Dr Noshaba Khiljee v London Borough of Waltham Forest

For the purposes of identifying a person having control of an unlicensed HMO, “rack-rent” under Housing Act 2004, s.263, is assessed by reference to the HMO as it actually exists and is used. The court should adopt a practical valuation approach, using rents actually received from occupiers as evidence of the net annual value where appropriate. It should not value the premises as though they were lawfully used only as a single-family dwelling. That hypothetical approach creates uncertainty and may produce two different rack-rents for the same premises. The statutory definition is intended to promote workable and certain enforcement, while liability may still arise under the separate definition of “person managing”.

The appellant owned a property which she engaged a company to manage for a fixed monthly payment. Although the management agreement prohibited HMO use, the property was operated as an HMO and the company collected substantially higher rents from its occupiers.

The First-tier Tribunal held that the appellant was a person having control because her payment represented more than two-thirds of the maximum rent for the property used lawfully as a single-family dwelling. It upheld a civil penalty, reducing its amount. The appellant appealed on the meaning of “rack-rent” in s.263 of the Housing Act 2004. The central issue was whether the relevant net annual value was that of the property’s lawful use or its actual use as an HMO.

The appeal was allowed. The penalty notice and the First-tier Tribunal’s order were set aside.

1. Section 72(1) of the Housing Act 2004 concerns an unlicensed HMO. The relevant premises for the control test are therefore the HMO whose licensing status gives rise to the offence. Section 263 contains no express direction to disregard the property’s actual HMO character when assessing rack-rent.

2. The correct approach is practical and factual. The sums actually received from HMO occupiers may provide the evidence from which the rack-rent of the premises is ascertained. The aggregate of rents for all lettable rooms may represent the rack-rent of the HMO as a whole, even though a single letting of the whole property might produce a lower figure.

3. The approach adopted by the FTT, which valued the property as a single lawful dwelling, was wrong. It introduced a hypothetical exercise requiring uncertain assumptions about planning permission, licensing and possible lawful uses. It also created the possibility of two simultaneous rack-rents for the same premises, without statutory warrant.

4. Global Guardians Management Ltd v Hounslow London Borough Council [2023] EWCA Civ 1243 and Global Guardians Management Ltd v Hounslow London Borough Council [2022] UKUT 259 (LC) supported the practical use of actual HMO receipts. Urban Lettings (London) Ltd v Haringey LBC [2015] UKUT 104 (LC) supported treating rents from lettable parts as the rack-rent of the HMO where the whole lettable space was involved.

5. Rawlance v Croydon Corporation [1952] QB 803 did not support the FTT’s hypothetical approach. It illustrated the need to apply the rack-rent definition to the factual and legally applicable rental situation. The risk that no person would be liable did not justify the FTT’s interpretation because a person in the appellant’s position might ordinarily fall within the separate definition of “person managing” in s.263(3).

• First-tier Tribunal (Property Chamber): upheld the civil penalty, reducing it from £24,500 to £19,600, on the basis that the appellant was a person having control under s.263 of the Housing Act 2004.
• Upper Tribunal (Lands Chamber): allowed the appeal and set aside the penalty notice and the FTT’s order.