[2023] UKUT 263 (LC)

This is the ground on which permission to appeal has not yet been granted. I deal with it now, because the third ground, totality, must necessarily be the final stage in the reasoning of the local authority, or of the FTT, when assessing the quantum of the penalty.

Ground 2 is that the FTT erred in adopting the respondent’s policy that a civil penalty “must never be less than what it would have cost the landlord to comply with the legislation in the first place” (see paragraph 46 of the FTT’s decision set out at paragraph 32 above) in relation to the section 234 offence. I refer to it, as the parties have done, as the “final determinant” because it is expressed an invariable rule as to the minimum level of a penalty, regardless of aggravating and mitigating circumstances; it therefore purports to be the final stage in the decision about the quantum of the penalty. No explanation is given in the FTT’s decision as to why this policy was not considered in relation to the two section 30 offences.

Mr Peterken argued that the principle expressed by the final determinant does not follow from the requirement to remove from the landlord any benefit he has gained from committing the offence. Mr Kazi still has to comply with the improvement notices, and he has not saved any money by failing to comply. Moreover the final determinant renders all mitigation and aggravating factors pointless, in cases like this where the cost of doing the works is higher than the starting point indicated by the policy. And it can lead to absurd results where there is an even greater discrepancy between cost and starting point, for example where the minimum starting point of £2,000 is applicable in a case of low culpability and low harm if the cost of doing the works is nevertheless much greater.

The rule is set out in the respondent’s policy as follows:

“The statutory guidance states that a guiding principle of civil penalties is that they should remove any financial benefit that the landlord may have obtained as a result of committing the offence. This means that the amount of the civil penalty imposed must never be less than what it would have cost the landlord to comply with the legislation in the first place.

When determining any gain as a result of the offence the Council will take into account the following issues:

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Cost of the works required to comply with the legislation

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Any licence fees avoided

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Rent for the full period of non-compliance

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Any other factors resulting in a financial benefit – potential cost of rehousing any tenants by the Council

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As a deterrent, the cost to the Council of the investigation.

In response to this ground of appeal the respondent has produced a further statement of case. It refers to the statutory guidance (see paragraph 9 above), to which the respondent is obliged to have regard; that guidance says that one of the factors to be taken into account in setting a penalty must be the following objective:

“Remove any financial benefit the offender may have obtained as a result of committing the offence. The guiding principle here should be to ensure that the offender does not benefit as a result of committing the offence, i.e. it should not be cheaper to offed than to ensure a property is well maintained and properly managed.”

The respondent says that its “final determinant” is derived from that guidance and that the FTT, in accordance with Waltham Forest LBC v Marshall, was right to apply it.

I agree with Mr Peterken that the “final determinant” does not follow from that policy and does not put that policy into effect. It may be that in cases where the landlord no longer has to comply with the notices or with HMO regulations, for example where he has sold the property or it has been demolished, the cost of the works is an appropriate minimum penalty in order to remove a benefit from the landlord. (By analogy, the fee for an HMO licence is not part of the benefit to a landlord who has committed the offence of failing to have an HMO licence, under section 72 of the Housing Act 2004, except in a case where he now no longer needs to have a licence, for example if he has since sold the house or it has ceased to be an HMO). But it has not been suggested here by the respondent that Mr Kazi no longer needs to comply with the improvement notices. The house remains an HMO and the regulations still apply. At most he has benefited from an improved cash flow or has perhaps saved the cost of borrowing, but there is no evidence about that.

The respondent also says that it has not sought to add to the penalty the rent received while the offence was being committed, which it regards itself as entitled to do in line with the policy as quoted above. But the rent is not a benefit derived from the commission of the offence, except in cases where the property should not have been in residential use while the offence was being committed (as would be the case if the offence were the failure to comply with a prohibition notice).

The FTT must, as the respondent says, start from the respondent’s policy, but it is not bound by it and should depart from it if it is irrational or unjustifiable. In the present case in following the policy of setting the cost of the works as a minimum for the penalty the FTT acted irrationally, because that policy does not achieve the objective it is supposed to achieve, and again unlawfully fettered its discretion. The “final determinant” also rendered pointless any adjustment to the starting made in response to aggravating or mitigating factors.

Accordingly permission to appeal is granted on this ground and the appeal succeeds; the policy quoted above. Had I not already set aside the penalty for the breach of the HMO regulations on account of the erroneous treatment of mitigation, I would have set it aside on this ground.