Housing – House in multiple occupation – Civil penalties – Appellants converting office building into “apart-hotel” allegedly in breach of building regulations – Appellants failing to comply with improvement notices – Respondent local authority regarding property as house in multiple occupation (HMO) and serving notices for breach of HMO Regulations 2007 – Appellants appealing – Whether property HMO or “apart-hotel” – Whether property complying with building regulations – Whether appellants having reasonable excuse for conduct – Whether improvement notices invalid – Whether respondent had power to impose financial penalties on second appellant director personally – Whether penalties unlawful – Appeals allowed in part
The first appellant was the sole director of the second appellant company, which was the freehold owner of Max House, Wales Square, 60 St Faiths Lane, Norwich, an office block that had been converted in breach of building regulations into an “apart-hotel”. The respondent local authority classed the property as a house in multiple occupation (HMO) under section 257 of the Housing Act 2004. It was therefore subject to the Licensing and Management of Houses in Multiple Occupation (Additional Provisions) (England) Regulations 2007.
In 2018, the respondent served notices on the second appellant for breach of duties under the 2007 Regulations. Health and safety hazards were discovered during inspections of the property which led to the respondent serving improvement notices. When the second appellant failed to comply with the notices, the respondent imposed penalties totalling £236,000 on both the appellants.
The appellants appealed contending, amongst other things: (1) the property was not a house in multiple occupation (HMO) under section 257 of the 2004 Act; rather, it was an “apart-hotel” providing accommodation for hotel guests for extended periods to which neither the 2004 Act nor the 2007 Regulations applied; (2) alternatively, the property was not a section 257 HMO because it complied with the Building Regulations 2010 and so did not satisfy the condition in section 257(2); (3) the appellants were not aware that the property was an HMO and so had a reasonable excuse for their conduct; (4) the improvement notices were invalid and of no effect; (5) the respondent had no power to impose financial penalties on the second appellant personally; and (6) the penalties were unlawful, disproportionate and failed to take account of relevant considerations.
Held: The appeals were allowed in part.
(1) To be a section 257 HMO a building had to be a converted block of flats, i.e. a building converted into, and consisting of, self-contained flats (section 257(1)). Relevant definitions were provided by section 254(8) and section 262(6). A “converted building” was a building (or part thereof) consisting of living accommodation in which one or more units of accommodation had been created since the building was constructed. A “self-contained flat” was a separate set of premises which formed part of a building, either the whole or a material part of which lay above or below some other part of the building, and in which a toilet, personal washing facilities and cooking facilities were available for the exclusive use of its occupants. The expression “occupier” referred to a person who “occupies the premises as a residence” as a tenant or licensee. Taken together, those definitions described the physical characteristics and facilities found in a section 257 HMO. The only express requirement relating to the nature or quality of the occupation was found in section 257(2)(b), which made it a condition that less than two-thirds of the self-contained flats were owner-occupied.
Assuming that the status of a converted block of flats as a section 257 HMO depended on the self-contained flats being occupied as residences, on the evidence, such occupation had been proven during the relevant period beginning in December 2017 and continuing until the emptying of the building in response to a prohibition order. Its planning status as an apart-hotel was irrelevant for the purpose of determining whether it was a hotel or section 257 HMO. What mattered was the nature of the occupation of the flats. Accordingly, the property was a section 257 HMO.
(2) The building work undertaken in connection with the conversion did not comply with the appropriate building standards under the 2010 Building Regulations (section 257(2)(a)), which imposed control on “building work”, which included work relating to a material change of use of a building, such as the creation of a flat in a building which did not previously contain a flat (regulations 2(1) and 5(b)). The first appellant acknowledged that no completion certificate under the 2010 Regulations had ever been issued. Although that did not relieve the respondent of the burden of proving beyond reasonable doubt that the building did not comply with the Regulations, non-compliance with para B1 and B3(4) of Schedule 1 to the 2007 Regulations was beyond doubt and was sufficient to conclude that the property was a section 257 HMO.
(3) The 2007 Regulations were made under powers conferred by section 234 of the 2004 Act and it was an offence to fail to comply with them, subject to a defence of reasonable excuse (section 234(3)-(4)). A person might rely on a defence of reasonable excuse in answer to a charge under section 234(3) but no separate defence of reasonable excuse was available to a director. In the present case, the second appellant had been aware of all the facts which caused the property to be a section 257 HMO; its defence was that it was unaware of the consequences of those facts. Just like a private individual, a company could not fall back on its own omission to inform itself of its responsibilities as a reasonable excuse for its failure to comply with them. The tribunal was also satisfied beyond reasonable doubt that the offences were all committed with the consent or connivance of the first appellant, who was the controlling mind behind the second appellant.
(4) The finding that the property was a section 257 HMO meant that the notices were valid. Moreover, they were not tainted by illegality. On the evidence, they had not been served for the improper purpose of maximising revenue. Multiple notices were served because of the number of hazards identified and the work required to remedy them. There was nothing to suggest that the respondent was trying to circumvent the rule that only a single penalty could be applied to a single offence of failing to comply with an improvement notice.
(5) Financial penalties had been levied because the second appellant had committed an offence by not complying with the improvement notices. As a director of the second appellant, financial penalties could be imposed on the first appellant personally. Under section 251(1) of the 2004 Act, the respondent had only to prove that the second appellant had failed to comply with the improvement notices and those offences were committed with the “consent or connivance” of a director. The second appellant was the property owner and, therefore, a manager of the premises under regulation 2 of the 2007 Regulations and section 263(3) of the 2004 Act. As the director, the first appellant was also liable for its failure to comply with the improvement notices and duties under the Regulations.
(6) The correct approach to the system of civil penalties was to ask what financial penalty the offence merited and the level that corporate and personal defendants could reasonably be expected to meet. The first appellant owned 54.8% of the second appellant. Although the offences committed by him and by the second appellant were legally distinct, they arose in each case out of the same facts. The ability to pay, or the means of the offender, were relevant. In all the circumstances, the total penalties imposed would be reduced to £174,000.
The first appellant appeared in person; the second appellant did not appear and was not represented; Marcus Croskell and Lynne Shirley (instructed by NP Law) appeared for the respondent.
Eileen O’Grady, barrister
Click here to read a transcript of Sutton and another v Norwich City Council
