Councils cannot confiscate rent from landlords convicted of breaching HMO selective licensing laws, the Court Of Appeal has ruled.
Newham Council, East London, lost the case after landlords Sumal & Sons appealed a confiscation order of £6,450 imposed at Inner London Crown Court after the firm was convicted of running an unlicensed house in multiple occupation (HMO) in a selective licensing zone.
The firm was fined £2,000 and ordered to pay costs of £3,821. The council also won a confiscation order for rents collected during the unlicensed period under the Proceeds of Crime Act.
In the Court of Appeal, it was ruled rental income from an unlicensed property is not a benefit from the proceeds of crime.
The court gave four reasons, according to barrister Matthew Paul, who represented Newham Council:
● Another scheme for recovering rent from landlords running unlicensed HMOs exists in Section 97 of the Housing Act 2004 (Rent Repayment Orders). This scheme is incompatible with the 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 running an unlicensed HMO. Parliament could not have intended the collection of such rent to be a criminal act in itself.
● The criminality of the offence lies in failing to obtain a licence, not in collecting rent
● A confiscation order in these circumstances operates as a fine
Lord Justice Davis rejected an appeal against the £2,000 fine, describing the sum as “on the moderate side”.
The judge also confirmed this case did not affect imposing confiscation orders on other regulatory cases.
Newham Council is at the forefront of action to regulate landlords after announcing plans to register all 35,000 buy to let properties in the borough after running trial selective licensing in the Little Ilford neighbourhood. The Sumal & Sons case arose from the trial.