Council wins Upper Tribunal appeal over cancellation of selective licensing penalties for "reasonable excuse"

Gateshead Council has won an Upper Tribunal appeal over the decision of the First-Tier Tribunal (FTT) to cancel civil penalties the local authority had imposed on a property company for managing two properties that were required to be licensed under a selective licensing scheme but were not.

In The Borough Council Of Gateshead v City Estate Holdings Ltd (HOUSING - CIVIL PENALTY ORDER - defence of reasonable excuse - ignorance of the law - duties of conveyancing solicitor) [2023] UKUT 35 (LC) the respondent’s properties lay in an area designated by Gateshead in October 2018 as an area of selective licensing.

After being made aware of the requirement for a licence, the respondent, City Estate Holdings, applied for a licence for each property, and licences were granted in December 2020.

Company owner Michael Kosmas was interviewed by the appellant council under caution about offences under section 95 of the Housing Act 2004 in February 2021.

In March 2021 the council served notices of intention to impose a financial penalty. Mr Kosmas made representations, but in July 2021 penalties totalling just over £9,000 for the two properties were imposed.

City Estate Holdings appealed those penalties to the FTT based on the grounds of reasonable excuse. The respondent did not dispute that from August 2020 until the application for a licence was made, from which point no offence is committed, the landlord was managing or in control of properties that were required to be licensed under Part 3 of the Housing Act 2004.

Mr Kosmas had made a statement in advance of his interview under caution, claiming the defence of reasonable excuse because no information was given about the selective licensing designation by the seller’s solicitor.

The properties had been bought at auction. The law firm acting for the seller had provided an information pack for prospective purchasers, but there was no information about licensing.

The FTT found that “despite its published policy of taking informal action wherever possible … the only alternative to prosecution or a civil penalty considered by the [housing authority] was a caution” and that therefore the housing officer did not follow the appellant’s published guidance. It found that that Mr Kosmas was unaware of licensing requirements other than for houses in multiple occupation before the appellant’s call in November 2020.

The FTT found that it had been “entirely reasonable” for Mr Kosmas to rely on his professional advisers to report to him on the properties that he was buying but that he was not informed by them of the need for a licence; and that the respondent therefore had the defence of reasonable excuse. It concluded:

“33. [City Estate Holdings Limited] is a reputable landlord whose investment in housing should be - and indeed was - encouraged by the grant of a selective landlord licence. In accordance with the [housing authority]’s published policy, even if [City Estate Holdings Limited] had been unable to rely on a statutory defence the imposition of a civil penalty would have been unnecessary to achieve the objects of the licensing regulations.”

The FTT granted permission to appeal on three grounds: that the FTT had erred in finding that the respondent had the defence of reasonable excuse; that the FTT erred in holding that the appellant’s failure to follow its own policy was a reason for not imposing a penalty; and that the FTT was wrong to regard the respondent’s status as “a reputable landlord” as a reason not to impose a penalty.

Upper Tribunal Judge Elizabeth Cooke found that Gateshead’s appeal succeeded on all three grounds.

On ground 1, the judge said it was open to the respondent to instruct his solicitors to find out and advise him on the regulatory position about letting the property, without Mr Kosmas being aware either of the selective licensing regime or of the workings of form Con 29, but it had never been the respondent’s case that any such instructions were given.

“Equally the respondent could, through Mr Kosmas, have researched the regulatory and licensing position itself; or it could have instructed a letting agent to do so. It did none of those things. As a result there is no basis upon which the respondent can establish the defence of reasonable excuse.”

On ground 2, the judge said the FTT in hearing an appeal from a financial penalty was to make its own decision, not to review that of the local housing authority.

“The question before the FTT was therefore not whether the local housing authority in imposing the penalty followed its own policy. The FTT was not conducting a review of the local housing authority’s decision. As it happens I see nothing whatsoever in the local housing authority’s actions in this case that was inconsistent with its policy, and indeed [counsel for the respondent] very fairly conceded that the policy does not prevent the appellant from taking formal enforcement action. However, [counsel for the respondent] also and equally fairly conceded that the extent to which the policy was followed was relevant only insofar as the FTT was, incorrectly, reviewing the appellant’s decision; it is irrelevant to the FTT’s own decision-making process.”

On ground 3, Judge Cooke said being a good landlord may well go to mitigation of the amount payable in a financial penalty, “but it does not amount to the sort of exceptional circumstance that might justify a decision not to impose a financial penalty where it is proved beyond reasonable doubt that the offence has been committed and the respondent has failed to establish the defence of reasonable excuse”.

Judge Cooke remitted the matter to a different panel of the FTT to decide on the amount of financial penalty.

Harry Rodd