Kevin Hegarty 22 July 2020

Convicted landlords warned over confiscation threat following COVID crisis

Convicted landlords warned over confiscation threat following COVID crisis image

As local authorities struggle with funding during the economic downturn, they will be looking at every source of revenue and how it can be increased. This places convicted landlords including those who have committed offences of failing to comply with a planning enforcement notice (PEN), at greater risk of being prosecuted and having their gains confiscated under the Proceeds of Crime Act 2002 (POCA).

My colleague Ben Close and I have set out in this article three recent reported cases and the framework of the confiscation regime that permits the local authority to have the court treat the offence as evidence of a criminal lifestyle and the draconian consequences that can follow for the offending landlord. What is of note in these cases is that some local authorities have been so motivated by the opportunities afforded by POCA that it has been the driving force for the prosecution itself.

The Court of Appeal has made plain that is to be deprecated. However, the temptation for local authorities is obvious: where they are both the investigating and prosecuting authority (as will typically be the case), they are entitled to 37.5% of the fruits of the confiscation order.

The Framework

Ordinarily, where appropriate, the local authority would seek an order for the confiscation of the rent received by the landlord at the property where the breach of the PEN occurred. The breach is often a continuing offence and the confiscation order would be calculated as the rent received during the period of the breach. However, if it is an offence committed over a period of at least six months and the defendant has benefited from the conduct which constitutes the offence by at least £5,000 then the local authority will be asking the court to treat it as criminal lifestyle case.

That means that the court will make the following assumptions and apply them starting from six years before the day when the criminal proceedings commenced (the relevant day):

1. any property transferred to the defendant at any time after the relevant day was obtained by him (a) as a result of his general criminal conduct, and (b) at the earliest time he appears to have held it.
2. any property held by the defendant at any time after the date of conviction was obtained by him - (a) as a result of his general criminal conduct, and (b) at the earliest time he appears to have held it.
3. any expenditure incurred by the defendant at any time after the relevant day was met from property obtained by him as a result of his general criminal conduct.
4. for the purpose of valuing any property obtained (or assumed to have been obtained) by the defendant, he obtained it free of any other interests in it.

This means that the defendant landlord has to prove that any property transferred to him or expenditure incurred by him in the six years before the proceedings started all had a lawful origin and that all property held after conviction, regardless of when it was obtained, was lawfully obtained.

Where there is a substantial portfolio every property purchase and sale during those six years will be considered. If there is a false statement in an application for finance or rents received have not gone through the books or false expenditure records to reduce profits and in turn tax, then the figure decided upon by the court as the benefit from the application of the criminal lifestyle can go skyward and dwarf the figure for the rent received during the period of the breach of the PEN.

The Cases

The cases we have selected show instances where the local authority has not always behaved correctly in making a prosecution decision and where the landlord has resolutely resisted compliance with the PEN. The first of the cases is Knightland v LB Islington in 2018.

In that case the landlord had altered a building without permission to increase the number of dwellings and in turn the rent. A PEN was served on it and an application for retrospective consent was made. Islington planning was minded to grant that permission and regularise the position but the enforcement team was minded to prosecute and had in mind the potential confiscation order which would in part benefit Islington. The enforcement team then intervened in the planning process so that the permission was not granted, enabling the continuation of the prosecution.

When it got to court the judge stopped the case as Islington had taken into account the potential confiscation order in deciding not to grant permission and continue with a prosecution. The Court of Appeal endorsed the judge’s decision to stop the case.

The next case was R (Wokingham Borough Council) v Scott, which again came before the same Court of Appeal, less than a year later. Again, the respondent faced offences stemming from the breach of a PEN for developing land without planning permission. The respondent appealed against the PEN. During the extensive correspondence that followed, the parties discussed obtaining a Certificate of Lawfulness (CLEUD) to regularise some of the activities on his land. The respondent was told he would need to withdraw his appeal in order to apply for a CLEUD. His appeal was withdrawn but the application for a CLEUD was refused. The respondent was eventually prosecuted, in part to enable a POCA order to be made.

Again, the Crown Court Judge stopped the case because the respondent had been induced to withdraw his appeal and the prosecution was then motived in part by the financial consideration of a POCA order. Again, the Court of Appeal agreed, and in doing so emphasised the need for local planning authorities to act with realism and fairness.

It was also said that 'where there is a potential conflict of interest, namely a financial interest in the outcome of the prosecution set against the objectivity required of a prosecutor, the prosecutor must be scrupulous in avoiding any perception of bias'.

Both authorities essentially put prosecutors on notice that they should not have regard to POCA when deciding whether to prosecute. However, there is the potential for that to have been watered down in the final case.

R (on the application of Kombou) v London Borough of Enfield was heard this year. The claimant pleaded guilty to failing to comply with a PEN. Throughout his prosecution, he sought disclosure of the basis of the local authority’s decision to prosecute (no doubt with the above two cases in mind). Disclosure was provided piecemeal by the local authority, about which the Court of Appeal was critical. The disclosure revealed that investigators identified the anticipated figure for a POCA order before a decision was made to prosecute, a figure they referred to as ‘incentivisation’, with reference to the 37.5%, above. He argued that had he been given that disclosure before pleading guilty, it would have enabled him to argue there had been an abuse of the court’s process instead.

The Court of Appeal disagreed. There was no evidence the person making the decision to prosecute was influenced by the potential POCA order and merely identifying the figure that might be achieved (even labelling it incentivisation), is not tantamount to the sort of skewing of the process as occurred in the previous two cases.

A key difference between Wokingham and Knightland on the one hand, and the Kombou case, is the former both involved individuals who had a legitimate expectation based on their dealings with the relevant local authorities whereas Kombou did not.

Conclusion

Nevertheless, in Kombou the Court of Appeal suggested that a prosecutor might consider POCA when deciding if it is in the public interest to prosecute, and an investigator deciding about the allocation of resources, again may have regard to POCA. Those observations might serve to embolden cash-strapped local authorities when it comes to deciding who to investigate and prosecute.

Kevin Hegarty, QC, from St Philips Chambers

Photo: Alexandre Rotenberg / Shutterstock.com

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