It would be surprising were the legislation to require a person to repay rent that they had not received. The decision in Goldsbrough and Rakusen raise interesting issues where more than one landlord is liable to a RRO. Is the order to relate to the rent paid by the tenant, or the rent received by the relevant landlord? However, there is nothing in these decisions to suggest that a RRO could be sought against someone who is not a landlord.

The Applicants are seeking to make Mr White liable for a RRO even though he received no rent. They are also seeking to make him liable for a period before he became a director. We can see no justification for this approach. If this were to be permitted, tenants could seek RROs against the wider class of persons specified in section 251 of the 2004 Act, namely a manager, secretary or “other similar officer”.

The application was refused, with no order for the defendant to pay the applicant’s application fee.

However, as noted above, the applicants since sought and were given permission to appeal. So there may be more to come.

Mr White, apparently very self righteously put out by the whole affair (despite Watchtower still failing to acknowledge that the Protection from Eviction Act applies to guardians, and that being despite Camelot having to settle unlawful eviction claims on that basis). So he applied for costs under rule 13. This got extremely short shrift from the Tribunal.

Mr White argued that the application was brought with an ulterior, improper motive, as a part of the applicants’ campaign to have Watchtower removed and to have Croydon granted them housing co-op status.

The Tribunal does not accept that this application was brought for an ulterior and improper motive. The fact that the Applicants have waged a legitimate political campaign for Croydon to transfer the licence of the property to their Housing Co-op, does not justify an assertion that this application for a RRO was brought for an improper purpose. The Respondent has adduced no evidence that the Applicants had been advised by Flat Justice that their case was hopeless. Such allegations of bad faith should only be made if supported by clear evidence.

The fact that this Tribunal rejected the Applicants’ contention that a RRO could be sought against a director, does not justify a finding that it was unreasonable for the Applicants to raise that argument. It would have a chilling effect upon the development of law in this country were parties to be penalised for advancing novel points of law, particularly in an area as complex of housing law. A court or tribunal may reject an argument in forceful terms, only for its decision to be reversed on appeal with equal conviction.

Application dismissed.

Comment

It is worth noting that the Tribunal Judge was Robert Latham, who certainly knows his housing law.

As a hostage to fortune, I think the points on a director’s liability for an RRO – although under appeal – looks probably right. While a director may commit a 2004 Act offence and indeed face prosecution for it, an RRO under the 2016 Act is a against ‘a landlord’ (Rakusen v Jepson, Goldsborough v CA Property). A director of a landlord is not themselves a landlord.

But the findings on HMO licensing and council owned properties have some importance (and relevance for all property owners and guardian firms).

If the Guardian firm has a tenancy of the property, it is the one managing and in control of it, and the council is not – for the purposes of paragraph 2 schedule 14. Thus a licence is required. A council cannot, in law, ignore the mandatory licensing requirement.

Now most, though not all, Guardian firm agreements with property owners that I have seen take the form of a licence – a permission to grant sub-licences to guardians. But not only here was on of that form of agreement found to be a tenancy, the point is firmly made that if it was not an interest in property, the Guardian firm would appear to be simply an agent for the council in managing the property. And that would create a huge number of issues over the status of Guardians, if they were the direct licensees, or potentially tenants of the council (and, to a lesser extent, similar problems would arise for any property owner).

So, the cleft stick for councils looking to take on guardian firms in respect of their properties is – either make sure the guardian firm has a tenancy, but then ensure that the guardian firm has an HMO licence – or insist the guardian firm has a licence only, and then take the risks of that being an agency relation such that the guardians are the council’s direct licensees, or possibly tenants.

While it might have been a reasonable excuse defence for Camelot that Croydon had told them no licence was required, now that this decision is public, it will be increasingly hard for a council to state that no licence is required without facing questions about the lawfulness of that view. Likewise, there will now be a question as to how far a guardian firm could rely, in good faith, on any such assurance.

 

 

 

Giles Peaker is a solicitor and partner in the Housing and Public Law team at Anthony Gold Solicitors in South London. You can find him on Linkedin and on Twitter. Known as NL round these parts.

10 Comments

  1. Ben Reeve-Lewis

    Seems like the council and Camelot/Watchtower very carefully set things up in a ‘have cake and eat it’ fashion, which is similar to what we see in rent to rent scamming. Are they or are they not the landlord being the perennial problem

    Reply
  2. John

    What would stop councils simply granting HMO licences but waiving the fee? Or couldn’t they simply grant themselves the licence as being the superior landlord in a chain of management layers?

    Reply
    • Giles Peaker

      They could waive the fee I suppose, but don’t see why they would, as there are admin costs. But HMO licence requires property to meet certain standards…

      If this decision is right, no point in council granting itself a licence as it is not the relevant person having management and control.

      Reply
  3. KK

    Exactly Ben! The cake metaphor seem to be so relevant on so many levels in this case! [deleted by NL – we don’t allow comment on live and ongoing proceedings.]

    Reply
  4. KK

    HMO license is one thing, another is complying with regulations, number of bathrooms and kitchens etc. Suddenly property guardian companies don’t sound like such a lucrative business idea, especially on very short term properties. Question – how does it affect the councils?

    Reply
  5. KK

    On reasonable excuse issue – the only proof Mr White ever supplied to prove Camelot or Watchtower contacted Croydon regarding HMO was and email from December 2019. First of all this is after the RRO claim period for this case.
    Secondly no other email or whiteness evidence was provided other than Mr White’s hazy memories of ‘some phone call’. Only in January 2019 Camelot was found guilty of 15 housing offences including lack of HMO license for a property in Colchester. It’s hard to understand how one email can be deemed as reasonable excuse for this experienced ‘empty property expert’ company. Especially that this email came 3 years after Camelot took control of this property.

    Reply
    • Giles Peaker

      Sorry, that is not accurate. the Tribunal accepted his evidence from the company records of approaches to Croydon about a licence in 2016 and 2018. That is that. You don’t get to re-argue that issue.

      Reply
  6. Archie Maddan

    Surely the one certain take away from this case is that Croydon’s lawyers didn’t recognise the nature of the agreement they were entering into, which as you note, is odd given that one of the purposes of this arrangement was to keep the council at arms length from the occupants; one struggles to see how Croydon’s lawyers thought they could square this circle, dare one suggest that they were trying to have their cake and eat it? Well done Robert Latham for giving them a seminar in basic tenancy law!

    Reply
    • Giles Peaker

      It is something that is very common with councils, this form of thing. I’m not wholly convinced by RL’s finding that Camelot had exclusive occupation. I think Khoo – otherwise cited with approval by RL – would actually go against that finding. However, the opposite finding, that the Guardian firm were in effect the council’s agent, would then be open and giving rise to another can of worms.

      Reply
  7. Archie Maddan

    Yes, an interesting point about exclusive occupation and of course limited to this case so arguable in future the other way. What is now a complete mess is the licensing situation, can a guardian company now argue reasonable excuse if a LHA refuse to grant a licence despite (we now know) getting the law wrong ?

    How is one supposed to advise a landlord or an RRO applicant in such a situation?

    If a LHA refuse to grant a licence despite clearly having got the law (about the section 263 tests) wrong then logically a guardian company now needs to appeal the refusal in the FTT to later be able to rely upon a reasonable excuse defence to an RRO application; certainly if I was representing a RRO applicant I would argue that following this decision a guardian company should challenge a refusal that is obviously wrong and not be able to simply say the LHA refusal is sufficient to ground a failure to obtain a licence.

    Reply

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