Council secures fresh hearing on liability of sole director in HMO regulations dispute

In Salford City Council v Brown (HOUSING - CIVIL PENALTY - director's liability under s.251 Housing Act 2004 - whether offence caused by director's neglect - responsibilities of sole director - delegation to shadow director) [2026] UKUT 393 (LC) the local authority challenged the FTT’s conclusion that the conditions for a director’s liability in section 251 of the Housing Act 2004 were not met.

The company director, Mr Brown, is the sole director of a number of companies which are in the business of managing rented property on behalf of landlords.

In February 2023 Salford imposed a financial penalty of £10,850 on the basis that one of his companies, Want This Room (WTR), managed a property which is operated as an HMO. It concluded that Mr Brown was liable under section 251. He appealed to the FTT.

The FTT said the issues were: “(1) is the Appellant as a director of WTR liable to be proceeded against? if yes, (2) was an offence committed? and (3) the amount of any [penalty] to be imposed.”

It added that the primary issue to be determined by the Tribunal before it addressed the other matters in dispute was whether Mr Brown was liable to prosecution as the sole director of WTR.

The FTT considered the first question and answered by finding that Mr Brown was not liable to be proceeded against as he could not be held wholly responsible for the failings of his company WTR.

The tribunal observed that the city council had not imposed a financial penalty on WTR, as a result of confusion about which of the companies in the group was the manager of this particular property, although by the time of the FTT hearing it was not in dispute that it was WTR.

In his evidence Mr Brown said he was the director of a large number of companies and that he would have spent “a small percentage of his time” managing the business of WTR. Property management for WTR was the responsibility of a shadow director, Ms Egan, and her team.

Mr Brown said Ms Egan dealt with operational matters while he was “concerned with the money”. He said he was not made aware of any issues in respect of the property and the first time he learned of any compliance concerns was in August 2022 when he was passed an invitation to meet the council.

The FTT found that “it cannot be properly said that [Mr Brown] exercised any neglect. He had a considerable portfolio of properties across many companies for which he was a director. He was entitled to rely on Ms Egan's expertise to manage the Property. He was not under a duty to supervise the running of WTR and it was proper for him to leave the running of the company to her.

“... The Respondent has not proved neglect on the Appellant's part and no causal connection to the alleged offences."

Salford appealed to the Upper Tribunal, saying that the FTT erred in finding that the company's offence was not attributable to Mr Brown's neglect, and that it misconstrued section 251, and thereby circumvented its purpose as an anti-avoidance provision.

The local authority argued that the company's function was the management of rented properties, including compliance with housing legislation and regulation. As sole director Mr Brown was responsible for that compliance.

It was also suggested that the respondent had no management systems in place to prevent the commission of housing offences. It was not open to him to leave matters to Ms Egan, who was neither a director nor an employee of the company, and claim that housing legislation was not his area of responsibility.

Counsel for Mr Brown noted that the FTT had accepted all his evidence and considered him an honest witness. Its findings of fact about Mr Brown's involvement in the day-to-day running of WTR, and about the management structure of WTR and other companies, had been amply justified on the evidence.

It was also argued that the materials disclosed about the way WTR was managed showed that there was a proper system in place and that compliance was monitored.

Mr Brown’s counsel also submitted that for the director to be held responsible under section 251 on the basis of neglect, there had to be more than a mere failure to see that the law is observed; it required identifying a duty to do a specific act and a failure to do so.

Upper Tribunal Judge Elizabeth Cooke noted that whether an offence had in fact been committed by WTR was one of the questions the FTT had to answer, but it did not do so because it did not get past the first issue.

“There is therefore no finding of fact by the FTT as to whether or not WTR committed an offence, what that offence was, or how it was committed. It would I think have been preferable for the FTT to answer its second question first. As it is, the FTT was working on a provisional basis; if an offence had been committed, could it have been attributable to Mr Brown's neglect?”

The Upper Tribunal judge said the FTT had been wrong to rule out criminal liability on Mr Brown's part.

“That does not mean that he is so liable, only that liability has not yet been ruled out, and cannot be ruled out on the ground that compliance was not Mr Brown's responsibility by virtue of delegation. Even if an offence has been committed, it may be found that the facts were such that it could not possibly be attributable to the neglect of the director even though he was fully responsible for statutory compliance.”

As to the appeal itself, Judge Cooke started with the proposition from counsel for Mr Brown that for a director or other officer to be liable under section 251, it is necessary to identify a duty to do a specific act and a failure to do so.

“I disagree. For a person to be liable under section 251 on the basis of neglect there is no need to identify a specific act which that person should have done. The authorities on the health and safety legislation and other regimes make it clear that neglect can be inferred from responsibility. The sole director of a company is responsible for all its actions, and at the heart of this appeal is the issue whether that responsibility can be passed to another person who is not a director.”

She said the appeal turned on the question whether delegation to a person who is not a director of the company could exonerate Mr Brown in the same way as if Ms Egan had been a statutory director.

Judge Cooke said: “In my judgment the FTT was plainly wrong to decide that that made it impossible for Mr Brown to be liable under section 251. Lord Parker CJ in Huckerby was speaking only of a division of responsibilities between directors. He did not say that a director was under no duty to supervise or check up on someone to whom a responsibility had been delegated, if that person was not a director, nor an officer, nor even an employee of the company.

“It would be very surprising if he had said anything of the sort. It is one thing to say that duties, and work, can be shared between directors so that one of them is responsible for regulatory compliance and one is not. It is quite another to say that a director can delegate that responsibility to a person who is not a director, nor an officer or employee of the company, and is thereby exonerated from responsibility. That would be a most startling idea.”

The judge found that the fact that compliance with housing legislation and regulation was the responsibility of Ms Egan did not mean that Mr Brown could not be liable under section 251.

She added: “I repeat that that does not necessarily mean that he is liable; no such finding can be made until the second of the FTT's three questions has been answered so that the nature of the offence and the facts of its commission are known. Only then can the FTT decide, whether by a direct finding of fact or by inference, whether the offence was attributable to neglect on the part of Mr Brown.”

The judge said he had reached her conclusion without reference to the fact that section 251 is an anti-avoidance provision, designed to ensure that individuals cannot hide behind a corporate body. “It is uncontroversial that it is such a provision; but it remains important that an individual should not be found liable unless the requirements of the statute are properly met.”

Allowing the appeal, Upper Tribunal Judge Elizabeth Cooke remitted the case to a differently constituted FTT. “It will need to start afresh, and to consider first, whether the company had indeed committed an offence. The next issue to consider will be whether that offence was attributable to neglect on Mr Brown's part. Only if it so finds, on the criminal standard of proof, will it be appropriate to move on to the third question, the amount of the penalty.”

Harry Rodd