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HMO licensing and upfront fees

Cutbacks iStock 000013353612XSmall 146x219The Divisional Court has recently considered what a local authority can include in upfront fees for licensing houses in multiple occupation (HMOs). Jonathan Manning analyses the outcome.

Summary

In R (Gaskin) v Richmond upon Thames LB [2018] EWHC 1996 (Admin) Divisional Court (Hickenbottom LJ, Picken and Fraser JJ) the Administrative Court has held that a person who owns, and lets out rooms in, a House in Multiple Occupation (“HMO”) provides a service for the purposes of EU Directive 2006/123/EC (the “Directive”) and the Provision of Services Regulations 2009, SI 2009/2999 (the “Regulations”), and that the HMO licensing scheme under Part 2, Housing Act 2004 is an “authorisation scheme” for the purposes of the Directive and Regulations. The decision of the CJEU in R (Hemming t/a Simply Pleasure) v Westminster CC [2017] 3 WLR 317, therefore applies to the fees that may be charged on a Part 2 licensing application, so that where a local authority demanded payment on application of an upfront fee which covered not merely the costs of processing the application, but also the costs of administering and enforcing the scheme, the fee was unlawful.

HMO licensing

Part 2 of the Housing Act 2004 (the “2004 Act”) makes provision for HMOs to be licensed by local authorities. By section 63(3) and (7), the authority may require a licence application to be accompanied by a fee fixed by the authority. When fixing the level of the fee, the authority may take into account the costs incurred in carrying out their functions under Pt 2 (and Pt 4, Ch.1), 2004 Act.

By s.72, 2004 Act, it a criminal offence to operate a licensable HMO without a licence.

The Directive and the Regulations

The Regulations implement the Directive in domestic law. They apply to “services supplied by providers established in a Member State” (Directive, Art.2(1)).

“Service” is defined (Art.4(1)) as

“…any self-employed economic activity, normally provided for remuneration, as referred to in Article 50 of the Treaty”

Article 57 of the Treaty on the Functioning of the European Union (“TFEU”) (formerly Article 50 of the EC Treaty) provides that:

“Services shall be considered to be ‘services’ within the meaning of the Treaties where they are normally provided for remuneration, in so far as they are not governed by the provisions relating to freedom of movement for goods, capital and persons”

Regulation 18(4) of the Regulations (implementing Directive, Art 13(2)) provides that:

“…any charges provided for by a competent authority which applicants may incur under an authorisation scheme must be reasonable and proportionate to the cost of the procedures and formalities under the scheme and must not exceed the cost of those procedures and formalities.”

In R (Hemming t/a Simply Pleasure) v Westminster CC (C-316/15) (above), the CJEU held that a local authority that charged a fee for authorisation under a scheme regulating entry into the sex establishment market could not require payment on submitting an application of a fee which covered more than the costs of processing the application itself. An additional second stage fee charged to successful applicants relating to the costs of administering the scheme as a whole was legitimate, but the authority could not demand the entire fee upfront.

Facts

G owned and operated an HMO. In 2009 the authority granted him a five-year HMO licence. In 2013, they varied his licence, at his request, to increase the maximum number of occupants of the building.

In 2014, G applied to renew his licence. The authority required him:

(a) to provide names and other details of the occupiers of each room, and

(b) to pay an upfront fee of £1,799 (calculated on £257 for each of the seven units of accommodation in the building).

G refused to provide the information or to pay the fee which he considered excessive and unlawful. He submitted his application form, without the information demanded, and made a payment of £850 which he considered to be a reasonable renewal fee.

The authority refused to process G’s application without the information and the fee, and returned the £850 to him. They then commenced a prosecution against him for operating a licensable HMO without a licence, contrary to s.72, 2004 Act.

G applied for judicial review of the decision not to process his application (the Magistrates’ Court having informed him that this was his only means of raising the matters he relied on for his defence). Aside from his domestic law arguments (which were considered at an earlier hearing, where he succeeded on the ground relating to the demand for information), he argued that the fee breached of the requirements of the Directive (Art.13(2)), and Regulations (Reg.18(4)).

G argued that operating an HMO constitutes the provision of a service for the purposes of the Directive and Regulations and that Part 2, 2004 Act, constitutes an authorisation scheme. In the light of the CJEU decision in Hemming, it was therefore unlawful for the authority to have demanded from him an upfront application fee covering more than the cost of processing the application.

Decision

The court held that as a matter of the construction of the Directive and Regulations, G was providing a service by letting and managing his HMO for profit. The court noted the great range of functions G carried out in letting and managing his properties, and held that there was reason why these functions did not fall within the category of “self-employed economic activity… usually provided for remuneration”.

‘Service’ is defined extremely broadly in the Directive. Subject to the requirement that the activity be “self-employed economic activity, normally provided for remuneration”, it is unlimited.

The use of the word “any” in the definition could only have been intended to ensure that the “self-employed economic activity” which qualify as services includes the broadest range of activity. That was also emphasised in Recital 33, which referred to the fact that “services covered by this Directive concern a wide variety of ever-changing activities”.

This breadth also apparent from the reference, in the definition, to Article 50, which is itself couched in wide terms, and consistent with Recital 27, echoed in Art.2(2)(j) (and Regulation 2(2)(i)) which exclude from the scope of the Directive and Regulations “social services relating to social housing, childcare and support of families and persons permanently or temporarily in need which are provided by the State, by providers mandated by the State or by charities recognised as such by the State”. The court highlighted the reference to “social housing”. If the provision of housing simpliciter were not a “service”, there would have been no need to exclude social housing.

Indeed, given how Article 2(2)(j) and Regulation 2(2)(i) are drafted, it must follow that, even in the case of “social housing”, its provision would be covered by the Directive and Regulations provided, of course, that it constitutes “self-employed economic activity, normally provided for remuneration”.

The Court rejected, as a basis for distinction with Hemming the fact that under Part 2, 2004 Act, the property is licensed rather than the person who makes the licence application. The licensing regime is concerned not only with the suitability of the HMO but also with its management. For example, the authority needs to be satisfied that the proposed licence holder and any manager are fit and proper and that the proposed management arrangements for the house are otherwise satisfactory (s.64(3)). Moreover, licences are not transferrable and terminate on the death of the licence holder (s.68). The offence with which G was charged was committed by operating the HMO without a licence.

The licensing regime under Part 2, was an ‘authorisation scheme’ within the meaning of the Directive, and the authority had not therefore been entitled to demand the application fee of £1,799.

Jonathan Manning of Arden Chambers led for the Claimant. He can be contacted on 020 7242 4244 or This email address is being protected from spambots. You need JavaScript enabled to view it..

This article appeared first on Arden Chambers.

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