Housing – House in multiple occupation (HMO) – Improvement notice – Housing Act 2015 – HMO consisting of house converted into flats let on long leases – Appellant council serving improvement notice requiring works to common parts – Notice served on RTM company responsible for management of building and on respondent freeholder – First-tier tribunal holding notice not properly served on respondent – Appropriate recipient of notice for purposes of Schedule 1 to 2004 Act – Appeal dismissed
The respondent was the freehold owner of a five-storey, mid-terrace Victorian house in St-Leonards-on-Sea, East Sussex, which had been converted into five self-contained flats let on long leases. The long lessees of four of the flats in turn let them to subtenants. The property was an unlicensed house in multiple occupation (HMO) under section 257 of the Housing Act 2004. It was under the management of an RTM company which, in 2005, had acquired the right to manage under Chapter 1 of Part 2 of the Commonhold and Leasehold Reform Act 2002.
The flats on the upper floors were reached by an external steel staircase which formed part of the common parts of the property. In 2012, the appellants served an improvement notice on the respondent and the RTM company, under section 11 of the 2004 Act, requiring works to the external staircase to remedy a category 1 hazard consisting of a risk of falls and a fire risk. The notice required repairs to the staircase and the provision of fire safety measures including emergency lighting on the staircase and the installation of an automatic fire detection and warning system, with interlinked heat detectors in each flat.
The respondent appealed, contending that the improvement notice was not validly served on it since all management functions in relation to the building had passed to the RTM company, by virtue of sections 96 and 97 of the 2002 Act, and it no longer had any authority to carry out work to the building.
Allowing the appeal, the first-tier tribunal (FTT) noted that, under para 4(2) of Schedule 1 to the 2004 Act, the recipient of a notice in relation to the common parts of a “building containing one or more flats” had to be not only an “owner of the specified premises” but also a person who “in the authority’s opinion ought to take the action specified in the notice”. It considered that the appellants could not realistically expect the respondent to carry out the works, which were the responsibility of the RTM company, and that, accordingly, the notice should not have been served on the respondent. The appellants appealed.
Held: The appeal was dismissed.
(1) The FTT had correctly held that the improvement notice should not have been served on the respondent. However, it had erred in applying para 4 of Schedule 1 because a “building containing one or more flats”, as defined in section 1(5) of the 2004 Act, did not include an HMO. Since the building in the instant case was an HMO, the proper recipient of the notice could not be found by applying para 4(2).
Instead, the appropriate recipient had to be identified by applying para 2 of Schedule 1, which applied where the specified premises, in relation to which the remedial work was required, were an HMO which was not licensed and which was not a flat. In the instant case, the building was the specified premises and it fell within the description in para 2. Whether an HMO was licensed was a question of fact and did not depend on whether it was required to be licensed. Accordingly, it was irrelevant for present purposes that the building, although a HMO under section 257 which was not subject to the mandatory licensing provisions of the Act, was in an area which had had been designated by the appellant under section 56 as subject to additional licensing. It followed that, under para 2(2)(b), the appellants had to serve the notice on either the “person having control” of the HMO or the person managing it.
(2) The person having control of an HMO was to be identified in accordance with section 263(1) as the person who received the rack-rent of the premises or who would receive it if the premises were let at a rack-rent. Where a building was divided into flats in separate ownership, it was possible for the “person having control” to comprise a group of persons who were in receipt of the rack-rents of the flats or would receive the rack-rents if the flats were sublet. In the instant case, the persons in receipt of the rack-rent of four of the flats were the long lessees, who sublet those flats at market rents. In respect of the fifth flat, which was not sublet, the long lessee would receive the rack-rent if it were so let. Accordingly, looking at the building as a whole, the person in control, in the sense of the person in receipt of the rack-rents, was collectively the long lessees. It followed that the appropriate recipient of an improvement notice served in relation to the building as a whole, in accordance with para 2, was the long lessees collectively: Pollway Nominees Ltd v Croydon London Borough Council [1987] AC 79; [1986] 2 EGLR 27 and R v Lambeth London Borough Council, ex parte Clayhope Ltd [1988] QB 563 applied.
(3) The fact that the respondent retained control of the common parts did not mean that it could be included as a “person in control” and therefore as a recipient of an improvement notice. It would be wrong in principle to ascribe a notional rack-rent to the common parts of the building when there was no realistic possibility of such a rent actually being received. Neither the respondent nor the RTM company was a “person having control” for that purpose. Nor was either of them a person “managing” the building in the relevant sense indicated by section 263(3), since the respondent, although receiving a ground rent from the lessees, received no rent from persons who were in occupation as tenants or licensees of parts of the premises and the RTM company received no rent at all. Accordingly, neither the respondent nor the RTM company was an appropriate recipient of the improvement notice.
(4) The RTM company, and not the lessees, should have applied for a licence for the HMO under Part 2 of the 2004 Act since it was the “person in control” under the modified definition in section 61(7) and (8) applicable for the purpose of the licensing provisions. Had it done what was required of it, it would have been the appropriate person on whom an improvement notice ought to be served under para 1 of Schedule 1. Since it had not, however, the appropriate recipient remained the lessees.
Per curiam: Where a self-contained building was not a section 257 HMO but was under the management of an RTM company, the potential recipients of an improvement notice might include the freeholder, who satisfied the description of “owner” in section 262(7)(a) as being entitled to dispose of the fee simple of the premises in reversion, plus some or all of the lessees of individual flats with leases for unexpired terms exceeding three years, who would be an “owner of… part of the Building” in accordance with section 262(7)(b). Every such lessee was also within the extended definition of owner in para 4(3) of Schedule 1 in relation to common parts. Accordingly, there might be circumstances in which a local housing authority could serve an improvement notice in relation to the common parts on either the freeholder or the lessees. The issue in such cases would be which of those owners “ought to take the actions specified in the notice”. In reaching a conclusion on that question, the local housing authority should have regard to the practicality of compliance with the notice. The RTM company itself was not an owner and could not be the recipient of an improvement notice. However, where the freeholder was largely precluded from undertaking work because an RTM company managed the building, the better course was to direct any improvement notice at those lessees who were members of the company and who were therefore collectively in a position to exercise control over its decisions.
Hugh Flanagan (instructed by the legal department of Hastings Borough Council) appeared for the appellants; Justin Bates (instructed by Coole & Haddock, of Worthing) appeared for the respondent.
Sally Dobson, barrister
