Tenancy Fraud & Unlawful Profit Orders – a conference presentation

It is a real shame there are 2 wonderful conferences on the same day. On Thursday, 17 November 2022 we have the Oxford Investigation Service’s 7th Annual Fraud Conference at Oxford Town Hall, promoted in this blog on Sunday, and the Social Housing Law Association’s annual conference in the Ashworth Centre, Lincoln’s Inn in London.

I am speaking at the later event with the ever impressive Raj Vine, the Counter-Fraud Specialist at the Riverside Housing Group, on ‘Tenancy Fraud and unlawful profit orders’. Last June on this blog I wrote about the court case we were both involved in, and at which an unlawful profit order of over £145,000 was awarded.

We also spoke at the OIS’s 6th Annual Fraud Conference last year, and co-presented a webinar.

Booking details are on SHLA’s website.

Housing fraud in the criminal courts – an introduction

A. Introduction
For many housing practitioners – whether that be those working for a social landlord, investigators or lawyers – their primary experience of seeking to ‘apply’ the results of their work in the fraud field is in the civil courts. In particular, it is in the context of (residential) possession proceedings in the county court.

However, the “crossover” into the criminal courts is not unusual and a quick review of the Cornerstone on Social Housing Fraud twitter account (@CSHousingFraud) for 2021 will show, by way of example, references to 13 convictions:

B. Housing fraud (criminal) charges
The usual offences charged in this field (primarily allocation fraud/unlawful sub-letting) are:

(1) Fraud Act 2006

Section 2 (fraud by false representation)

Section 3 (fraud by failing to disclose information)

Section 4 (fraud by abuse of position)

Section 7 (making or supplying articles for use in frauds)

Conviction (section 1(6))
– Summary conviction, to imprisonment for a term not exceeding 12 months or to a fine not exceeding the statutory maximum (or to both);

– Conviction on indictment, to imprisonment for a term not exceeding 10 years or to a fine (or to both).

Sentencing guidelines (Magistrates’ Court) can be seen here.

Sentencing guidelines (Crown Court) can be seen here.

(2) Prevention of Social Housing Fraud Act 2013

Section 1 (unlawful sub-letting: secure tenancies)

Section 2 (unlawful sub-letting: assured tenancies)

Conviction (sections 1(5)(6), 2(6)(7))

– A person convicted of an offence under sections 1(1), 2(1) is liable on summary conviction to a fine not exceeding level 5 on the standard scale.

– A person convicted of an offence under sections 1(2), 2(2) is liable—

(a) on summary conviction, to imprisonment for a term not exceeding 6 months or a fine not exceeding the statutory maximum (or both);

(b) on conviction on indictment, to imprisonment for a term not exceeding 2 years or a fine (or both).

(3) Housing Act 1996

Section 171 (false statements and withholding information)

Section 214 (false statements, withholding information and failure to disclose change of circumstances)

Conviction (sections 171(2), 214(4))

A person guilty of an offence under these sections is liable on summary conviction to a fine not exceeding level 5 on the standard scale.

*Note that section 85 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 replaced the previous statutory maximum of £5,000 in the magistrates’ court with an unlimited fine. This applies only to offences committed on or after 12 March 2015.

C. Sentencing guidelines
The Sentencing Council website says:

“On 1 December 2020 the Sentencing Code came into effect in England and Wales, consolidating existing sentencing procedure law into a single Sentencing Act.

The Code covers sentencing for adults and under 18s and applies to all convictions made on or after 1 December 2020, irrespective of the date on which the offence was committed. From this date, judges and magistrates need to refer to the Code, rather than to previous legislation, although there will be some transitional cases where an offender is convicted before 1 December but is sentenced later.

The Code includes general provisions relating to sentencing procedure, the different types of sentences available to the courts, and certain behaviour orders that can be imposed in addition to a sentence. It is a consolidation only so has made no substantive changes to the law.”

And so, for example, section 59 of the Sentencing Act 2020 provides:

“(1) Every court—

(a) must, in sentencing an offender, follow any sentencing guidelines which are relevant to the offender’s case, and

(b) must, in exercising any other function relating to the sentencing of offenders, follow any sentencing guidelines which are relevant to the exercise of the function,

unless the court is satisfied that it would be contrary to the interests of justice to do so.

(2) The duty imposed by subsection (1) is subject to—

(a) section 125(1) (fine must reflect seriousness of offence);

(b) section 179(2) (restriction on youth rehabilitation order);

(c) section 186(3) and (6) (restrictions on choice of requirements of youth rehabilitation order);

(d) section 204(2) (restriction on community order);

(e) section 208(3) and (6) (restrictions on choice of requirements of community order);

(f) section 230 (threshold for imposing discretionary custodial sentence);

(g) section 231 (custodial sentence must be for shortest term commensurate with seriousness of offence);

(h) sections 273 and 283 (life sentence for second listed offence for certain dangerous offenders);

(i)section 321 and Schedule 21 (determination of minimum term in relation to mandatory life sentence);

(j) the provisions mentioned in section 399(c) (mandatory minimum sentences).”

Section 60 then goes on to say:

“(1) This section applies where—

(a) a court is deciding what sentence to impose on an offender for an offence, and

(b) offence-specific guidelines have been issued in relation to the offence.

(2) The principal guidelines duty includes a duty to impose on the offender, in accordance with the offence-specific guidelines, a sentence which is within the offence range.”

Section 73 deals with guilty pleas and the reduction of sentence that thereupon applies (depending on when the plea is made, minimum sentences that apply to some sentences, etc). See the Sentencing Council reference here.

By way of example, if a person has been convicted of a section 1 Fraud Act offence in the Magistrates’ Court and the court is retaining the case for sentencing then the court will:

  1. Determine the offence category – high, medium or lesser culpability – and as part of that consideration determine the harm by reference, in the latter instance, to value and impact.
  2. Use that to reference the case in the tables provided – that covers custodial sentences, fines and community orders, and allows for aggravating factors.
  3. Consider any factors which indicate a reduction, such as assistance to the prosecution – see section 74.
  4. Reduction for guilty pleas – see section 73.
  5. Totality principle – If sentencing an offender for more than one offence, or where the offender is already serving a sentence, consider whether the total sentence is just and proportionate to the overall offending behaviour. See guidance here.
  6. Confiscation, compensation and ancillary orders – see re magistrates’ court here and re Crown Court here.
  7. Reasons for sentence – see section 52.
  8. Consideration for time spent on bail (tagged curfew) – see section 240A of the Criminal Justice Act 2003 and section 325.

The Crown Court “version” can be seen here.

D. Conclusion

This blog is by way of an introduction to the criminal prosecution of housing fraud, and future articles will aim to build on its operation and the practical considerations that may need to be borne in mind in considering whether to go down this route instead of or, more likely, in addition to the civil litigation process. In the meantime there are earlier articles available on this site covering confiscation orders and compensation orders.

Housing fraud in the Courts – 6 recent cases

Airbnb & social tenancies

Introduction

Short term “holiday lets” through companies such as Airbnb, Booking.com and HomeAway are increasingly common, and their use (and overuse) has attracted the attention of legislation and legislators, particularly in London.

On the social housing front, there has been much comment of late concerning a county court case in which the City of Westminster obtained a possession order against one of its (former) tenants because of his use of his local authority property (he had been reportedly advertising the local authority property on the Airbnb website since 2013, and indeed had received more than 300 reviews). Permission to appeal that decision was refused.

The two issues which attracted most publicity were:

(a) The size of the unlawful profit order (UPO) subsequently made, frequently misreported as a ‘fine’.

(b) The fact that the sub-letting alleged and proved was by way of the Airbnb bookings, rather than the more “usual” and “traditional” longer-term tenancy arrangement.

Unlawful Profit Orders

To enable a UPO to be made in a secure tenancy case, section 5(3) of the Prevention of Social Housing Fraud Act 2013 (“the 2013 Act”) provides the requirement that the tenant:

“(a) in breach of an express or implied term of the tenancy, has sub-let or parted with possession of—

(i) the whole of the dwelling-house, or

(ii) part of the dwelling-house without the landlord’s written consent,

(b) has ceased to occupy the dwelling-house as the tenant’s only or principal home, and

(c) has received money as a result of the conduct described in paragraph (a).”

In other words, in the Westminster case it must have been sufficiently demonstrated (as well as the obvious receipt of money from the Airbnb activity) that:

  1. The tenant was no longer living at the demised premises as their only or principal home.
  2. His use of Airbnb represented either a sub-letting (which the reports of the case suggest) or a parting with possession.
The issue

It is the second of those issues that has for some time led to questions as to whether such activity as allowing Airbnb-style activity is sufficient to constitute sub-letting or parting with possession. Or indeed whether the occupants are rather lodgers of sort or licensees. The reason for such questions often surrounds the short-term nature of the individual booking, and whether that impacted upon the nature of the occupation (see Koumetto below, and paragraph 57 of the court judgment).

It should be remembered at this point that in a different factual scenario, such as where a tenant allows an Airbnb-style “guest” to stay in the premises at the same time as them, or even where they move out for the period of one or more bookings without having any other “principal home”:

(a) There may still be a breach of tenancy condition (or even perhaps a sub-letting, if only of part, though see the “lodgers” section below), allowing for a possession and/or injunction claim – social landlords may well wish to bring their tenancy agreements ‘up to date’ to expressly address this form of property use, if they haven’t already done so, where existing terms are insufficiently clear. To illustrate the benefits, in Koumetto (see below) the Australian case of Swan v Uecker [2016] VSC 313 was cited, and Croft J there ended a judgment with these concluding remarks at [80] (emphasis added): 

“…the context provided by the terms of the particular apartment lease are important. Although this apartment lease is a residential lease, many commercial leases restrict the tenant from sub-leasing, assigning the lease, granting any licence to occupy all or part of the leased premises or otherwise parting with possession without the landlord’s prior consent. Broad terms such as this would prevent, for example, sub-letting or licensing without the landlord’s consent and would avoid the need—as in the present case—to characterise the nature of the same arrangement like the AirBnB arrangement for occupation of the whole of the leased premises as a sub-lease or a licence 

(b) No criminal offence is committed under the 2013 Act – section 1 (secure tenancies) or section 2 (assured tenancies) – unless the tenant no longer lives at the demised premises as their only or principal home.

(c) Similarly, no (section 5) civil UPO is available if the tenant still lives there as their only or principal home (see above for the secure tenancy UPO conditions).

(d) Where there is sufficient evidence to show that the tenant has in fact moved out, and no longer lives at the subject premises as their only or principal home, then the only benefits in seeking evidence of parting with possession/sub-letting as well are:

  • It could help in demonstrating a criminal offence had been committed.
  • It would allow a UPO to be sought.
  • It avoids the possibility of the tenant preventing the termination of their tenancy following the service of a notice to quit by returning to live at the premises prior to its expiry: Hussey v Camden LBC (1995) 27 H.L.R. 5 at 7, and sections 93(2) and 15A of the Housing Acts 1985 and 1988.
Lodgers

If a tenant has a lodger, this will not be treated as a sub-letting, and by definition the tenant remains at the property and cannot therefore ordinarily be said to have parted with possession (though see the reference to the case of Stening below).

Woodfall, Landlord and Tenant says at 1.028:

“The occupier of apartments is not a tenant unless the premises are exclusively let to him, which distinguishes such a person from a lodger…The use of the expression “lodger” connotes that the lodger must lodge in the house of another person and lodge with him; if a householder retains to himself the general control of a house, with the right of interference, a person who occupies a part of that house would seem to be a lodger. The word interference simply means that the householder must retain sufficient control of the accommodation as to prevent the lodger from having exclusive possession.”

By way of example, in Monmouth BC v Marlog (1994) 27 H.L.R. 30, where a person shared a council house with the tenant, each having their own bedroom, under an informal rent sharing arrangement, the Court of Appeal held that the natural inference to be drawn from this was of a licence rather than sub-tenancy.

In Aslan v Murphy [1990] 1 W.L.R. 766 Lord Donaldson said at 770F-G:

“The occupier has in the end to be a tenant or a lodger. He cannot be both. But there is a spectrum of exclusivity ranging from the occupier of a detached property under a full repairing lease, who is without doubt a tenant, to the overnight occupier of a hotel bedroom who, however up-market the hotel, is without doubt a lodger. The dividing line — the sorting of the forks from the spades — will not necessarily or even usually depend upon a single factor, but upon a combination of factors.”

(Secure tenants have an unconditional (statutory) right to take in lodgers, and can also sub-let part with consent: see section 93(1), Housing Act 1985.)

However, when moving away from the traditional concept of lodgers and considering use of the premises for one or more licensees whilst the tenant lives elsewhere, in Stening v Abrahams [1931] 1 Ch. 470 Farwell J cautioned against a simplistic take that a licence cannot be a parting with possession at 473:

A lessee cannot be said to part with the possession of any part of the premises unless his agreement with his licensee wholly ousts him from the legal possession of that part. If there is anything in the nature of a right to concurrent user there is no parting with possession. Retention of a key may be a negative indicium, and the authorities on the whole show that nothing short of a complete exclusion of the grantor or licensor from the legal possession for all purposes amounts to a parting with possession. The fact that the agreement is in form a licence is immaterial, as the licence may give the licensee so exclusive a right to the legal possession as to amount to a parting with possession.

The conclusion I would draw from the above is that, subject to the precise terms of the Airbnb or similar arrangement, it cannot readily be concluded that the “guest” is occupying by way of being a lodger even where the tenant remains in occupation. That view is compounded by my conclusion on the issue of sub-letting or parting with possession.

Sub-letting or Parting with Possession?

As therefore for whether an Airbnb-style arrangement can be seen as a parting with possession or subletting, and acknowledging the case-law ‘background’ of Stening outlined above, at paragraph 32(5) of the judgment of Ward LJ in Clarence House Ltd v National Westminster Bank plc [2010] 1 W.L.R. 1216, referring to a series of judgments, including Stening and Lam (see below), the basic principle was set out as follows:

“This stream of cases is consistent with the notion that a leasehold covenant against parting with or sharing possession is concerned with the question of whether the tenant has allowed another into physical occupation with the intention of relinquishing his own exclusive possession of the premises to that other.”

Sir Harry Gibbs had said as to such general principles behind parting with possession, in Lam Kee Ying v Lam Shes Tong [1975] A.C. 247 at 256C:

“A covenant which forbids a parting with possession is not broken by a lessee who in law retains the possession even though he allows another to use and occupy the premises. It may be that the covenant, on this construction, will be of little value to a lessor in many cases and will admit of easy evasion by a lessee who is competently advised, but the words of the covenant must be strictly construed, since if the covenant is broken a forfeiture may result”.

Demonstrating the potential difficulties in demonstrating either sub-letting or parting with possession, Stening and Lam were again (as with Clarence House) both cited in the Court of Appeal authority of Hussey already referred to above, a case where the local authority sought possession on sub-letting grounds – the tenant living away from his flat at times, whilst third parties were conversely in occupation of the flat on occasions too. Leggatt L.J. said in delivering the main judgment of the Court in allowing the tenant’s appeal, at p. 11:

“It is common ground that the judge did not overtly apply his mind to the right question, namely whether for any period before January 1991 Mr Hussey had sublet or parted with possession of his flat. In my judgment it is not possible to infer from what the judge actually said that he must have found that Mr Hussey did part with possession of his flat and I did not understand Mr Bhose to feel able to argue the contrary. What the council does contend is that if the judge had considered the points there could only have been one answer as to parting with possession of his flat. It is obvious that from time to time others were in sole occupation of it, but it does not follow that they enjoyed exclusive possession. Mr Hussey’s right to enter and use the premises if and when he chose was not negatived. There might have been proof that he gave up his key, or of the manner in which rent was paid either to him by another or by another in his stead. There was no such evidence.”

Airbnb use was expressly considered in Bermondsey Exchange Freeholders Ltd v Ninos Koumetto (as Trustee in Bankruptcy of Kevin Geoghehan Conway) [2018] 4 WLUK 619, an appeal against an injunction granted to prevent the use of a leasehold flat for short-term rental or commercial hire. HHJ Luba QC, who I understand heard the permission to appeal application in the Westminster case, said in obiter remarks (given that the relevant lease clause below prevented allowing others into possession, as well as the more formal sub-letting, etc):

“56. Despite Mr Hanham’s attractive submissions that a decision that there had been an ‘underletting’ was not open to her, I am not satisfied that there were the necessary features here to displace the presumption from Street v Mountford that the provision of exclusive possession of premises to another for a period and for payment for that period constitutes a letting.”

The Judge was, at that part of his judgment dismissing the appeal, dealing with the clause of the subject lease which provided that the tenant covenanted:

“Not to part with or share possession of the whole of the Demised Premises or permit any company or person to occupy the same save by way of an assignment or underlease of the whole of the Demised Premises”

Crucially and typically HHJ Luba QC addressed the particular nature of Airbnb head-on, as he followed on from paragraph 56 of his judgment cited above:

57. Neither the short duration of the arrangement, nor any notional provision for ‘services’ (such as leaving the flat stocked with material from which to assemble a breakfast or other meal), nor reservation of a right of entry, nor any combination of those features, displace that presumption from applying to an Airbnb-style arrangment.”

The district judge at first instance had found that the arrangement represented a parting with possession and HHJ Luba QC therefore rejected the appellant’s argument, as set out at paragraph 48 of the judgment:

“As to the first limb of the sub-clause, he contended that the Judge had been wrong to find that the nature of the arrangements made with occupiers had been lettings akin to holiday lets. He submitted that the arrangements that had been in evidence were those entered into with Airbnb and they did not amount to tenancies but only licences. There had thus been neither parting with ‘possession’ nor sharing of ‘possession’. The Judge had been wrong in law to hold that the arrangements amounted to lettings or any parting with or sharing of ‘possession’.”

Subject to the precise terms of arrangement it seems to me that there is a strong argument against characterising the occupation of any such ‘guest’ as a mere licensee such that there could be said to be no sub-letting or parting with possession.

Conclusion

Congratulations are rightly due to the City of Westminster and their legal team in obtaining possession in the case which opens this blog. What the above shows however is that the housing/legal status of an Airbnb or similar booking is not without some uncertainty and argument.

Whilst there may ultimately be a case on this issue in the higher courts, the reality for a local authority or private registered provider of social housing (or registered social landlord) is that their concerns will focus on those tenants moving away from their properties with a view to raising money by such arrangements as took place in the Westminster case (though that is not to say that “tenant-remaining arrangements” should not and do not justify vigorous investigation, and raise related issues such as benefit fraud, property condition and anti-social behaviour).

They may secure possession of the relevant property, as already explained, without needing to show a sub-letting or any parting with possession. But should they choose or need to adopt the Westminster route then with the usual caveats there are positive indications that such action could be taken, and taken successfully.

Recent examples of sub-letting action

Tendring District Council

Amnesty and Audit Policies produce savings of more than £50,000 – 5 properties discovered abandoned or sub-let:

https://www.tendringdc.gov.uk/council/news-pr/news-listing/check-council-tenants-results-more-£50000-savings-so-far-key-amnesty

http://www.clactonandfrintongazette.co.uk/news/clacton_frinton_news/16071054.Major_fraud_crackdown_in_Tendring_saves___50k/

Haringey London Borough Council

Proposing to review levels of under-occupation in its housing stock, and root out tenancy fraud and sub-letting to help reduce homelessness in the borough:

http://www.enfieldindependent.co.uk/news/16089068.council-pledges-to-do-more-for-boroughs-homeless/

Barnet London Borough Council

12 month sentence for tenant who had never moved into allocated property and had rather sub-let to a family member:

http://www.hamhigh.co.uk/news/crime-court/housing-officer-julie-miah-jailed-for-subletting-east-finchley-council-house-1-5409454

https://www.barnet.gov.uk/citizen-home/news/Tenancy-fraudster-jailed.html