The Court of Appeal has ruled that there should be "severe" sentences for Selective Licensing offences, but no confiscation under proceeds of crime legislation. Matthew Paul analyses the case.
The Court of Appeal has ruled that local authorities cannot use Part 2 of POCA 2002 to confiscate rental income from landlords who commit offences against section 95 (1) of the Housing Act 2004.
Lord Justice Davis ruled on a challenge brought by Sumal & Sons, a private sector landlord operating in the London Borough of Newham. Its turnover is in the region of £600,000 per annum.
The London Borough of Newham brought a Selective Licensing Area (SLA) into force on 1st March 2010 in the Little Ilford Ward Neighbourhood Improvement Zone. The designation was widely publicised in the local press, and Sumal & Sons ignored five reminders from the Council to licence one of its properties in the SLA.
Sumal & Sons was prosecuted for the breach and convicted in its absence of one offence of being in control of an unlicensed property, and on 3rd October was sentenced at the Inner London Crown Court to a fine of £2000, costs of £3821.96 and a confiscation order of £6,450.83 was imposed. This order represented the rental income from the property whilst it was unlicensed.
The Court of Appeal was asked to consider whether rental income from an unlicensed property did in fact constitute a person’s benefit from the proceeds of crime, pursuant to section 76 (4) POCA 2002. It decided that it did not, for four principal reasons:
- An alternative statutory scheme for the recovery of rental income in the case of an offence against section 95 (1) exists in section 97 of the Housing Act 2004 (Rent Repayment Orders). This scheme is incompatible with the regime under Part 2 of POCA as it creates the possibility of double recovery.
- Section 96 (3) of the Housing Act 2004 preserves a landlord’s ability to enforce the terms of a tenancy (including the payment of rent), despite the commission of an offence against section 95 (1). Parliament could not have intended the collection of such rent to be a criminal act in itself.
- The criminality of the offence therefore lies in failing to obtain a licence, not in collecting rent.
- A confiscation order in these circumstances ‘operates as a fine’.
The third of these reasons raises some interesting questions. Newham Council argued that the offence created by section 95 (1) contains two elements; firstly that S was a person having control of the premises, and secondly that the property was unlicensed when a licence was required. Both of these form the actus reus of an offence against s. 95 (1).
A definition of the phrase “person having control” is set out in s. 263 of the Housing Act 2004 as follows: “(1) In this Act “person having control” in relation to premises, means (unless the context otherwise requires) the person who receives the rack-rent of the premises (whether on his own account or as agent or trustee of another person) or who would so receive it if the premises were let as a rack-rent.”
Accordingly, to be ‘a person having control of the premises’ is linked closely to the receipt of rent. Nonetheless, reading this definition together with the provisions of ss 96 and 97, the Court concluded at paragraph 38 that the ‘criminality’ of the offence lay not in the receipt of rental income but in the failure to obtain a licence.
“…the continuance of the tenancy, and payment and receipt of rent thereunder, is being regarded as lawful. What is unlawful is the failure to obtain a licence”.
The Court distinguished the case of R v. Luigi del Basso  EWCA (Crim) 1119, where the proceeds of a park and ride operated in defiance of a prohibition notice were confiscated. Davis LJ observed at paragraph 40 that: “[Del Basso] had no lawful entitlement to use the land in this way, but instead deliberately flouted the law in doing so in order to secure a profit (benefit). That is in clear distinction from the present case: where the continuance of the letting and the receipt of rent (in contrast with the failure not to have the house licensed) was not made unlawful by the 2004 Act. Putting it in other words, a licence granted under s.88 of the 2004 Act does not operate to confer on a landlord an entitlement lawfully to receive rent which he does not otherwise have.”
It is arguable that this is precisely what Part 3 of the Housing Act 2004 does do. If any statute can be said to ‘confer an entitlement’, it can only do so by allowing a person to do something already forbidden by some other operation of law. Section 95 (1) forbids ‘having control’ (i.e. receiving rent) of premises that are unlicensed. A licence granted under s. 88 confers an entitlement to do so.
This case did not deal with wider abuses than the failure in itself to obtain a licence. Many breaches of section 95 will additionally involve houses that are unfit to be let out, with category 1 faults or overcrowding that would preclude the grant (or continuation) of a licence. In such circumstances, the landlord in question would undoubtedly be ‘flouting the law…in order to secure a profit’. It would be hard in such cases to justify the Court’s conclusion that confiscation of rental income was operating as a fine.
Sumal & Sons argued a number of other points at the hearing, including that it had been an abuse of process to commence confiscation proceedings where no written enforcement policy was in place. The Court distinguished Newham Council’s decision to prosecute from the case of Adaway  EWCA (Crim) 2831, as despite the absence of a written policy (and the irresistible conclusion that a pre-existing policy was not followed), there was no reason to conclude “that individual consideration was not given in this case to the decision to bring these proceedings and to seek a confiscation order” (paragraph 21).
The Court also dismissed Sumal & Sons’ appeal against its fine, which it described as being "on the moderate side", making it clear at paragraph 44 that “magistrates can be expected to be robust and to impose suitably severe fines in cases where the circumstances call for robustness and severity.” It also confirmed that the availability of confiscation orders in other regulatory cases is unaffected by this decision.
Matthew Paul of Argent Chambers represented the London Borough of Newham at first instance and in the Court of Appeal.