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Landlord loses appeal over rent repayment order for HMO occupied by tenants housed at direction of council

Sefton Metropolitan Borough Council has secured more than £13,000 in a rent repayment order after the failure of an appeal against it.

The Upper Tribunal (Lands Chamber) rejected the case brought by Michelle Ball, owner of the Cresta Hotel in Southport, against a ruling by the First-tier Tribunal (Property Chamber).

In Ball v Sefton Metropolitan Borough Council (HOUSING - RENT REPAYMENT ORDER - application by local housing authority for repayment of universal credit) [2021] UKUT 42 (LC) Martin Rodger QC, Deputy Chamber President, said in his ruling the FTT might have reached different conclusions but had committed no error in arriving at those it did.

The case arose when Ms Ball was convicted of an offence under Chapter 4 of Part 2 of the Housing and Planning Act 2016, which entitled Sefton under section 41 of that Act to seek a rent repayment order to recover universal credit paid for tenants placed there. 

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Mr Rodger noted that if the FTT decided to make such an order it had to be for the full amount received in up to 12 months and this could be reduced only in exceptional circumstances.

Ms Ball was convicted of controlling an unlicensed house in multiple occupation (HMO) contrary to section 72(1), Housing Act 2004 and ordered to repay £13,293.27.

Despite its name, the Cresta was a three-storey house with five bedrooms let out with shared bathroom facilities and a communal kitchen, plus Ms Ball’s basement flat. 

Most residents were people in need of emergency accommodation sent there by Sefton’s homelessness service. 

Ms Ball had not obtained an HMO licence because she had believed she ran a hotel and because the homelessness service’s use of it meant the council was aware of how the building was occupied and had raised no objection. 

Sefton eventually inspected the Cresta in August 2018 and decided it was an HMO. Ms Ball was prosecuted and in May 2019 fined £5,000 with costs of £1,466 and a £170 surcharge. 

Mr Rodger noted the FTT had found little guidance as to what constituted ‘exceptional circumstances’ but decided the word’s normal meaning set “a very high threshold” and that Ms Ball’s financial circumstances would not normally meet this.

Ms Ball had implied that Sefton approved of the Cresta’s use since it used the building those homeless people.

Mr Rodger said: “The tribunal gave permission to appeal principally because of the appellant’s complaint that tenants were housed at the direction of the local housing authority.

“That appeared to have been a matter to which the FTT had given no particular weight and the tribunal suggested that it may have been a factor relevant to the decision to make an order at all.

“On closer examination I am satisfied that there is nothing in this ground of appeal.”

He said that a local authority directing tenants to a particular establishment “cannot be taken as a waiver of the general law or as an encouragement to the proprietor to believe that enforcement action will not be taken if a regulatory offence is found to have been committed”. 

Ms Ball also argued that she had been unable to run the Cresta at a profit and that this made it unreasonable to order her to repay what was, in effect, the gross income generated by the business. 

But Mr Rodger said: “For a landlord to make a loss from operating an HMO, and for the deficit to be caused not by bad debts or vacancies but by exceptionally high running costs relative to the rent paid from public funds, might have been regarded as sufficiently out of the ordinary to amount to exceptional circumstances. But that was a judgment for the FTT, and the FTT did not think so. “

He also rejected the argument that Ms Ball not being a professional landlord constituted an exceptional circumstance.

Mark Smulian

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