HMO Co‑operative Exemption Requires Rules that Mandate Member-Made Management Decisions (Committee Powers Defeat Schedule 14 Para 2B)

1. Introduction

Housing 35 Plus Ltd v Nottingham City Council concerned whether Housing 35 Plus Limited (“H35”), a registered co-operative society operating multiple shared housing properties in Nottingham, could rely on the statutory exemption that prevents certain co-operative-managed buildings from being treated as HMOs for the purposes of Part 2 of the Housing Act 2004.

The appeal turned on a single issue: whether H35’s rules were “such as to secure” that all management decisions are made by members (or a specified quorum) at a general meeting, as required by Schedule 14, paragraph 2B(2)(b) Housing Act 2004 (“the statutory requirement”). If satisfied, H35’s buildings would be exempt from HMO licensing.

Nottingham City Council imposed two financial penalties (under s.249A Housing Act 2004) for operating unlicensed HMOs (offences under s.72). H35 succeeded before the FTT, but Nottingham succeeded on appeal to the Upper Tribunal. H35’s further appeal to the Court of Appeal was dismissed.

2. Summary of the Judgment

The Court of Appeal (Nugee LJ, Miles LJ, King LJ) upheld the Upper Tribunal’s conclusion that H35’s rules did not satisfy the statutory requirement in paragraph 2B(2)(b).

  • The court held that H35’s Rule 30 (general meetings “to discuss all management decisions”) could not be re-read as requiring members “to decide” all management decisions.
  • The court found that H35’s Rules 48 and 69 conferred broad decision-making powers on a management committee, including major matters such as purchasing property, inconsistent with the requirement that management decisions be made by members in general meeting.
  • Accordingly, the properties were not exempt under Schedule 14 paragraph 2B and could be subject to HMO licensing and enforcement.

3. Analysis

3.1 Precedents Cited

The judgment cited no prior case authorities by name. The reasoning was instead driven by statutory interpretation of the Housing Act 2004 scheme (Part 2, Schedule 14 paragraph 2B) and construction of H35’s internal rules.

While the court briefly noted (without deciding) an analogy with “some decisions in relation to companies” about whether members can direct a committee while it remains in office, it did not rely on or apply any identified company-law precedent; the appeal was resolved by the text and structure of H35’s rules measured against the statutory language.

3.2 Legal Reasoning

The decision establishes a strict, text-led approach to paragraph 2B(2)(b): the court asked whether the rules themselves compel the governance outcome demanded by the statute—i.e., that all management decisions are made by members in general meeting.

(a) “Discuss” is not “decide” (Rule 30)

H35 argued that Rule 30’s reference to “discuss” should be understood as effectively meaning “decide”, given the broader democratic structure of general meetings elsewhere in the rules. The court rejected this:

  • In ordinary language, “to discuss” means to talk about something, not to determine it.
  • The rules used explicit decision language elsewhere (e.g., expulsion, auditor appointment, rule changes), supporting the inference that “discuss” was chosen deliberately and carries its plain meaning.
  • The phrasing “decisions … that have arisen since the last general meeting” naturally reads as review of decisions made in the interim, not as a reservation of decision-making exclusively to general meetings.

The court accepted that general meetings are not mere “talking shops” and can pass resolutions on various matters, but held that this falls short of a rules-based requirement that all management decisions must be made at general meetings.

(b) Committee powers were inconsistent with member-only decision-making (Rules 48 and 69)

The court treated Rules 48 and 69 as conferring substantive management authority on the committee:

  • Rule 48: the committee “shall control and direct the management of the day to day business”.
  • Rule 69: the business “shall be conducted by the committee” which may exercise all powers not required by rules/statute to be exercised in general meeting; it then lists major powers including to “purchase” property, settle litigation, determine terms on which property is let, and appoint/remove professionals and managing agents.

H35 attempted to reconcile this by asserting that the committee could not decide “management decisions” because those were for general meetings under Rule 30. The court held the opposite: the rules’ structure positively contemplated committee decision-making—including major strategic acts—making it “absurd” to treat the committee as merely an implementing arm with no decisional authority.

(c) The statutory focus is on what the rules “secure”, not what happens in practice

The FTT had accepted evidence that in practice major decisions were taken to general meetings and the committee dealt with minor operational matters. The Court of Appeal endorsed the Upper Tribunal’s emphasis that paragraph 2B(2)(b) is satisfied only if the rules ensure the statutory governance model. Good practice cannot cure rules that legally permit committee-made management decisions.

(d) Purpose of paragraph 2B: self-management by occupiers

The court broadly agreed with the Upper Tribunal’s explanation of the policy: the exemption fits where occupiers collectively manage themselves and therefore do not require protective licensing regulation aimed at improving management standards. If a committee (potentially not fully responsive to occupiers) can make management decisions, that justification weakens. Although the court said it was not strictly necessary to decide the issue by reference to purpose, the purposive explanation aligned with the textual conclusion.

3.3 Impact

The judgment has practical consequences for housing co-operatives seeking to rely on Schedule 14 paragraph 2B:

  • Drafting threshold is high: rules must clearly require that management decisions are made by members in general meeting; language of “discussion”, “review”, or informal accountability is insufficient.
  • Committee governance is risky: rules that confer broad committee powers—especially over acquisitions, contracts, tenancies/licences, staffing, agents, and enforcement—are likely incompatible with paragraph 2B(2)(b).
  • Substance over custom: co-operatives cannot rely on how they operate in practice if their rules permit committee autonomy; local authorities and tribunals will look to the legal powers conferred.
  • Regulatory exposure: failure to satisfy the exemption leaves buildings within Part 2’s licensing regime, enabling enforcement through financial penalties under s.249A (up to £30,000) where the authority is satisfied beyond reasonable doubt.

4. Complex Concepts Simplified

  • HMO licensing (Part 2 Housing Act 2004): Certain shared houses must be licensed by the local authority. Operating an unlicensed HMO can lead to prosecution or (in England) a civil financial penalty.
  • Schedule 14 paragraph 2B exemption: Some buildings managed/controlled by a qualifying co-operative society are treated as “not HMOs” for Part 2, but only if strict governance conditions are met—especially that members collectively make management decisions.
  • “Rules are such as to secure”: This means the constitution must legally ensure the required outcome. It is not enough that the society generally behaves that way.
  • “Management decisions”: Not exhaustively defined, but the court treated significant operational and strategic decisions (property acquisition, letting terms, membership admissions/terminations, appointment of agents) as naturally falling within management.
  • General meeting vs committee: A general meeting is the membership acting collectively. A committee is a smaller delegated body. The exemption is aimed at member self-governance, not committee governance with member oversight.
  • Financial penalties under s.249A: A local authority may impose a civil penalty if satisfied “beyond reasonable doubt” that conduct amounts to a relevant housing offence (including s.72). This substitutes for prosecution for the same conduct.

5. Conclusion

The Court of Appeal confirmed that the co-operative HMO exemption in Schedule 14 paragraph 2B(2)(b) demands more than participatory governance or post-hoc member oversight: the society’s rules must require that all management decisions are made by members at a general meeting. Where rules empower a management committee to “control and direct” the business and to exercise extensive powers (including major transactions), the statutory requirement is not met, and the properties remain within the HMO licensing regime.