With the increase in property guardian schemes, its crucial to understand who legally 'manages' a property.
In this case, the Upper Tribunal considered the meaning of 'arrangement' for the purposes of section 263(3)(b) of the Housing Act 2004, in the context of rent repayment orders (RRO's). The decision provides useful guidance on when a party may be regarded as a 'person managing' a property that should have been licenced as a house in multiple occupation (HMO).
Background
The case arose from Global 100 Ltd’s (“G100”) appeal against a rent repayment order made by the First-tier Tribunal (FTT). The FTT had found that G100 was managing an unlicensed HMO and therefore liable to repay rent to the occupiers under section 43 of the Housing and Planning Act 2016.
The property in question was owned by the London Borough of Haringey. In 2013, the local authority entered into an agreement with Global Guardians Management Ltd (GGM) permitting GGM to use the property for property guardian occupation, in return for a monthly payment of £980. GGM in turn permitted G100 to license occupation to individual guardians, who paid weekly fees directly to G100.
Several guardians later applied for a rent repayment order on the basis that the property was an unlicensed HMO being managed by G100. The FTT agreed, finding that G100 was managing the property within the meaning of section 263(3) of the Housing Act 2004.
The legal issue
G100 argued that the property did not require licensing because the local authority, as a housing authority, was the “person managing” or “person having control” of the property, which would have exempted it from the licensing requirement under the Act.
Before the Upper Tribunal, G100 accepted that the local authority could not be regarded as the “person having control”, following Cottam v Lowe Management Ltd [2023].
Instead, G100 relied on section 263(3)(b), arguing an “arrangement” existed between Haringey and GGM “by virtue of which” GGM received the rents from occupiers. G100 submitted that this arrangement satisfied the statutory test, and that the property was therefore exempt from licensing.
The Upper Tribunal upheld the FTT’s decision, confirming that the exemption did not apply.
The Tribunal found that for section 263(3)(b) to apply, two requirements must be met:
- The local authority must have entered an arrangement with another person who is not an owner or leaseholder of the premises; and
- That arrangement must be one “by virtue of which” the other person receives rents or other payments from the occupiers.
While it was accepted that an arrangement existed between Haringey and GGM, the Tribunal agreed with the FTT that the agreement did not satisfy the second requirement. The monthly payment made by GGM to Haringey was not linked to the rent collected, and there was no evidence that the money paid by the occupiers reached GGM through this specific agreement.
The Tribunal highlighted that for the statutory test to be met, the arrangement itself must expressly or implicitly provide for the receipt of rents. The fact that GGM was in business and made payments to the local authority was not sufficient to assume such an arrangement.
Conclusion
The decision clarifies that the section 263(3)(b) exemption applies only where the arrangement itself gives rise to the flow of rent from occupiers through another party. A broader business relationship will not meet the requirement.
For property guardian companies and local authorities, the case highlights the importance of carefully structuring and documenting arrangements to ensure compliance with licensing requirements. Agreements that only allow use of a property, without establishing a direct link between occupiers’ payments and the receipt of rent, will not satisfy the statutory exemption.
This judgment reinforces the Tribunal’s strict approach to interpreting HMO licensing obligations and serves as a reminder that companies involved in property guardian schemes must ensure that licensing requirements are fully met.
