The managing agent is the designated person receiving the rent

The Upper Tribunal (UT) overturned a financial penalty issued by a local authority (LA), ruling that an intermediary company was not legally the "person managing" an unlicensed house in multiple occupation (HMO) because it did not have a direct rental relationship with the occupiers.

Facts:

Next Location Company (NLC) Ltd. appealed against the penalty imposed in April 2023 on itself and Come to London Ltd. (CTLL) for the offence of managing an HMO without a licence. The penalty was originally imposed by the City Borough and amounted to £10,000 following a complaint about pest infestation and overcrowding at the property. During the visit, they found five people living at the property who claimed that the managing agent was CTLL. 

The property's freeholders are a Mr. and Mrs. Vogiev, who had a "rent guarantee scheme" with NLC, which acted as their managing agent. NLC, in turn, had an agreement to let the property to another company, CTLL, at a rent of £2,000 per month. CTLL then rented out the property to tenants, collecting rent directly from them. It was CTLL’s responsibility to apply for an HMO licence as necessary. 

Both companies appealed the penalty to the First-tier Tribunal (FTT), although CTLL subsequently made a compromise agreement with the respondent and took no further part in the FTT proceedings. The FTT ruled that the penalty amount was appropriate, stating that the appellant had not made representations to lower it. NLC appealed the FTT's decision.

Decision: 

The UT set aside the penalty as there was no adequate explanation of its imposition by Haringey and “a cursory reference to the respondent's reasons will not do”.

The Judge pointed out that the legal definition of "person managing" in Section 263 of the Housing Act 2004 is very specific and is not a “commonsense concept” nor is the definition “satisfied merely by being a party to a management agreement or doing something that could be described as management”. A person managing a property must either be its owner or lessee and receive rent directly from the occupiers, or else be an agent who receives that rent under Section 263(3) of the Act. The UT found no evidence that NLC was an owner or lessee of the property. Its agreement with the freeholder was as a managing agent. The evidence clearly showed that NLC did not receive rent directly from the occupiers, but rather it received a fixed rent from CTLL under a separate contractual arrangement. Therefore, NLC did not fit the legal definition of a "person managing". Moreover, if payment by the occupiers is received through an agent, then that agent is also a person managing the property.

Implications:

The case establishes a strict legal precedent, clarifying that liability for managing an unlicensed HMO hinges on a precise statutory definition and not a general understanding of the term. Moreover, it provides a legal roadmap for property professionals and LAs to determine who is truly responsible.
The case confirms that in a rent-to-rent arrangement, where an intermediary company leases property from a freeholder and then sublets it to occupiers, it is the intermediary, and not the freeholder or their agent, who is likely the "person managing" the HMO. This is because the intermediary company has a direct contractual relationship with the tenants and receives rent from them. This judgement provides a clear legal basis for intermediaries to be held accountable, shifting the risk away from the property owner.
The ruling underscores the critical importance of the contractual chain. The Judge found that NLC was not liable because it received a fixed rent from a single entity (CTLL) and not from the individual occupiers. This distinction thus shielded it from the legal definition. Property professionals should use this insight to carefully structure their agreements. A managing agent who receives rent as an intermediary between tenants and the freeholder is likely a "person managing," while a company that enters into a head-lease and receives a fixed rent from its sub-tenant is not.