Wednesday, 22nd November 2023Property Guardians of the Galaxy: Unintentional HMOs
Legal Update: Sharado Watson analyses the recent Court of Appeal Judgment in Global 100 Ltd v Jimenez & Ors (2023)
More often than not, a landlord of a House in Multiple Occupation (HMO) will know that it is being used as one where residential premises are concerned. However, the use of property guardians to occupy vacant commercial properties to offer security to their owners may also require licensing oversight from local authorities.
The recent case of Global 100 Ltd v Jimenez and others (2023) EWCA Civ 1243 highlights that an HMO licence pursuant to Part 2 of the Housing Act 2004 (HA 2004) may still be required where a vacant commercial property is occupied as living accommodation by so called “property guardians”. We discuss the key takeaways from the judgement.
What is an HMO?
Section 254 of the HA 2004 generally defines that an HMO is a building (or part of it) that consists of living accommodation occupied by tenants who do not form part of the same household; at least one of the tenants pay rent; such accommodation is used as their main or only residence; and the tenants share facilities in the premises, such as toilets, showers and kitchen facilities. HMO licences are normally required where the property is occupied by at least five people and the above criteria apply.
HMO licences cannot be assigned. If a purchaser acquires a property that is already used as an HMO and continues to be used as one at the time of their purchase, they will need to obtain their own licence or a temporary exemption.
Property Guardians
In brief, these are private individuals who occupy vacant properties that are not intended for residential use. Examples of these include warehouses or office space and the intention of such occupation is to provide a degree of security to the property owner and mitigate the risk of squatters.
Background to The Global 100 case
This was a Court of Appeal case following on from the Upper Tribunal’s decision to uphold Rent Repayment Orders against the landlord and guardian firms’, Global Guardians Management Ltd (GGM) and Global 100’s, failure to hold a valid HMO licence (Global Guardians Management Ltd & Ors v London Borough of Hounslow & Ors (UKUT 259 (LC)).
On 31 March 2016, the owner of the property, a vacant commercial building, contracted with GGM to provide guardianship services at the property at a monthly licence fee of £600 and a minimum term of four months (determinable at four weeks’ notice). GGM then contracted with Global 100, a sister company, who would identify occupants to act as “guardians”, paying a monthly licence fee. GGM converted the building to create 30 bedrooms, 4 kitchens, and 4 lavatories. The rooms (and the provision of keys to access these rooms) were then licenced to guardians who paid varying licence fees depending on the size of their rooms. The local authority inspected the property and satisfied itself that it was occupied as an HMO. At least 29 of the 30 rooms were occupied at the time of the inspection. The issues in dispute concerned the ‘sole’ purpose of occupation and whether this purpose was as living accommodation. The tenants argued that this threshold was met. However, Global 100 and GGM had advanced the following arguments:
- that the property was not solely occupied for residential use for the purposes of s.254(2)(d) HA 2004;
- that GGM had not been granted a tenancy of the property; and
- neither GGM nor Global 100 were persons having control or management of the property.
The FTT rejected the above arguments and the FTT’s decision had been upheld on appeal before the Upper Tribunal. Global 100 and GGM subsequently appealed to the Court of Appeal.
At appeal, Global 100 and GGM argued:
- That residential occupation by the guardians did not constitute the only use of their living accommodation.
- That the Upper Tribunal had erred in finding that GGM had a tenancy of the property and that GGM was a person in control of that property (in that they would receive the rack-rent if let at a rack-rent); and
- The Upper Tribunal erred in its finding that Global 100 was a person in control because of its receipt of the rack rent.
Global 100’s appeal was ultimately dismissed for the following reasons:
On (1), the Court of Appeal kept their dismissal of Global 100’s argument brief. The Court held that the tenants ‘had no responsibilities as property guardians save to live in the accommodation. The presence of the property guardians in their living accommodation and the property may have deterred persons from entering the property, but it did not convert the use made of the living accommodation. In these circumstances…the Upper Tribunal was right in both appeals to find that the occupation of the property guardians of the living accommodation constituted the sole use of that living accommodation’ [1].
On (2), the Court of Appeal also dismissed GGM’s argument regarding whether they had a tenancy of the property as the FTT had originally found that GGM was, in fact, being granted the exclusive right to exploit the whole of the property[2], and had therefore been granted exclusive possession of it. As to whether GGM was a person in control of that property (in that they would receive the rack-rent if let at a rack-rent), a decision on this was not made as they were liable as the person managing the property.
On (3), the Court of Appeal dismissed Global 100’s argument in that together, GGM and Global 100 arranged for the modification of the property for habitation and subsequently licensed property guardians to live in it, generating £15,000 per month from licence fees. Global 100 was in the business of making money and not acting as a charity. The property guardians were also willing licensees of living accommodation, Global 100 was a willing licensor, and there was nothing to suggest that anything more could be obtained from letting or licensing the property in terms of obtaining a rack-rent. In any event, Global 100 was the only person who could charge the guardians for living in the property, if let at a rack-rent for the purposes of section 263(1) of the Housing Act 2004.[3]
Commentary:
The decision in Global 100 Ltd v Jimenez & Orz reaffirms the court’s position on the occupation of commercial premises by property guardians and where this can fall foul of the HA 2004’s licensing requirements. Where properties are occupied by property guardians, they may unintentionally be subject to HA 2004 licensing requirements which, if breached, can result in the landlord and/or the guardian firm being subject to rent repayment order applications and possible criminal prosecution.
It is important to seek legal advice before putting any such arrangements in place due to the material financial and criminal consequences landlords or guardian firms may be subject to for failing to obtain an HMO licence where one is required.
If you have any queries regarding any of the real estate issues covered in this blog, please do not hesitate to contact Sharado Watson or Deepak Ohri in our real estate team.
This article is for general purpose and guidance only and does not constitute legal advice. It should not replace legal advice tailored to your specific circumstances.
[1] Global 100 Ltd v Jimenez & Ors [2023] EWCA Civ 1243 (27 October 2023), para. 51
[2] Ibid, para.57
[3] Ibid, para. 63
