Rent as proceeds of crime

The Proceeds of Crime Act 2002 brings to mind international drug lords and global fraudsters. The Act was passed to enable law enforcers to deprive criminals of the profits they had made from their illegal activities. An application under the 2002 Act can be made after a conviction is recorded against a defendant or she/he pleads guilty. Property professionals may take a more nuanced view of the reach of the Act, after reading about the confiscation order made against T&M Property Investment Ltd. The confiscation order was made by Manchester Crown Court in May after a successful prosecution of a commercial landlord for its tenant’s persistent and longstanding breach of a planning enforcement notice under section 172 of the Town and Country Planning Act 1990. The landlord pleaded guilty and was fined £18,750 with costs of £5,000. The stinger, however, was the court’s confiscation order under the 2002 Act of £174,074, which would have represented the amount of rent the tenant had paid from the date it breached the enforcement notice, until the enforcement notice was complied with. The facts of the case The Dubai Café, which is located on Manchester’s so-called “Curry Mile” had planning permission for use as a non-licensed café. The Curry Mile, for those unfamiliar with Manchester, is a stretch of road which supposedly has the largest concentration of South Asian shops and restaurants of anywhere outside of the Indian subcontinent. The defendant T&M has a 999-year lease of the property. The ground floor was a café sublet to an occupational tenant, a company unhelpfully dissolved in 2019. At some time before September 2018, the tenant decided to alter the front of its shop for a configuration more suitable for a shisha café. It had not applied for planning permission for either the alteration or change of use. In September 2018, the local planning authority, Manchester City Council, served a notice on the premises, requiring the unlawful use to cease and the premises to be reinstated. This was ignored by the tenant, despite – according to a council press release – the premises being raided twice by the authorities and the shisha paraphernalia confiscated. The Dubai Café’s flagrant disregard of planning law only stopped some time late last year, when the council brought proceedings against the landlord. The Dubai Café is now shut. The law: planning While breach of planning is not in itself a criminal offence, failure to comply with an enforcement notice, within the time specified, is an offence under the 1990 Act. An enforcement notice may be issued against the occupier, mortgagee, landlord or freeholder. Here, the freeholder was a company that had been dissolved more than 20 years ago, so it was not feasible to proceed against it as the freehold interest would now sit with the Crown as a result of bona vacantia. It appears that the occupational tenant company had also been dissolved, leaving its landlord as the most (and only) realistic target. The owner of the land has a defence to prosecution under the 1990 Act, if it did everything that it could be expected to do to secure compliance with the planning enforcement notice. The burden of proof is on the owner of the land. In this case, T&M (the landlord) could have used the powers usual under a commercial lease to forfeit for breach of covenant, but it seems not to have engaged with the planning authority at all. The law: proceeds of crime The 2002 Act allows an application to be made against a convicted defendant by the prosecuting authority. Section 6 allows the court to strip the defendant of any gains made as the result of a criminal activity. Section 7 provides that the recoverable amount is equal to the benefit received arising from the criminal activity. In this case, the gain made by the landlord was, we presume, the rent it received since the date for compliance with the enforcement notice expired, until the breach came to an end. Takeaways This case illustrates the need for active property management by the landlord and/or its agents. This should include regular site visits to seek to identify potential breaches of planning/the tenant’s lease covenants. Any alteration of a premises or its use must be promptly investigated as ignorance of an enforcement notice is not a defence. The 2002 Act can also potentially be used where a landlord allows a tenant to continue in occupation of a property, despite knowing or even suspecting that the tenant is using the premises for illegal purposes, such as drugs or prostitution. This area of law is, however, a complex and developing area, and landlords who suspect this may be the case should take specialist criminal advice. Landlords could be regarded as a “soft” target for local planning authorities, as their asset (the property) cannot be hidden. Currently, the Dubai Café lies unoccupied, presumably while the landlord finds a new tenant. Though there may be a temptation to ignore breaches of planning covenants, landlords should be aware that unrecoverable legal costs and a tenant void is preferable to prosecution and a confiscation order of rental income. As for T&M, it must pay £172,000 by early August 2023, on pain of imprisonment of the directors. Gillian Palmer is a professional support lawyer and Robert Patterson-Walters is a counsel in the real estate practice at Mayer Brown International LLP Photo © Pavel Danilyuk/Pexels