Fining property manager £5k “completely disproportionate”: tribunal judge

A council’s imposition of a £5,000 fine on a property management business for failing to be a member of a redress scheme for three weeks was “unreasonable in the circumstances and completely disproportionate”, a tribunal judge has said.

In a final notice Reading Borough Council had said Ashley Charles Ltd was not a member of a redress scheme from 7 to 24 November 2016, and had committed a breach of duty under articles 3 of the Redress Schemes for Lettings Agency Work and Property Management Work (Requirement to Belong to a Scheme etc.) England Order 2014.

The amount of the penalty was stated in the notice to be £5,000. The fine of £5,000 had been specified by Reading in its earlier notice of intent of 22 November 2016. On 24 November 2016, the company was registered as a member of a redress scheme. It also appealed the fine.

In Ashley Charles Ltd vs Reading Borough Council [2017] UKFTT PR_2017_0009 (GRC) Judge Claire Taylor in the First-tier Tribunal (General Regulatory Chamber) said it was clear that the appellant had failed to comply with the relevant legislation insofar as it had failed to be a member of a redress scheme whilst managing properties.

“The Appellant does not seem to have disputed this,” she said. “Therefore, there was a legal basis for the Council to serve a notice of intent. There is also no suggestion that there was a procedural irregularity making the final notice void.”

Judge Taylor said the issues before her were whether, in all circumstances (as found by her), the amount of the penalty was unreasonable; or the decision to fine the company was unreasonable for any other reason.

On these issues she said she preferred the evidence and submissions of the appellant. She considered the fine “unreasonable in the circumstances and highly disproportionate” because:

"a.    The Appellant had produced accounts showing that it had no funds.

b.    The Appellant had not been able to afford to pay staff and had let them go.

c.    As at the time of the Notice of Appeal, the Appellant stated that the company was shortly to be wound up having made a loss.

d.    The Appellant was not a member of a scheme for less than three weeks. The Appellant clearly responded promptly to the notice of intent and extremely quickly re-joined the scheme after having discussed what was needed with [a senior tradings officer]. It had no history of poor management or complaint."

The judge continued: “I have seen no reason not to accept the accounts and that the business was about to be wound up having made a loss. In particular, the Council has not disputed this or addressed the point.

“The Appellant did state that at the time of the notice of intent, it was managing properties and was trying to sell its business. Although it still had a presence online, and advertised in its window, it was not receiving business and does not seem to have been very actively looking for any. The adverts seem reasonable for a business that was seeking to sell as a going concern.”

Reading argued that as the agent was experienced, it should have complied with the regulations.

However, the judge noted that the officer had originally intended to visit the premises but this never happened. The director had immediately rectified the matter on receipt of the notice.

Judge Taylor said she was not satisfied that Reading was correct to rely on the Department for Communities and Local Government’s guide ‘Improving the Private Rented Sector and Tackling Bad Practice – A Guide for Local Authorities (2012)’ to support a fine of £5,000.

It seemed to have taken an overly restrictive approach, she suggested.

“Paragraph 11 above quotes the Guide. It makes clear the expectation that £5,000 should be considered the norm. However, ‘norm’ does not mean that it is a fixed and absolute amount. The Guide states that it will be up to the enforcement authority to decide what extenuating circumstances there might be, taking into account any representations from the agent,” the judge said.

“Likewise, the legislative process indicates that the Council ought to consider the particular circumstances of the case and when to exercise its discretion….. I am not satisfied that the Council properly considered whether there were extenuating circumstances. It has not shown any policy that it applies when considering representations and what (if anything) it might consider extenuating circumstances.”

The judge added that examples given in the guide of extenuating circumstances – if the penalty would be disproportionate to the turnover/scale of the business or would lead to an organisation going out of business – “both seem extremely pertinent here”.

The guide also stated that the authority might give a lettings agent or property manager a grace period in which to join one of the redress schemes rather than impose a fine. The council did not seem to have given any grace period in this case, the judge noted.

“The Council is not required to give a grace period, but in the circumstances, it might have been beneficial to do so. Had it done so, it seems likely that the Appellant would have complied,” Judge Taylor said.

“Even if the Council properly considered the extenuating circumstances, based on the information now before me, I consider that the fine is completely disproportionate. Having considered all the evidence and submissions, I find that a decision to fine would not be appropriate and that the Appellant is not required to pay any amount.”