Property guardianship companies and HMO licenses

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Property guardianship companies and a trustee were recently held liable for failing to license premises as a multiple occupancy (HMO) home. Tara O’Leary explains the decision.

The Magistrate’s Court ruled in an important case concerning the regulation of premises occupied by guardians of property: Global 100 Ltd, Global Guardians Management Ltd and Theo Kyprianou v LB Hounslow, LON/00AT/HNA/2021/0021.

Judge Robert Latham held that such premises may be multiple occupancy houses (“HMOs”) which require a license under Part 2 of the Housing Act 2004; confirmed that two property guardianship societies and their director had committed the offense of failure to license under section 72(1); and upheld three Civil Penalty Notices (“CPNs”) issued by the London Borough of Hounslow imposing fines totaling £18,000.

In recent months, the FTT has ruled on a number of other cases involving guardians’ use of premises as HMOs. However, the publicly reported cases to date have all involved requests from guardians for Rent Reimbursement Orders (“RRO”). It is believed to be one of the first decisions to consider the use of CPNs against guardianship companies and to hear arguments from a local housing authority.

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Facts

Global 100 Ltd (“G100”) and Global Guardians Management Ltd (“GGM”) – who collectively refer to themselves as “Global Guardians” – claim to have managed some 700 properties hosting over 5,000 Guardians. One such property was the Stamford Brook Centre, a vacant office converted into temporary residential accommodation. For five years, 30 guards shared four toilets, showers and kitchens. The occupants complained, among other things, of inoperative showers, intermittent hot and cold water and a lack of heating. Global paid the building owner just £600 for its use of the premises, while collecting £15,000 in license fees from the caretakers.

Hounslow believed the property was being used as an HMO which required a license. Global disagreed and refused to apply for a license. After 12 months of investigation, largely focused on Global’s corporate structure, Hounslow served final notices imposing EICs of £6,000 each on G100, GGM and Mr Kyprianou, the sole director of the two companies. They called the FTT.

Hounslow also served a CPN on the freeholder, who paid the fine without dispute.

Separately, 11 of the guardians who lived on the premises issued MMR claims against G100. These motions were heard alongside the appeal against the CPNs.

In the meantime, G100 has filed possession charges against a number of guards who remained at the premises. These proceedings recently culminated in a decision by the Court of Appeal – Global 100 Ltd v Laleva [2021] EWCA Civ 1835 – which concluded that the wardens occupying Stamford Brook did so as mere licensees rather than tenants.

decision

Among several grounds of appeal, three are of broader interest. GGM and G100 argued that they did not commit the offense under section 72(1) because:

  1. These were not persons who “controlled” or “managed” the premises within the meaning of section 263(1), as they merely received license fees and were not entitled to collect exorbitant rent;
  2. The “standard test” for HMOs was not met because the guardians’ use of the premises was not the “sole use” of the accommodation under section 254(2)(d): they did argue that the premises were used for a dual ‘purpose’ as operation guardianship of property;
  3. This particular property was exempt from the HMO licensing scheme because the owner was a company named NHS Property Services Ltd which appeared to be owned by the Secretary of State for Health, which has a statutory exemption under Schedule 14 of the law of 2004.

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

Ground 1 revolved around the complex structure of companies and agreements created by Global. The owner has entered into an agreement with GGM to provide guardianship services on the premises. GGM entered into a “business-to-business agreement” with G100 that allowed G100 to perform certain actions on the premises. G100 then identified suitable tutors, granted them “license agreements” and collected their licensing fees. The nature and interpretation of all these agreements have been disputed.

GGM and G100 adamantly refused to respond to Hounslow’s numerous requests for information about their relationship and the licensing rights exchange. They did not provide any evidence in support of their own appeals against the CPNs and their director, Mr. Kyprianou, did not participate in the proceedings.

In this context, the Court found that both GGM and G100 were persons “managing” and also “controlling” the premises, on the basis that: (a) the nature of the agreement with the free owner was such as to grant GGM a rental of the premises, so that the two companies were tenants and received “rent or other payments” from the caretakers; in the alternative (b) the guardians’ license fees met the statutory definition of “annuity” and, since the operations of GGM and G100 were entirely linked, they both received these sums; but (c) if this was untrue, then these were people who would “receive” exorbitant rent because they were contractually entitled to recover a sum equivalent to exorbitant rent on the premises [116-120].

On Ground 2, the Tribunal agreed with Hounslow that Global Guardian’s interpretation of “exclusive use” would undermine the statutory objectives of the 2004 Act, which should be given a purposive interpretation. Concluding that the occupation by the guards of their rooms was the only use of their accommodation [103], the Court held [99] that a recent Court of Appeal ruling on valuation which came to a different conclusion was not relevant to the 2004 Act: Ludgate House Litd v Ricketts (Assessment Agent) [2020] EWCA Civil 1637.

For ground 3, the Court 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].

Appeals against the CPNs totaling £18,000 have been dismissed. The Tribunal also issued nine RROs against G100 for a total of over £36,000.

Conclusion

It is important to note that G100 recently obtained leave to appeal to the Upper Tribunal on the issue of “exclusive use” raised in ground 2 of this appeal, in the context of an RRO carried out on a different ownership: William Road (LON/00AG/HMF/2021/0042 – July 6, 2021). This appeal is expected to be scheduled for hearing in early 2022.

In the meantime, this decision does not mean that vacant properties cannot be occupied by more than one caretaker: only that these premises must comply with the higher fire safety, housing management and maintenance standards that apply. to licensed HMOs. This decision will therefore help other local housing authorities who wish to ensure that guardianship operations in their neighborhoods provide quality and safe housing.

Tara O’Leary is an attorney at Cornerstone Barristers. She acted for LB Hounslow, commissioned by Lina Amir and Catherine Chu of HB Public Law.

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