If a house in multiple occupation (“HMO”) requires a licence whether that’s because it has 3 storeys and 5 or more occupiers or because it’s located in an additional licensing area, it’s a criminal offence to operate the HMO without a licence [section  72 Housing Act 2004]. Also, if there is a selective licensing area and a landlord operates a house (not necessarily an HMO) within that area without a licence, that too is a criminal offence [section 95 Housing Act 2004].

Under section 76 Proceeds of Crime Act 2002, criminal conduct is described as including conduct which constitutes an offence in England and Wales and a person benefits from conduct if he obtains property as a result of or in connection with the conduct [s.76(4)].

In the past, Liverpool City Council has successfully prosecuted a landlord for failing to operate a property without a licence and has further gone on to recover the rents received during the period that the offence of operating without a licence was going on under section 76(4) Proceeds of Crime Act 2002. Newham Council have also successfully recovered rents under the same as has Nottingham City Council.

However, the Court of Appeal has ruled that local authorities may not recover rental earned during any period of unlicensed activity under the Proceeds of Crime Act 2002 [Sumal & Sons (Properties) Ltd v London Borough of Newham [2012] EWCA Crim 1840].

On 1 March 2010, the London Borough of Newham brought in selective licensing to one of it’s areas and the landlord Sumal & Sons (Property) Ltd were convicted on 3 October 2011 for operating a house without a licence within the designated area. They were fined  £2000, costs of £3821.96 were ordered and a confiscation order of £6,450.83 under the Proceeds of Crime Act 2002 was imposed.

The landlord appealed to the Court of Appeal who decided that section 76(4) Proceeds of Crime Act 2002 did not apply in this case for four principle reasons:

  • An alternative statutory scheme for the recovery of rental income in the case of an offence against section 95 (1) exists in section 97 of the Housing Act 2004 (Rent Repayment Orders). This scheme is incompatible with the regime under Part 2 of Proceeds of Crime Act as it creates the possibility of double recovery.
  • Section 96 (3) of the Housing Act 2004 preserves a landlord’s ability to enforce the terms of a tenancy (including the payment of rent), despite the commission of an offence against section 95 (1). Parliament could not have intended the collection of such rent to be a criminal act in itself.
  • The criminality of the offence therefore lies in failing to obtain a licence, not in collecting rent.
  • A confiscation order in these circumstances ‘operates as a fine’.

Sumal & Sons had also appealed against the level of the fine imposed at the earlier hearing. The Court dismissed that part, which it described as being “on the moderate side”, making it clear at paragraph 44 that “magistrates can be expected to be robust and to impose suitably severe fines in cases where the circumstances call for robustness and severity.” It also confirmed that the availability of confiscation orders in other regulatory cases is unaffected by this decision.

More information about this case can be be found at the Local Government Lawyer website