Using the Proceeds of Crime Act against property companies and landlords

The last few years has seen an unusual development in the use of proceeds of crime legislation against landlords. The proceeds of crime legislation is a powerful tool in the armoury of the police and investigative authorities to ensure, in the words of the former Serious and Organised Crime Agency, “that the ill-gotten gains of criminals could be seized.” This legislation has properly been used to restrain and seize properties, monies and other assets of the professional criminals, with the imposition of substantial periods of imprisonment in default of fulfilling confiscation orders.

It is questionable whether Parliament envisaged a situation where this powerful legislation could be used as a tool by local authorities (LA’s) with a view to seeking confiscation orders against landlords and property companies. In two London Boroughs this is exactly what is now taking place. Landlord/s of properties in the London Borough Newham (LBN) and London Borough of Waltham Forest (LBW) could now face potential custodial sentences in default of a confiscation order imposed by a crown court.

Notice under the Town and Country Planning Act 1990 (TCPA)

How can such a scenario take place? Presently, if you are a landlord in the LBN or LBW you will require a notice under the Town and Country Planning Act 1990 (TCPA) in order to legitimately rent your property as a converted flat. Without a notice you are not entitled to let your premises. Naturally this makes social sense. As LBN state in their policy, the aim is to ensure that properties are not utilised as multiple occupancy bed-sits, in poor conditions, and as refuge for those being exploited by being under the radar of society. There are, of course unscrupulous landlords, individuals who are bent on exploiting the vulnerability of desperate individuals. Thankfully these are the exceptional few. However, if a prospective landlord rents a property without a proper license they will, under the LBN and LBW policy, be committing a criminal offence contrary to section 179 of the TCPA. They could face prosecution with a fine of up to £20,000. Even if the landlord passed over control to a letting agent the landlord still remains responsible to ensure that the various permissions have been granted.

Consequently, a visit to Thames or Waltham Forest Magistrates Court will allow you to witness a whole stream of individuals being prosecuted for failure to obtain a licence or comply with a notice in accordance with section 179 of the TCPA.

Legitimate businesses are not immune

Even a competent careful developer, who has bought houses and converted them into suitably safe compliant flats, faces the prospect of prosecution if they and/or their agents have failed to secure the appropriate consent of the LA. The procedure usually involves an inspection and then the issuing of a notice to comply. Failure to comply, irrespective of excuse, will result in prosecution. Just as a large-scale property company discovered recently, when one of their substantial portfolio of properties was found to have been converted into two perfectly habitable flats. The tenants were on proper contracts; the company had made full independent enquiries of them, resulting in their being acceptable tenants with a traceable credit and status history. As mentioned the flats had been carefully converted, with all the relevant safety provisions complied with. Yet both the company and the director faced criminal prosecution. The Act is not concerned with the state of a property but with the granting of a licence.

Criminal benefit

The twist in the tail comes from the local authority’s warning, that when a property is used without licence a criminal offence is committed and, both the property and the benefit derived from it, can be confiscated under the PCA regime. It is a remarkable stance to take. The LA invokes section 70 of the PCA and under section 6 of the PCA seeks the magistrate court to commit the defendant/s post sentence to the Crown Court for confiscation proceedings. Before they know it defendant/s can then find themselves before a Crown Court judge facing costly confiscation proceedings. Having to deal with the concept of ‘criminal benefit’, with the result that an assessment can be made under the reverse burden of the assumptions. Notwithstanding the prospect of a confiscation order being imposed with the potential for a significant period of imprisonment in default of any payment order.

Landlords lumped in with drug dealers, money launderers and professional fraudsters

What appears to be taking place is that, in recent times, LAs have seen that the PCA along with its shifting of the burden of proof can result in incoming monies to their purse. Under the TCPA criminal proceedings the court can impose a fine of up to £20,000 subject to the gravamen of the offence. The usual criminal sentencing principles apply, namely credit for a guilty plea and mitigation. Any fine should take into account the value of any accrued benefit. This money does not go to the LA but, more often than not, directly into the state’s purse. In contrast, a positive confiscation order goes directly to the LA. This begs the question is a landlord or a corporation to fall within the same category as drug dealers, money launderers and professional fraudsters? According to LBN and LBW that is precisely the case. Drug dealers, money launderers and fraudsters usually face prison sentences for their offences, the offending landlord under a section 179 offence does not face a prison sentence.

Powerful tool

It is highly questionable how a local authority can use such a powerful tool, which was originally meant for use against serious organised criminals. It was not long ago when RIPA surveillance was being used by LA’s to monitor and survey citizens without proper authorisation in very questionable circumstances. Despite bitter criticism it appears that LA’s will use whatever is available to bolster their ever-decreasing resources. Hopefully, the appellate courts will seize one of these cases and review the use of the PCA by LA’s. Luckily for the property company and its director recently appearing before the criminal court the LA having considered submissions, sensibly, did not pursue confiscation proceedings. Unfortunately, that is not the case for numerous others.

Be diligent in obtaining licences to avoid jail

Landlords and property holding companies need to heed the warning failure to be diligent in the purchase and conversion of houses into flats, apartments or bedsits in the boroughs of Walthamstow and Newham could, without the obtaining of licences, result in criminal proceedings with the potential of a prison sentence for landlord/s and/or corporate directors who default on any subsequent confiscation orders.

© 2015 Osman Osman
25 Bedford Row
[Specialist counsel in regulatory law, as well as, complex civil and criminal fraud]

Window Image © Roman Milert | Dreamstime Stock Photos

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