Landlord of unlawful HMO ordered to pay back over £500k!
11th September 2020
11th September 2020
In this week’s Legal Update we look at the potential devastating effects of getting things rather badly wrong in relation to the letting of a property and the attitude of the Court towards a landlord who makes that mistake (the title might be a bit of a giveaway as to the ending here!).
What is a HMO?
A rented property is considered a House in Multiple Occupation (HMO) if it is occupied by three or more people, forming two or more households, who also share facilities such as the kitchen or bathroom, regardless of the number of storeys the property has.
What is a ‘household’?
A household is defined as either a single person or members of the same family who live together. A family includes people who are:
married or living together (including same-sex couples);
relatives or half-relatives (eg grandparents, aunts, uncles, siblings);
step-parents and step-children.
Mandatory, Additional/Selective Licensing
In order to let a property in England or Wales, where that property will be occupied by more than a single household, a landlord should contact the local authority first to check if the property in question falls within one of the areas subject to licensing and therefore whether a licence is needed.
If the property constitutes a ‘large’ HMO (five or more occupants in more than one household) the property is subject to a mandatory licence requirement irrespective of its location. Even if the property is a ‘small’ HMO (at least three occupants in more than one household) then the Housing Act 2004 gives local authorities the power to impose additional licensing requirements beyond the national mandatory regime. For example, a local authority could extend licensing to include all HMOs in a specific area, or the whole district, and therefore include those not otherwise covered by mandatory licensing regime.
A licence will be valid for a maximum period of 5 years and must be renewed before it expires. A separate licence is required for each property let as a HMO.
London Borough of Haringey, R (On the Application Of) v Roth  EWCA Crim 967
In April 2006 Mr Roth purchased a house in London for £340,000. The following year he obtained planning permission to convert the property into three self-contained flats. A condition of the grant was that Mr Roth was not to deviate from the plans approved by the planning authority.
Notwithstanding that condition, Mr Roth chose, without any authorisation, to convert the property into 12 self-contained flats. This eventually came to the attention of the local planning authority, Haringey Council. In September 2012 Haringey issued an Enforcement Notice requiring Mr Roth to cease using the property as self-contained flats.
In September 2012 Mr Roth lodged an appeal against the Enforcement Notice. However, he submitted no statement in support of this appeal and, having failed to comply with the requirement to do so, his appeal was dismissed in November 2012. The Enforcement Notice expired in March 2013.
A visit by a Planning Enforcement Officer from Haringey in December 2013 revealed that no attempts at compliance with the Enforcement Notice had been made. The property was still in use as self-contained flats. For whatever reason no action was taken at that time.
In March 2016 Haringey then wrote to Mr Roth requiring him to enable a further inspection of the property. He did not respond and a further written request in January 2017 was also ignored. Eventually, in May 2017 the Planning Enforcement Officer was able to inspect the property, having been granted entry by one of the occupants. He found that it was still in use as 12 self-contained flats contrary to the Enforcement Notice.
The matter was heard in the Magistrates Court who in addition to a fine of £20,000 for failure to comply with the Enforcement Notice, ordered Mr Roth to pay a Confiscation Order in the sum of £527,887.55 within three months or face a five-year jail sentence. The £500k Order represented the total value of rent paid by tenants of the 12 self-contained flats for a period of over four years.
Mr Roth appealed to the Court of Appeal, arguing that the Confiscation Order was disproportionate and should have been based on his net profit from the property after expenses rather than the total value of rents obtained. The Court of Appeal disagreed and dismissed the appeal. The Court did however reduce the fine imposed by the Magistrates Court from £20,000 to £13,333 on the ground that Mr Roth should have been given a one-third discount in recognition of his guilty plea.
Lesson to be learnt?
This case serves as a stark reminder that Courts will take a hard line when it comes to clawing back any financial benefit obtained through unauthorised development or use. It also shows the importance of ensuring that landlords comply with the different licence requirements in different areas.
The moral of the story is that a landlord must check with the local authority and, if licence is required, obtain any relevant licence before letting the property to more than one household. Fall foul of that basic rule and a landlord could get an unlimited fine for renting out a property as an unlicensed HMO!
Should you have any questions in relation to the above, then please do not hesitate to contact Susan Fox, at Susan.Fox@kdllaw.com or 01435 897 297.
This legal update is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of KDL Law or by KDL Law as a whole.
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