Upper Tribunal rules on burden of proof when statutory defence to HMO offence is pleaded

The Upper Tribunal has ruled on where the burden of proof lies when it is said that the manager of a house in multiple occupation had a reasonable excuse for conduct which, but for that defence, would amount to a relevant housing offence under section 249A, Housing Act 2004.

In IR Management Services Ltd v Salford City Council (HOUSING - FINANCIAL PENALTIES - breach of HMO Management Regulations) [2020] UKUT 81 (LC) the appellant appealed a First-Tier Tribunal ruling that it had no reasonable excuse for breaches of regulation 4(4) of the Management of Houses in Multiple Occupation (England) Regulations 2006.

These breaches had been identified by the local housing authority, Salford City Council, on an inspection by its officers on 27 March 2018 of a house IR Management managed in Eccles.

Sub-section (3) and (4) of section 234 of the 2006 Regulations were critical to the appeal; they provide:

“(3) A person commits an offence if he fails to comply with a regulation under this section.

(4) In proceedings against a person for an offence under subsection (3) it is a defence that he had a reasonable excuse for not complying with the regulation.”

Rather than prosecute, Salford had decided to impose a civil financial penalty of £25,000 on the appellant. A separate penalty of £27,500 was imposed on a defendant engaged by the appellant as a rent collector and to source tenants for its property portfolio.

After considering appeals by both the company and its agent, the FTT reduced the sum payable by the agent to £15,000 but increased the penalty on IR Management to £27,500 (the sum first proposed by the city council in its notice of intention). 

IR Management, through its director, had explained to the FTT that it had had no knowledge that the property in question was an HMO.

The house, which has two bedrooms, had been let in 2017 to a private individual on terms which prohibited sub-letting or sharing. The director said he had visited the house on only one occasion during the letting and had not noticed any signs that it was in multiple occupation.

The fact that the house was an HMO, occupied by five people forming three separate households at the time of the city council’s inspection, was not disputed, but it was said that the appellant’s lack of knowledge that it was occupied in that way provided a reasonable excuse for it not having complied with the 2006 Regulations by, for example, installing suitable fire doors or a fire alarm system.

The FTT directed itself that, on the question whether the appellant had a reasonable excuse for not complying with the 2006 Regulations:

“It is for the Appellant to establish that the statutory defence is made out. Whilst the Tribunal must be satisfied, beyond reasonable doubt, that each element of the relevant offence has been established on the facts, the Appellant who pleaded the statutory defence must then prove, on the balance probabilities, that the defence applies.”

The FTT did not accept the evidence of the director that he had been unaware the property was in multiple occupation and rejected the appellant’s defence. IR Management appealed to the Upper Tribunal.

On behalf of the appellant, two grounds of appeal were advanced:

1. That the FTT was wrong to find that the appellant knew that the property was an HMO in the absence of evidence that the property was in fact an HMO on the date when the appellant had visited it (which was in March 2018).
2. That the FTT misdirected themselves, in the passage from their decision cited above, and applied the wrong burden of proof and standard of proof to the defence under section 234(4), Housing Act 2004.

The Upper Tribunal rejected both grounds. Deputy Chamber President Martin Rodger QC said the substance of the appeal was the second ground.

He concluded that the proper construction of section 234 of the Housing Act 2004 was clear, and that there was no justification for ignoring the separation of the elements of the offence and the defence. 

The Deputy Chamber President said: “The offence of failing to comply with a relevant regulation is one of strict liability, subject only to the statutory defence. The elements of the offence are set out comprehensively in section 234(2). Those elements do not refer to the absence of reasonable excuse which therefore does not form an ingredient of the offence, and is not one of the matters which must be established by the prosecutor.

“Section 234(4) provides, separately from the description of the defence itself, a single defence of reasonable excuse. The burden of proving a reasonable excuse falls on the defendant.”

He added that it was common ground in this appeal that the defence needed only to be established on the balance of probability, and that was “clearly correct”.

He did not accept a submission on behalf of the appellant that it would be excessively difficult for a defendant to a criminal charge, or an appellant against a civil penalty, to establish even to the civil standard that they had a reasonable excuse for conduct amounting to the relevant offence.

“On the contrary, the landlord or other person managing an HMO will know why they failed to comply with the 2006 Regulations. If, as in this case, their omission was because they are said to have been unaware the property was occupied by more than one household they will be able to give evidence of their state of knowledge,” the Deputy Chamber President said.

“The local housing authority, on the other hand, has no means of knowing the state of knowledge of a landlord or manager and very limited powers and resources to enable with which to investigate that question. There is nothing in the subject matter of the defence which makes it improbable that Parliament should have intended the burden of proving the existence of a reasonable excuse to fall on the person asserting the defence.”

He said that in this case the director of IR Management gave evidence that he was unaware that the property was an HMO but the FTT was not persuaded. “In paragraph 51 of its decision it gave five separate reasons why [the director] ‘either knew, or ought to have known, that the premises were being used as an HMO’.

“The question for the FTT was whether the appellant had a reasonable excuse for not complying with the 2006 Regulations. If [the director] knew the property was an HMO (and he was an experienced letting agent) he had no excuse. If he did not know, the FTT considered that he ought to have known, by which I take it to have meant that his excuse for failing to comply with the Regulations was not a reasonable one.”

The Deputy Chamber President added that the issue of reasonable excuse was one which might arise on the facts of a particular case without an appellant articulating it as a defence (especially where an appellant is unrepresented). “Tribunals should consider whether any explanation given by a person managing an HMO amounts to a reasonable excuse whether or not the appellant refers to the statutory defence.”

He concluded that the FTT had been entirely correct in its approach to the allocation of the burden of proof in this case. “The same approach also applied to the other offences identified as relevant housing offences under section 249A(2), Housing Act 2004, for each of which a separate defence of reasonable excuse is provided for.”