How the abolition of the ‘innocence tax’ will affect landlords accused of criminal offences

In the Housing and Property Disputes team at Anthony Gold we spend much of our time advising tenants, leaseholders, landlords, freeholders and agents about ‘civil’ legal disputes. But we are also one of the few teams in the country who specialise in the criminal law relating to HMOs. This means that we act for landlords who are being prosecuted for criminal offences relating to housing. 

Most landlords would not be eligible for legal aid and we do not offer legal aid for criminal work, but changes announced by the Government in May this year relating to criminal legal aid will have an impact on our clients. 

A defendant in a criminal prosecution who is convicted is usually ordered to pay at least some contribution towards the prosecutor’s legal costs. For our work, that prosecutor will usually be a local authority or fire brigade (although it is possible for a tenant to bring a private prosecution against their landlord). 

But what if the defendant instructs and pays for legal representation and then is not convicted? Will they be reimbursed for their legal expenses? 

The Innocence Tax – What’s Going On? 

At the moment the usual answer is, only partially. The court will normally make a defence costs order (“DCO”) in favour of a defendant who is found not guilty (although companies are not eligible). Before 2013 that DCO entitled the defendant to recover their costs from the treasury (“central funds”). Those costs would still be assessed and only a reasonable amount awarded, but Defendants could hope to recover a good proportion of their legal costs. 

In 2013 the law was changed so that a DCO only allowed recovery of legal fees at legal aid rates. This always leaves defendants out of pocket because solicitors are not likely to agree to do complex criminal litigation at loss-making legal aid rates of pay – they will charge higher market rates. This shortfall, which occurs whenever people who are prosecuted and found not guilty (or the case against them is dropped before trial), was dubbed the “innocence tax”. 

The innocence tax has been the subject of criticism from a range of commentators, most notably the Secret Barrister and MP Nigel Evans (whose party had brought forward the changes which then affected him after he was prosecuted and found not guilty). 

In May this year the government announced that the innocence tax will be abolished in the next two years. When these changes are in force (and there has been no sign of the legislation needed to give effect to this yet) this will mean, that landlords and agents who face criminal prosecution can once again hope to recover a reasonable proportion of their legal expenses if they are found not guilty.  

The government’s press release did not say whether the changes will include allowing companies to recover their legal costs when they are found not guilty – this may only become clear when the new regulations required to bring the changes into law are published. 

Cost recovery in other types of enforcement action 

Our niche criminal defence practice involves representing landlords and agents who are accused of managing unlicensed HMOs, breaching property license conditions and regulations, and failing to comply with notices served by local authorities such as planning enforcement notices, prohibition order and improvement notices. 

In this area of legal work, prosecuting bodies have the option of imposing financial penalties as an alternative to prosecution. Where this option is chosen, landlords do not even have the limited “Defence Costs Order” system to assist them. A landlord or agent who appeals against a penalty, and wins, will usually not be able to recover their legal costs beyond the minimal fees paid to the Tribunal. 

Is this fair? It is at least balanced. Local authorities normally do not get to recover their costs of successfully opposing an appeal against a penalty. And in a recent appeal Leicester City Council v Morjaria the Upper Tribunal Lands Chamber held that councils should not add a component for their own costs of investigating the offence to a financial penalty. 

However, in my view it’s not really fair to compare individual people and business with an arm of the state and say the system is fair merely because both have to bear their own legal costs – local authorities will have specific budgets for enforcement action and litigation, and even though resources are stretched for many local authorities, they are still better resourced that the vast majority of individual citizens. 

At the start of any regulatory investigation or enforcement action, we aim to give clear advice about not just the allegations and the law which applies to that, but also the relevant rules relating to legal costs. Being clear with our clients about costs is important to us at Anthony Gold whether we are working with a tenant, an institutional landlord, a high street property agent, an individual ‘accidental landlord’ or even a local authority.