HMOs: civil penalties for breaches of housing standards

The decision of the Upper Tribunal (Lands Chamber) (UT) in Sutton and another v Norwich City Council [2020] UKUT 90 (LC) provides a stark warning to owners and managers of section 257 HMOs of the potential for large fines for non-compliance with relevant housing standards. Mr Nicholas Sutton was the sole director of Faith’s Lane Apartments Ltd (FLAL). FLAL was the freehold owner of Max House – an office block that had been converted in breach of building regulations into an “apart-hotel”. Norwich City Council (the Council) classed Max House as a house in multiple occupation under section 257 of the Act. It was therefore subject to the Licensing and Management of Houses in Multiple Occupation (Additional Provisions) (England) Regulations 2007 (the Regulations). In 2018, the Council held FLAL to be in breach of some of its duties under the Regulations. Additionally, in 2018, the Council served improvement notices on FLAL due to health and safety hazards discovered during inspections of Max House. FLAL failed to comply with the notices and the Council imposed penalties totalling £236,000 on FLAL and Mr Sutton. They appealed. The appellants argued that Max House was a hotel and not a section 257 HMO. Such HMOs are defined as converted blocks of self-contained flats where fewer than two-thirds of those flats are owner-occupied. In considering whether “residence” was a relevant criterion for section 257 HMOs, the UT had regard to the definition of “self-contained flats” and “occupants” in sections 254(8) and 262(6) of the Act. It deemed occupation of the self-contained flats “as a residence” to be a necessary requirement. Accordingly, the UT found that hotels were not section 257 HMOs. Max House’s planning status as an apart-hotel was irrelevant for the purpose of determining whether it was a hotel or section 257 HMO. What mattered was the nature of the occupation of the flats. From 2017 to 2018, a majority of the self-contained flats in Max House were occupied as residences – it was a section 257 HMO. The appellants further challenged the validity of the improvement notices. However, the UT’s finding that Max House was a section 257 HMO meant that the notices were valid. Further, the UT found that the notices were not tainted by illegality as alleged. They were not served for the improper purpose of maximising revenue. Multiple notices were served because of the number of hazards identified and the work required to remedy the same. There was not any evidence that the Council was trying to circumvent the rule that only a single penalty could be applied to a single offence of failing to comply with an improvement notice. The UT held that, as a director of FLAL, financial penalties could be imposed on Mr Sutton. Under section 251(1) of the Act, the Council had only to prove that FLAL, a body corporate, had failed to comply with the improvement notices and those offences were committed with the “consent or connivance” of a director. By virtue of regulation 2 of the Regulations and section 263(3) of the Act, a “person managing premises” included an owner who received rent from tenants or licensees. FLAL was the owner of Max House and, therefore, a manager. As the director of FLAL, Mr Sutton was also liable for its failure to comply with the improvement notices and duties under the Regulations. FLAL relied on the defence of reasonable excuse in the proceedings in its capacity as landlord. As a director, Mr Sutton was barred from relying on that defence by section 251(1) of the Act. To avoid liability he had to establish that the offences and breaches were committed without his “consent or connivance”. The UT found that FLAL did not have a reasonable excuse and that its offences and breaches were committed with the consent or connivance of Mr Sutton. The UT noted that when determining the appropriate level of fines, consideration had to be given to what financial penalty the offence merited and the amount that the company and individual director could pay. The appellants’ total penalty was reduced to £174,000. Elizabeth Dwomoh is a barrister at Lamb Chambers