Property guardianship companies and HMO licensing

Property guardianship companies and a director were recently held liable for failing to licence premises as a House in Multiple Occupation (HMO). Tara O’Leary explains the ruling.

The First Tier Tribunal has delivered judgment in an important case regarding the regulation of premises occupied by property guardians: Global 100 Ltd, Global Guardians Management Ltd & Theo Kyprianou v LB Hounslow, LON/00AT/HNA/2021/0021.

Judge Robert Latham held that these premises can be Houses in Multiple Occupation ('HMOs') which require licensing under Part 2 of the Housing Act 2004; confirmed that two property guardianship companies and their director had committed the offence of failing to licence under s.72(1); and upheld three civil penalty notices ('CPNs') issued by the London Borough of Hounslow imposing fines totalling £18,000.

In recent months the FTT has ruled on a number of other cases involving the use of premises by guardians as HMOs. However, cases reported publicly to date have all involved applications by guardians for Rent Repayment Orders ('RROs'). It is believed this is one of the first decisions to consider the use of CPNs against guardianship companies, and to hear argument from a local housing authority.

The facts

Global 100 Ltd ('G100') and Global Guardians Management Ltd ('GGM') – which refer to themselves collectively as 'Global Guardians' – claim to have managed some 700 properties accommodating over 5,000 guardians. One of those properties was the Stamford Brook Centre, a vacant office converted into temporary residential accommodation. For five years, 30 guardians shared four toilets, showers and kitchens. The occupants complained amongst other issues about inoperative showers, intermittent hot and cold water, and lack of heating. Global paid the freeholder of the building only £600pm for its use of the premises, whilst collecting £15,000pm in licence fees from the guardians.

Hounslow believed the property was used as an HMO which required a licence. Global disagreed and refused to apply for a licence. Following 12 months of investigation, largely focused on Global's corporate structure, Hounslow served final notices imposing CPNs of £6,000 each on G100, GGM and Mr Kyprianou, the sole director of both companies. They appealed to the FTT.

Hounslow also served a CPN on the freeholder, which paid the fine without challenge.

Separately, 11 of the guardians who lived at the premises issued applications for RROs against G100. Those applications were heard alongside the appeal against the CPNs.

In the interim, G100 commenced proceedings for possession against a number of guardians remaining in the premises. Those proceedings recently culminated in a decision of the Court of Appeal – Global 100 Ltd v Laleva [2021] EWCA Civ 1835 – which concluded that the guardians occupying Stamford Brook did so as mere licensees rather than tenants.

The decision

Amongst several grounds of appeal, three are of wider interest. GGM and G100 argued they did not commit the s.72(1) offence because:

1. They were not persons who were 'in control of' or 'managing' the premises within the meaning of s.263(1) as they merely received licence fees and were not entitled to collect a rack rent;
2. The 'Standard Test' for HMOs was not met because the guardians' use of the premises was not the 'only use' of the accommodation per s.254(2)(d): they argued that the premises were used for a dual 'purpose' as a property guardianship operation;
3. This particular property was exempt from the HMO licensing regime because the freeholder was a company named NHS Property Services Ltd which appeared to be owned by the Secretary of State for Health, who benefits from a statutory exemption under Schedule 14 of the 2004 Act.

In a detailed judgment, all of these grounds were dismissed by Judge Latham.

Ground 1 turned on the intricate structure of companies and agreements created by Global. The freeholder entered into an agreement with GGM to provide guardianship services at the premises. GGM entered into an 'intercompany agreement' with G100 which permitted G100 to carry out certain actions on the premises. G100 then identified suitable guardians, granted them 'licence agreements' and collected their licence fees. The nature and interpretation of all of these agreements were disputed.

GGM and G100 flatly refused to respond to numerous requests by Hounslow for information about their relationship and exchange of licence fees. They did not tender any evidence at all in support of their own appeals against the CPNs, and their director Mr Kyprianou did not participate in the proceedings.

Against that background, the Tribunal concluded that both GGM and G100 were persons 'managing' and also 'in control of' the premises on the basis that: (a) the nature of the agreement with the freeholder was such as to grant GGM a tenancy of the premises, so both companies were lessees in receipt of 'rents or other payments' from the guardians; alternatively (b) the guardians' licence fees met the statutory definition of 'rack-rent' and given that GGM and G100's operations were entirely intertwined, they were both in receipt of those sums; but (c) if that was wrong, then they were persons who 'would receive' a rack-rent as they were contractually entitled to recover a sum equivalent to a rack-rent from the premises [116-120].

On Ground 2, the Tribunal agreed with Hounslow that Global Guardian's interpretation of 'sole use' would undermine the statutory objectives of the 2004 Act, which should be given a purposive interpretation. Concluding that the guardians' occupation of their rooms was the only use of their accommodation [103], the Tribunal held [99] that a recent Court of Appeal decision on valuation which reached a different conclusion was not relevant to the 2004 Act: Ludgate House Litd v Ricketts (Valuation Officer) [2020] EWCA Civ 1637.

On Ground 3, the Tribunal held that the exemptions to HMO licensing provided by Schedule 14 of the 2004 Act are exhaustive; they do not extend to companies or other entities owned or controlled by the persons who benefit from the exemptions [93].

The appeals against the CPNs totalling £18,000 were dismissed. The Tribunal also made nine RROs against G100 totalling over £36,000.

Conclusion

Importantly, G100 has recently obtained permission to appeal to the Upper Tribunal on the 'sole use' point raised in Ground 2 of this appeal, in the context of an RRO made at a different property: William Road (LON/00AG/HMF/2021/0042 – 6 July 2021). That appeal is expected to be listed for hearing in early 2022.

In the interim, this decision does not mean that vacant properties cannot be occupied by multiple guardians: only that such premises must comply with the higher standards of fire safety, housing management and maintenance which apply to licensable HMOs. This decision will therefore assist other local housing authorities who wish to ensure that guardianship operations in their districts offer good quality, safe accommodation.

Tara O'Leary is a barrister at Cornerstone Barristers. She acted for LB Hounslow, instructed by Lina Amir and Catherine Chu of HB Public Law.