Wed, 22 Jul 2020
Whilst most of the country was in lockdown at home during the Covid 19 pandemic, the Upper Tribunal was busy giving two key judgements on civil penalties for failures to comply with housing laws.
The Civil Penalty Regime
Since 2017, local housing authorities (“LHA’s”) in England have had a power under section 249A of the Housing Act 2004 to impose a financial penalty of up to £30,000 as an alternative to criminal prosecution for housing offences. The LHA must first be satisfied, beyond reasonable doubt, that the person’s conduct amounted to a relevant housing offence which include (a) failing to comply with an improvement notice; (b) HMO licensing offences (including a failure to have a licence); and (c) breaches of the HMO Management Regulations (these include the duty to take safety measures). Multiple penalties may be issued where more than one offence has been committed but LHA’s must have regard to the government guidance when imposing a penalty. There is a right of appeal against the penalty to the First Tier Tribunal.
Sutton and another v Norwich City Council  UKUT 90 (LC)
In this case, Mr Sutton was the sole director and majority shareholder in a company that owned a former office building which had been converted into residential apartments and studios. Initially, the apartments were occupied under licences in return for a monthly fee but some were later let under conventional assured shorthold tenancies.
Following a complaint in late 2017 from one of the occupants, the LHA completed a joint inspection of the building with Norfolk Fire and Rescue Service. On the 12th of February 2018, the LHA issued eight improvement notices on Mr Sutton’s company relating to cold, fire and electrical hazards in the building. By the end of August 2018 those notices had still not been complied with so the LHA issued five notices of intent each to impose financial penalties on both Mr Sutton and his company for failing to comply with the notices. Aggregate penalties of £140,000 were proposed by the LHA against both the company and Mr Sutton personally in his capacity as a director. Final notices imposing the penalties were issued on the 17th October 2018. The LHA also issued five further notices of intent each on both Mr Sutton and his company in respect of other housing law breaches identified on its inspection resulting in total further penalties for both of £96,600. Later in 2018, the LHA issued a prohibition order on the property preventing residential use so the company was unable to service its borrowing before being placed into administration.
Mr Sutton appealed against the penalties on a number of grounds including that the amounts were disproportionate to the wrongdoing. The Tribunal cancelled £30,000 penalties for both the company and him personally in respect of the failure to comply with the improvement notices for one of the flats because the LHA was unable to show that the final notices to impose the financial penalties had been served. However, the Tribunal also held that where breaches of housing law result in improvement notices being imposed which are themselves then breached, then separate financial penalties can be imposed.
The Tribunal accepted that financial means or ability to pay was a relevant factor in determining the amount but here the company was in administration and Mr Sutton had not provided the Tribunal with up to date financial information for either himself personally nor the company.
The Tribunal recognised that LHA’s are encouraged by the government guidance to have their own financial penalty policies for determining the amount and that a Tribunal should not depart from these lightly. It stated as follows:
“… Within limits, consistency within a local authority area is more important than consistency between authorities, and tribunals should be slow to rely upon the approach taken by a different authority … as justifying a departure from the policy.”
The Tribunal accepted that here the penalties imposed on both Mr Sutton and his company should have been fixed having regard not just to the £30,000 maximum but also to the penalty being imposed on the other. After conducting its own assessment of the levels of culpability and harm arising in respect of each of the remaining breaches for both Mr Sutton and the company (following the LHA’s own policy), the Tribunal concluded that the LHA had not properly followed its policy and had applied it in a way which imposed disproportionate penalties without proper consideration of the facts. The aggregate penalties were reduced to £99,000 for Mr Sutton and £75,000 for the company accordingly.
Notwithstanding the Tribunal’s substantial reductions in the civil penalties imposed, the aggregate penalties for both Mr Sutton and his company remain very high. This case highlights the importance for anyone wishing to appeal against the amount of a civil penalty (and intending to argue their ability to pay) of ensuring they provide the Tribunal with up to date information of their assets and liabilities.
AA Homes & Housing Ltd and another v Croydon London Borough Council  UKUT 181 (LC)
This decision from the Upper Tribunal followed that in Sutton (see above) and also concerned the assessment of the levels for civil penalties in respect of housing breaches.
AA Homes & Housing Ltd (“AHHL”) owned the freehold to a flat in a former office block in Croydon which had been converted into 54 residential flats over five storeys. A second company (“ASL”) managed the block and arranged lettings. The flat was required to be licensed under a selective licensing regime in accordance with Part 3 of the Housing Act 2004.
In April 2017, the flat had been let to an individual for a rent of £900 per month. In September 2017, the flat was inspected by the LHA and Fire Authority. It was found to be one of 36 flats in the building without a necessary licence. In February 2018, the LHA served notices of intention to issue civil penalties on AHHL and ASL in the amounts of £26,000 and £12,000 respectively for the failures to licence. Both companies appealed to the First Tier Tribunal (“FTT”) which reduced AHHL’s penalty to £20,000 but upheld the amount for ASL.
Both companies further appealed to the Upper Tribunal. They argued that the FTT had erred in considering the “significant” fire hazards found in the building by the Fire Authority on its inspection in determining the amount of the penalty for the failure to be licensed. It was argued those hazards were irrelevant.
The Upper Tribunal considered the LHA’s civil penalty policy and accepted this referred very clearly only to harm caused by the offence. Although the fire hazards in the building could have had a serious impact on many people, the Upper Tribunal accepted they were not caused by the failure to obtain a licence. The starting point for the penalties must be the harm caused by the failures to licence. The FTT had erred by making the fire hazards a major factor in its assessment of harm under its policy, although the Upper Tribunal accepted they were an aggravating factor. Therefore, the Upper Tribunal sent the appeals back to the FTT for it to reconsider the amounts of the penalties for both companies.
This case confirms the importance of any relevant LHA policy in determining the amount of a civil penalty. Anyone considering appealing the amount should use that policy (in conjunction with the government’s guidance document) as the starting point for their appeal. LHA’s must take care when determining the amounts for civil penalties that they comply strictly with both those documents in doing so.