Buildings occupied by property guardians must have an HMO licence – confirmed again!

Before delving into the facts of this case, it may be useful for you to read some of our previous updates discussing what an HMO is and the potential ramifications of failing to licence a HMO.

Background
This appeal involved two cases brought by two property guardian providers, Global 100 Limited (“Global 100”) and Global Guardians Management Limited (“Global Guardians”) as appellants in joint proceedings. In the LaLeva case, one of the directors of Global Guardians was also an appellant and Hounslow LBC was also a respondent who imposed a penalty against Global Guardians for failure to license an HMO under the Housing Act 2004.

The property guardian providers had entered into licence agreements with the property guardian respondents, who paid a weekly licence fee in return for occupying a building as property guardians. The property guardian respondents argued that the property should have been licensed as an HMO, but was not, and therefore they were entitled to a rent repayment order.

The First Tier Tribunal (the “FTT”) found in favour of the property guardians at first instance.

The issues on appeal
Global 100 and Global Guardians then appealed to the Upper Tribunal (the “UT”) contending that:

1. The purpose of the guardians’ occupation was to provide security services – so it could not be said that the “only use” of the accommodation was as living accommodation;
2. The guardians had provided no evidence of the open-market letting value of the land – so it could not be said that the property guardian providers were in receipt of “rack rent” (usually a rent that represents the full open market annual value of a holding / market rent); and
3. Therefore, the property guardian providers could not be said to be “managing the properties” for the purposes of section 72 of the Housing Act 2004 (being the law that states that a person who manages or has control of an unlicensed property commits an offence, subject to a defence of reasonable excuse).

Like the FTT, the UT rejected these arguments and found in favour of the property guardians: making rent repayment orders against the property guardian providers and upholding the penalty imposed by Hounslow LBC.

The property guardian providers appealed to the Court of Appeal. The Court of Appeal further dismissed this appeal.  It held that whilst the property guardians’ presence may have had the effect of deterring squatters, that was not a “use” of the land, and the property guardian providers were receiving significant sums from the property guardians (c £15,000 pcm in LaLeva). The court also said the property guardian providers were not charities, but commercial enterprises which existed to make money.

Comments
This is a Court of Appeal decision, which means it is binding on the lower courts within its jurisdiction. As ever though, the decision is case-specific on this set of facts. Remember, we also previously wrote about related decisions confirming (in separate decisions) that directors are not personally liable to repay rent to tenants/licensees under rent repayment orders and nor can superior landlords be liable.

So, what does this mean for property guardian providers? This outcome of this case is nothing new to our Property Guardianship team. This case confirms again that property guardian providers must obtain an HMO licence (or a temporary exemption if appropriate) for each building occupied by its property guardians. If you don’t, property guardians can apply for a rent repayment order against you as the immediate landlord/licensor. As in this case, the local authority can also issue a penalty against you for failure to secure an HMO.   Obtaining the HMO licence is only the first step you also need to ensure you are complying with its requirements at all times.  If you need help understanding your obligations when it comes to HMO licensing, please get in touch with our Property Guardianship team.