It turns out that at more or less the same time as Global 100 were pursuing their appeal in the Court of Appeal with regard to their possession claim against a guardian who had been occupying a property owned by NHS Property Services Ltd (our note here), that Global 100 Ltd, Global Guardians Management Ltd and the sole director of both companies, Theo Kyprianou, were also facing linked proceedings in the First Tier Tribunal in respect of the same property.

Case references LON/00AT/HNA/2021/0021 : LON/00AT/HMK/2021/0003 LON/00AT/HMK/2021/0008 (copy of decision here)

The proceedings were i) the Global parties appeal of LB Hounslow’s imposition of a civil penalty against each of the three of them for failure to licence an HMO, and ii) Global defending applications for rent repayment orders by guardians formerly occupying the property for the unlicensed HMO. It has to be said that the Global parties took every conceivable legal point (and beyond) while presenting no actual evidence, but lost on all counts. The hearing apparently took place before the Court of Appeal judgment, but the decision made after it. There are some interesting points of tension, to which I’ll return.

The property, the Stamford Brook Centre, was owned by NHS Property Services Ltd. It had been used as an office. In 2016, NHSPS had entered an agreement (the terms of which were less than clear, save that NHSPS would be paid £600 pm) with Global Guardian Management Ltd under which GGM would provide ‘guardianship services’. GGM then licensed Global 100 Ltd, on terms that were and remained entirely opaque, to give licences to guardians to occupy the property for a monthly licence fee. Global carried out some alterations to the property, putting in 4 kitchens (from used units) and four electric shower units, and adding locks to room doors. Some 29-30 guardians were then installed. Global 100 received about £15,000 per month in licence fees. Where that money went also was and remained entirely opaque, save that £600 per month went to NHSPS.

In February 2020, following complaints, LB Hounslow inspected. There were 29 guardians in occupation. LB Hounslow decided the property was an HMO that required a licence. Despite telling Global this, no licence was sought. Global argued the toss and failed to provide information sought until NHSPS served notice to end the agreement, at which point Global sought and were granted two Temporary Exemption Notices on the basis that possession proceedings in 2020. LB Hounslow confirmed the civil penalties after objections from Global, of £6000 each against Global 100, GGM, and Mr Kyprianou in person. The Global parties appealed to the FTT. Meanwhile, the guardians had made applications for rent repayment orders. All these were joined.

We’ll take the issues – mostly overlapping – one by one.

i) Was the property exempt from needing a licence?

Global argued that NHSPS was company in the sole control of the Secretary of State, who was a ‘Health Service Body’ for the purposes of Section 9(4)(m) of the National Health Service Act 2006, and so exempt from needing a licence under Schedule 14 Housing Act 2004. (This is an issue that came up in the comments on our previous post. My knee jerk response was that Schedule 14 applied as NHSPS was a health service body. Then I looked into it. It isn’t.) The Tribunal held that NHSPS is nowhere defined as a health service body for s.9 NHSA 2006, so there was no Schedule 14 exemption. Control by the SoS was irrelevant.

Hounslow had also served a civil penalty notice on NHSPS, as a person managing or in control of the HMO. NHSPS had paid the penalty.

ii) Was the ‘standard test’ for an HMO met? – the ‘sole use’ argument.

A condition for an HMO under s.254(2) Housing Act 2004 is

“(d) their occupation of the living accommodation constitutes the only use of that accommodation”

Gobal argued that becayse the guardians were there to

fulfil the guardian function of protecting the building. Their guardian management services are to secure the building against “trespassers, squatting and antisocial behaviour and protect (the building) from damage”.

This got fairly short shrift from the Tribunal. The reliance on Ludgate House Litd v Ricketts (Valuation Officer) (2020) EWCA Civ 1637 (our note) was misplaced. While Global’s contractual purpose might have been to provide security for NHSPS, ‘guardian function’ was not defined in the guardian’s licences, and they were not employed to provide any services, rather they were offered and wanted a place to live. They ‘secured’ the property by living there.

The guardians occupied their rooms as their residences. The Tribunal is therefore satisfied that their occupation of the living accommodation constituted the only use of that accommodation and that the condition specified in section 254(2)(d) is met.

It is noted that Global had run this argument (and some of the the others) in another RRO case, William Road (LON/00AG/HMF/2021/0042) and lost in the FTT, but had been given permission to appeal to the Upper Tribunal on the ‘sole use’ point only. One would anticipate that this decision will be appealed alongside it.

iii) Persons having control or managing.

Section 263 Housing Act 2004 provides various definitions of persons ‘having control’ or ‘managing’ an HMO. As pointed out by the Court of Appeal in Rakusen v Jepson (our note) and as summarised by the FTT:

The definitions are wide enough to include a number of different people in respect of a property. It may also extend to a managing agent. Where there is a chain of landlords, more than one may be liable for an offence (see Rakusen v Jepson (2021) EWCA Civ 1150, per Arnold LJ at (33)).

Global argued variously a) Global 100 didn’t receive rent, only licence fees (sic); b) If the property were let at a rack rent, neither Global 100 nor GGM would receive it as the agreement with NHSPS was limited; c) Global were ‘in the “property protection” and not the “property renting” business’; and d) they weren’t the owner or lessee of the property, so not managing it.

As the Tribunal notes, Global were on a bit of a cleft stick here. They didn’t go so far as to say NHSPS were the person managing or in control, because shopping NHSPS would ruin Global’s business model. After all, if any property owner thought that Global would dump responsibility (and liability) for licensing on them, they would run a mile, but nonetheless, that was the import of their argument. (Again, Hounslow had served a penalty notice on NHSPS on the basis that they were also in control or managing, and NHSPS had paid it without demur.) But the Tribunal had no problem finding that Global were managing or in control.

a) because the agreement with NHSPS created a tenancy for GGM Ltd (see para 75). (I’m not wholly sure about this – see below – but I don’t think it matters overall.)
b) The relationship between GGM and Global 100 was wholly opaque and no evidence at all had been put forward to clarify it by Global.

The Tribunal went on to find:

First, we are satisfied that both GGM and G100 are “persons managing” Stamford Brook as “lessees” who were in receipt of “rent or other payments” from the guardians. We are satisfied that NHSPSL granted GGM an interest in land (see [75] above). We find it impossible to accept that the substance and reality of this arrangement was a service agreement whereby Global Guardians would manage Stamford Brook on behalf of NHSPSL. In such circumstances there would have been a direct contractual relationship between NHSPSL and the guardians. NHSPSL accepted no responsibility to convert Stamford Brook for residential occupation, for the subsequent internal maintenance of the building or for the health and safety of the guardians.

Were we to be wrong on this, NHSPSL would be the “person managing” Stamford Brook as it was receiving “rents of other payments” through GGM as “an agent”. We are satisfied that finding NHSPSL was the appropriate licence holder would not reflect the substance and reality of the Guardian scheme agreed between NHSPSL and GGM.

Secondly, both GGM and G100 are “persons having control” as they have both been in receipt of the rack-rent from Stamford Brook. They have received some £15,000 per month from the guardians. We agree that it is irrelevant whether this is categorised as “rent” or “licence fees”.

And then

Thirdly, both GGM and G100 are “persons having control” as they would both be in receipt of the rack-rent, were Stamford Brook to be let at a rack- rent. We accept Hounslow’s argument that this provision would be engaged even if the guardians are mere licensees, as Global Guardians have a contractual entitlement to let out Stamford Brook at a rack-rent. Even were Global Guardians to be mere licensees, it would still be open to them to grant an interest in land at a rack rent (see Bruton v London & Quadrant Housing Trust (2000) 1 AC 104).

iv) Reasonable excuse

Global argued (seriously) that they had a reasonable excuse because Hounslow hadn’t given clarification (or provided their legal advice) as to why a licence was required. The Tribunal, unsurprisingly, rejected this. Global had had over a year from the notification that they needed a licence until the service of the civil penalty notice. Hounslow certainly weren’t required to provide their legal advice in order for Global to be required to get a licence. That Global’s answers to Hounslow’s questions ere wholly unsatisfactory and lacking in information (and that was still lacking on this appeal) did not help them.

v) The liability of Theo Kyprianou

Global (on behalf of Mr Kyprianou, who did not attend and had filed no evidence), denied that a civil penalty should be made against him in person as it was not clear beyind a reasonable doubt that “any offence committed by GGM or G100 was committed with the consent or connivance of, or to be attributable to any neglect on the part of Mr Kyprianou”.

The Tribunal held that as Mr Kyprianou was the sole director of both companies and had put in no evidence in support of the contention made by his solicitor that ‘he had gone to considerable lengths to establish a management system that operates according to the law’. He had signed some of the relevant licence agreements. As the sole controller of GGM and G100:

we are satisfied beyond reasonable doubt that the offences of having control of or managing an unlicenced HMO which were committed by GGM and G100, were committed with Mr Kyprianou’s consent and connivance and were attributable to his neglect. He was fully aware of the situation at Stamford Brook. As the sole director of both companies, he had the responsibility to ensure that an HMO licence was obtained.

That was that on the appeals against the civil penalties, which were confirmed. ON the RROs, there was one more argument from Global, foreshadowed above. There could be no RRO because there was no rent paid, only a licence fee.

This went about as well as you would expect. The Tribunal cited the FTT decision against Global in William Road (LON/00AG/HMF/2021/0042) where the same argument had been run:

“49. The Tribunal is of the view that there is no ambiguity in the Act and it is clear that the definitions of tenancy and letting in section 56 are enlarging ones and the terms rent and tenant are also adapted accordingly. The definitions in section 262 of the 2004 Act and section 56 of the 2016 Act are so wide that it is clearly intended to cover situations where there are multiple parties and arrangements.
50. Excluding licensees from the Act would negate the purpose and reach of rent repayment orders and it cannot have been intended to exclude them from the protection of the Act.
51. The Tribunal finds that licences, licensors and licensees come within Part 2 of the HPA 2016
52. It was accepted by the Respondent that it received licence fees from the Applicants”

Permission to appeal on this point had been refused by the Upper Tribunal on the basis that

“As to the other grounds of appeal put forward by the applicant, section 56 of the Housing and Planning Act 2016 makes it clear that a letting includes a licence, and accordingly rent must include a licence fee. There is therefore no prospect of success on appeal on the basis that the applicant was not receiving rent.”

So, the RRO applications were allowed against Global 100.

On the amount of the RROs:

While GGM might have paid utility bills, there was no evidence that Global 100 had, or passed the funds for this on, because Global had put no evidence in. So no deduction was made for utilities.

Global 100 was supposedly a professional provider with substantial resources. There was uncontradicted evidence from guardians about issues with the state of the property.

Some guardians had remained in occupation as trespassers after the termination of their licenses, when NHSPS required the return of the property. In terms of conduct, a 40% reduction was made on those cases.

There were no relevant arrears of licence fees for the periods claimed.

There was no reason to make a deduction for ‘double penalty’ for the civil penalties. Those were at the bottom of the scale, not severe, and Global 100 was making £15,000 per month in licence fees.

Repayment of the RRO fees ordered.

Comment

It appears the Global had tried to be too clever, both in terms of their corporate structure (which they then would not or could not explain to either Hounslow or the Tribunal), and in terms of their arguments (unsupported by evidence) as to why HMO licensing didn’t apply to them.

It can surely come as no surprise to anyone who has thought about the application of the 2004 Act that the various defences here did not work. ‘Licence fees not rent’ was particularly a reach given that licences are expressly incorporated. That said, it has to be noted that Global were apparently given permission to appeal to the Upper Tribunal on the ‘sole use’ point in William Road (although refused permission on a number of the same arguments made in this case). No doubt this decision will also be appealed on this point and possibly joined. I don’t like to predict outcomes of appeals, but I have to say that on the first instance showing of the argument, I don’t fancy Global’s chances of succeeding. That this is residential occupation only seems pretty clear, whatever Global’s purposes.

I am, however, not sure about the Tribunal’s finding that the agreement between GGM and NHSPS created a tenancy or interest in land. The Court of Appeal in Laleva proceeded on the basis that Global had a licence, not a tenancy – this was the position of both parties as it was at the core of Ms L’s appeal – so it was not decided per se, but Lewison LJ had no difficulties in law with that being the case. In the end, it really doesn’t matter that much for this case. As the Tribunal notes, Global 100 were receiving the rent /licence fees, and so were persons having control for the purposes of HMO licensing, even without a tenancy themselves.

And, with a weary sigh, it has been many years now that we have been telling guardian firms that HMO licensing applies. And look, once again, so it does!

(My thanks to Tara O’Leary of Cornerstone Chambers for alerting me to this decision. She acted for Hounslow)