Leicester City Council v Morjaria (HOUSING - CIVIL PENALTY - HMO licensing offence)

Factual and Procedural Background

This appeal concerns a decision by a local housing authority, Company A, against a ruling by the First-Tier Tribunal (Property Chamber) (the FTT) which reduced a civil financial penalty originally imposed on the Defendant for operating an unlicensed House in Multiple Occupation (HMO) contrary to section 72 of the Housing Act 2004. The original penalty of £29,817 was calculated according to Company A’s policy but was reduced by the FTT to £3,900.

The property at issue is a two-storey mid-terrace house with five habitable rooms, four of which were let under assured shorthold tenancies. The fifth room, Room 5, was too small to be lawfully let as a bedroom except for a child under ten. The Defendant acquired the property in 2014 and began letting the four larger rooms. Company A conducted an unannounced inspection on 11 August 2021, finding evidence suggesting Room 5 was occupied, including a rent receipt dated 6 August 2021. The Defendant did not apply for an HMO licence following regulatory changes effective 1 October 2018, contending only four people lived in the house and Room 5 was not used as living accommodation.

Company A served a notice of intent to impose the penalty on the Defendant, asserting the offence had been committed since 1 October 2018. The Defendant denied this, providing statements claiming Room 5 was used for storage. The FTT conducted a hearing and concluded that the offence was proven beyond reasonable doubt only for the single day of 11 August 2021. It reduced the penalty accordingly. Company A appealed the FTT’s decision on four grounds, primarily challenging the limited temporal scope of the offence found by the FTT and the assessment of the penalty quantum.

Legal Issues Presented

1. Whether the FTT erred in limiting the proven offence to a single day rather than a longer period.
2. Whether the FTT misunderstood or failed to give appropriate weight to Company A’s penalty policy.
3. Whether the FTT was correct to exclude the costs of Company A’s investigation from the penalty calculation.
4. Whether the FTT improperly considered factors unsupported by evidence and failed to consider aggravating conduct in assessing the penalty.

Arguments of the Parties

Appellant’s Arguments

• The FTT’s finding that the offence was committed only on 11 August 2021 was inconsistent with the evidence and no reasonable tribunal could have reached it.
• The FTT failed to properly apply or give due weight to Company A’s penalty policy, particularly regarding the seriousness of licensing offences.
• The costs incurred by Company A in investigating the offence should be included in the penalty.
• The FTT erred by giving weight to unproven factors such as the Defendant’s means and absence of previous offences, and failed to consider the Defendant’s conduct in removing the occupant of Room 5 during the investigation.

Respondent’s Arguments

• The FTT correctly applied the criminal standard of proof and was justified in limiting the offence to 11 August 2021 due to insufficient evidence for earlier dates.
• The FTT’s careful and detailed analysis met the required standard and should not be disturbed on appeal.
• The inclusion of investigation costs in the penalty is not supported by statute or guidance.
• The FTT’s consideration of the Defendant’s means and lack of prior offences was appropriate and consistent with the evidence.

Table of Precedents Cited

Court's Reasoning and Analysis

The court carefully reviewed the evidence and the FTT’s reasoning, focusing on the FTT’s conclusion that the offence was proven only on 11 August 2021. The court found this conclusion was based on a fundamental error: the FTT considered a key witness’s evidence in isolation rather than in the context of the entire evidential matrix. This approach was illogical and inconsistent with other findings, including acceptance of a rent receipt dated 6 August 2021 and the FTT’s own finding of deliberate concealment by the Defendant.

The court recognized the unusual nature of financial penalty proceedings requiring proof beyond reasonable doubt, but held that appellate interference is justified where there is a fundamental flaw undermining the integrity of the decision-making process as here. The court concluded the only reasonable conclusion was that the offence was committed over a longer period, likely from the inception of the licensing requirement in October 2018.

Regarding the penalty policy, the court found the FTT had correctly understood and applied it but identified that the policy conflated seriousness of offence and harm caused, leading to disproportionate penalties. The court rejected the inclusion of investigation costs in the penalty, reasoning that the statutory framework allows authorities to meet enforcement costs from penalties generally, and adding costs separately would amount to double counting.

The court then determined an appropriate penalty reflecting moderate seriousness, specific harm to tenants, deliberate conduct, and aggravating factors, while rejecting deductions for the Defendant’s means due to insufficient evidence.

Holding and Implications

The court ALLOWED the appeal on the quantum of the penalty.

The FTT’s decision to reduce the penalty to £3,900 was set aside. The court imposed a revised penalty of £18,000, reflecting the offence’s duration, the Defendant’s high culpability, and actual harm caused over an extended period. The court confirmed that investigation costs should not be added separately to the penalty. No new precedent was established beyond clarifying the approach to appellate review of factual conclusions in financial penalty proceedings requiring proof beyond reasonable doubt and the proper assessment of penalties in HMO licensing offences.