Failure to Have HMO Licence and Proceeds of Crime

If a house in multiple occupation ("HMO") requires a licence, it's a criminal offence to operate the HMO without a licence [section  72 Housing Act 2004]. 

Also, a selective licensing area and a landlord operating a house (not necessarily an HMO) within that area without a licence is a criminal offence [section 95 Housing Act 2004]. 

Under section 76 of 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 behaviour if he obtains property as a result of or in connection with the conduct [s.76(4)]. 

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 selective licensing to one of its areas. 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, which decided that section 76(4) Proceeds of Crime Act 2002 did not apply in this case for four principal reasons:

• An alternative statutory scheme for recovering 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 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 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.
• Therefore, the offence's criminality 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 amount 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 in 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 found on the Local Government Lawyer website.