HMO Licences on Sale

There has been an interesting new decision on the licensing of houses in multiple occupation. In Taylor v Mina An Ltd [2019] UKUT 249 (LC) the Upper Tribunal (UT) has overturned a refusal of a Rent Repayment Order (RRO) by the First Tier Tribunal (FTT). In some ways the case is not very interesting because it leads to a conclusion which most people would see is self-evidently true. However, the analysis that gets to that decision is slightly unusual and the whole scenario exposes, yet again, how much of a mess the Housing Act 2004 is in practice.

In Taylor the tenant had applied for a RRO against her landlords on the basis that the landlord did not in fact have a licence. The landlord had purchased the property in October 2016 and had never sought a licence, apparently on the mistaken belief that the existing licence held by the vendor would transfer automatically to it. As most people are fully aware licences are not transferable and in fact s68(6) of the Housing Act 2004 says so explicitly.

On that basis the decision to award an RRO to the tenant would seem obvious. However, the FTT declined to make the award for a slightly surprising reason. They agreed that the landlord held no licence but they took the view that the existing licence remained in force until such time as it was revoked. Therefore, it was up to the local authority to revoke the licence on the basis that the property has been sold. As they had not done so the property continued to be licensed and therefore no offence had been committed. In the absence of an offence an RRO could not be made.

The tenant appealed to the UT. The UT overturned the decision of the FTT but with some fairly weak reasoning. The UT simply held that it “remains the law that where a property is sold and the new owner takes over management and control from the seller, that new owner requires a licence. The previous licence cannot be transferred to the new owner and is of no assistance, whether or not expressly revoked, because the new owner does not have a licence.”

In summary therefore, the UT analysis was that it was up to the new owner to have a licence and because the licence could not be transferred the new owner did not have a licence and therefore the property was unlicensed.

However, the decision of the UT does not make a huge amount of sense because it is circular. In fact, it rather seems that on a direct reading of the text of the legislation the FTT must be right! The obligation is in fact for a property to be licensed. Section 55(1) of the Housing Act 2004 states that that “Part provides for HMOs to be licensed…” while s61(1) begins by saying that every “HMO to which this Part applies must be licensed…” So, the clear intent of the legislation is to licence properties rather than people. The legislation does require that the licence for a property is granted to a person but it is clearly a licence for a property. A licence must be granted to a licence applicant or to some other person who agrees and the person who is granted that licence must be the “most appropriate person to be the licence holder.” But this is a test at the time the licence is granted and not a recurring position. Section 70 permits a local authority to revoke a licence in appropriate cases. One of these is if the licence holder was to re-apply for a licence then the local authority would decline to grant it. Clearly that would apply here because if a former owner was to apply for a licence it would be refused on the basis that they did not own it. But revocation is a process which must be explicitly carried out on notice, it cannot happen automatically.

The UT made much of the provision in s68(8) that states that when a person dies the license continues for three months to allow for a new license holder to come forward. The UT took the view that this expressed the intention of non-transferability but gave a way out for a specific set of cases. However, I am not sure these are analogous scenarios. Where a license holder dies there is nobody to hold the license as the person is deceased. However, on sale there is still someone holding a license, just not a very suitable person. But nothing states that this licence is terminated.

The actual offence which allows for conviction is found in s72 of the 2004 Act while the power to make a RRO is now found in Chapter 4 of Part 2 of the Housing and Planning Act 2016. The RRO can only be made if the FTT determines that an offence has been committed and so the definition of the offence in s72 is key. S72(1) sets out the offence of not having a licence as being one in which a “person commits an offence if he is a person having control of or managing an HMO which is required to be licensed under this Part … but is not so licensed”. In this case it was without question that Mina An Ltd was a person managing or having control as they were the landlord and obtained the benefit of the rent. However, as discussed above the property was and remained licensed because that licence had not been revoked or otherwise terminated.

For all the reasons above I cannot agree with the decision of the UT here. The UT has wrongly chosen to read the legislation as they consider it should be rather than as it in fact is. While courts and tribunals have a degree of latitude in these matters this seems to be a big stretch. In practice the right way to deal with this is for the local licensing authority to impose a licence condition requiring that the holder tell them of any sale and they could then act to revoke the licence and require the new owner to apply for one of their own. In practice this is something a large number of local authorities in fact do.

The UT referred the matter back to the FTT for determination but the landlord could of course appeal to the Court of Appeal against the UT decision if it so wished. It seems to me that they could sustain an appeal here. However, the real issue here is that this is another one of the strange issues that bedevil the 2004 Act and make it so very hard for local authorities and everyone else to deal with on a practical level.