Neutral Citation Number: [2013] EWHC 508 (Admin)
Case No: CO/602/2012
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 22/03/2013

Before :

THE HONOURABLE MR JUSTICE BLAKE
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Between :

	London Borough of Islington	Claimant	
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	The Unite Group PLC	Defendant	

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  Richard Drabble QC (instructed by London Borough of Islington) for the Claimant
Andrew Arden QC, Andrew Dymond (instructed by Walker Morris) for the Defendant

Hearing dates: 5 and 6 March 2013 
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Judgment

The Honourable Mr Justice Blake: 

Introduction
1.	This is an application made by the claimant London Borough of Islington for declaratory relief in respect of a property located in the borough known as Charles Morton Court 37 Green Lanes.  The property is owned and managed by the defendant, a company specialising in the development and provision of student accommodation throughout the United Kingdom.  The defendant is the largest provider of such accommodation in the United Kingdom and has some 134 properties in 24 towns and cities.
2.	Charles Morton Court is a purpose-built block of self-contained flats of five storeys. The ground floor consists of a shop and the main entrance and the four upper floors are residential accommodation. Most such accommodation is in the form of cluster flats. These are large units with four to six bedrooms, each of which has its own en-suite bathroom and lockable door and communal “living room” and kitchen shared by the occupants of the bedrooms in the particular cluster flat.  Each flat is on one storey only, that is to say there are no maisonettes in the building.
3.	It is common ground that the cluster flats at Charles Morton Court are each a house in multiple occupation (HMO) within the meaning of Part 2 of the Housing Act 2004 (the Act).  Section 254 (1) provides five potential routes by which a building or part of a building becomes an HMO. The relevant route in this case is the “self contained” flat test. By the terms of Section 254 (3) a building meets the “self contained” flat test if it consists of such a flat and conditions (b) to (f) of the standard test set out in Section 254(2) are met. 
4.	 It is agreed that these conditions are met in the case of the present building because:
i)	 the cluster flats consist of living accommodation occupied by people who do not form a single household; 
ii)	such occupation is the only use for that accommodation;
iii)	 rents are payable; and 
iv)	two or more of the households “who occupy the living accommodation share one or more basic amenities or the living accommodation is lacking in one or more basic amenities”.  
5.	The contested issue is whether the HMOs at Charles Morton Court are HMOs for which a licence from the local authority is required pursuant to Part 2 of the Act.  
6.	Section 55 (2) provides for a national authority to prescribe descriptions of HMOs for the purpose of the licensing. The national scheme is supplemented by Section 56 where a local authority is permitted to establish additional licensing criteria if the requirements of that section are met.  Section 63 provides for applications for licences to be made to the local authority and Section 64 sets out the criteria for their grant or refusal.  It is an offence for a person having control of or managing a HMO for which a licence is required to fail to obtain a licence (Section 72). A conviction for such an offence results in further consequences as to rent repayment orders (Section 73). Certain properties are exempt from the licensing scheme, including student housing provided by educational establishments (Schedule 14 paragraph 4).
7.	In 2006 the national authority for the purpose of section 55(2)  of the Act was the Office of the Deputy Prime Minister, now the Department of Communities and Local Government. The Licensing of Houses in Multiple Occupation (Prescribed Description) (England) Order 2006 SI 2006 No 371 (the Order) came into force on the 6 April 2006.  It is the meaning of Article 3 of the Order that is in dispute at the present proceedings. 
Article 3 of the Order
8.	Article 3(1) states that a HMO is of a prescribed description where it meets the conditions in paragraph (2). Article 3 (2) provides that:-
“The conditions referred to in paragraph (1) are that –
a)	The HMO or any part of it comprises three storeys or more;
b)	It is occupied by five or more persons;
c)	It is occupied by persons living in two or more single households.”

9.	Although some of the cluster flats at Charles Morton Court are occupied by five or more persons and living in two or more households it is common ground that each HMO in this case is the individual cluster flat and not the whole building. At first blush, applying the language of Article 3 (2) none of the HMOs would be subject to the duty to apply for a licence because none comprised three storeys or more.  
10.	However the claimant submits that that is not conclusive because the legislator intended the calculation of storeys to be governed by Article 3(3) which provides as follows:
“The following storeys shall be taken into account when calculating whether the HMO or any part of it comprises of three storeys or more –
a)	any basement if –
i)	It is used wholly or partly as living accommodation;
ii)	It has been constructed, converted, adapted for use wholly or partly as living accommodation;
iii)	It is being used in connection with, and as an integral part of the HMO;  or
iv)	It is the only or principal entry into the HMO from the street.
b)	any attic if – 
i)	It is used wholly or partly as living accommodation;
ii)	It has been constructed, converted or adapted for use wholly or partly as living accommodation, or 
iii)	It is being used in connection with, and as integral part of, the HMO;
c)	where the living accommodation is situated in a part of a building above business premises, each storey comprising the business premises;
d)	where the living accommodation is situated in a part of a building below the business premises, each storey comprising the business premises;
e)	any mezzanine floor not used solely as a means of access between  two adjoining floors if – 
i)	It is used wholly or mainly as living accommodation or
ii)	It is being used in connection with , and as  an integral part of,  the HMO; and
f)	any other storey that is used wholly or partly as living accommodation or in connection with, and as an integral part of, the HMO.”
11.	The Explanatory Note attached to but not part of the Order provides:-
“Article 3(2) Sets out the conditions HMOs must satisfy in order to be of a description prescribed by Article 3(1).  One of the conditions is that all or part of HMO comprises three or more storeys.  Article 3(3) lists the storeys of an HMO that are to be taken into account when calculating whether the HMO or any part of it comprises of three storeys or more.”
   The Explanatory Note also refers to a full regulatory impact assessment of the effect of the Order on the costs of business.
The submissions of the parties
12.	Mr Drabble QC for the claimant submits that:
i)	 the natural meaning suggested by Article 3 (2)(a) that each qualifying storey must be part of the HMO is negatived by the language of  Article 3(3)(c) and (d) where the legislator makes plain that business premises situated above or below living accommodation will count towards the qualifying number of storeys.
ii)	Article 2 (b) states that “‘business premises’ means premises, or any part of premises, which are not, or are not used in connection with, and as integral part of, living accommodation.” 
iii)	Thus business premises can never be part of a HMO as defined in Section 254 and yet they count towards the number of storeys in calculating whether a licence is needed.
13.	The parties are agreed that in a block in which there are two floors of business premises and a floor of residential living accommodation containing an HMO a licence would be needed.  Here only the ground floor has business premises and every other floor consists of self-contained flats. For the claimant to succeed in the declaration it seeks that Charles Morton Court are premises subject to the licensing regime, it must rely upon Article 3 (3) (f) on the basis that all four of the residential storeys in the building are ‘any other storey that is used wholly or partly as living accommodation or in connection with an integral part of the HMO’.
14.	The claimant submits that in the light of  the  contribution made to the interpretation of the Order  by Article 3(3)(b) and (c),  this is the case on the plain meaning of  the words of Article 3 (3)(f):
i)	Each residential storey is a storey that is used wholly or partly as living accommodation.  
ii)	The first limb of the sub-paragraph contrasts with the second part which is an alternative requirement, ‘in connection with, and an integral part of, the HMO’. 
iii)	Just as the business premises do not need to be part of the cluster flat HMO to qualify as a storey, neither do the other living accommodation units in the upper floors of the building.  
15.	In effect, the claimant’s submission is that, despite the words of Article 3(2)(a), the legislator has decided that any HMO should be licensed if it is occupied by five  or more persons and is situated in a building containing three storeys or more. This would mean, for example, if there was a block of purpose-built residential apartments of more than three storys and the owner of one of such apartments permitted five or more persons to occupy such an apartment in two or more households, a licence would be needed from the local authority. The manager of such a house who failed to obtain a licence would be committing a criminal offence.
16.	Mr Arden QC for the defendant disputes this conclusion.  He  submits that:
i)	It is plain from the drafting history that licensing was intended to be restricted to vulnerable properties where there were risks to health and safety.  
ii)	Such properties consisted either of a large single building which had been converted into multiple households on different floors or living units above more than one business premises where there may be particular fire risks resulting from the mixed user. 
iii)	Self-contained flats have never been considered to be a health risk.
iv)	Nothing in the impact assessment both preceding and accompanying the Order or the guidance notes suggests that the legislator intended to bring self-contained flats generally within the licensing regime.
v)	The limited exception is where a self-contained flat that is an HMO is located above or below businesses premises and the number of qualifying storeys is three or more.   
vi)	The central distinction is between an HMO that consists of the whole building save for business premises and a HMO that is to be found inside a block of purpose-built “self contained” flats. 
vii)	 The legislator must have had some purpose in stating in Article 3 (2) (a) that the basic condition is that the HMO comprises three storeys or more.
17.	Mr Arden further submits that, with the above context in mind,  the purpose of  Article 3 (3)  is clear:
i)	Sub-paragraphs (a), (b), and (e) deal with the status of basements, attics and mezzanines floors where otherwise there would be room for debate as to whether they count as a storey. They do so count when the conditions for qualification as such are met.
ii)	These conditions include  where the otherwise ambiguous floor is used as living accommodation, is constructed or converted for such future use although unoccupied, or used in connection with the living function of the HMO.
iii)	Living accommodation will include all the basic amenities such as a toilet, personal washing facilities or cooking facilities that are part of the HMO in a “self contained” flat (See Section 254(8).  Other parts of a building might be used in connection with and as an integral part of the HMO, for example storage space and associated non-living use that might include perhaps a gymnasium.  
iv)	Sub-paragraphs (c) and (d) are intended to bring business premises into account when above or below the HMO in question, because of the health risks they pose.  
v)	Sub-paragraph (f) is, therefore, a residual provision that applies to ordinary storeys without the ambiguous qualities of basements or attics, and does not artificially bring part of the premises unconnected with the living functions of the HMO into account for health and safety reasons.
vi)	Subparagraph (f) applies to other storeys where an HMO is spread over more than one storey with respect either to the part of the storey that consists of living accommodation or used ‘in connection with and as an integral part of the HMO’.
vii)	The persistent use of the definite article points the way through the linguistic conundrum that the legislator has created. If it had been intended to include any part of a building used as an HMO, the language would have been different, although the pedantic concerns reflected in Article 3 (3) sub paragraphs (a) to (f) would not have been needed if the construction for which the claimant contends at  [15] above had been intended. 
Supplementary aids to construction
18.	In November 2004 the Office of Deputy Prime Minister published a consultation document  “Licensing in the Private Rented Sector” as part of its regulatory impact assessment of Part 2 of the  then Housing Bill.
19.	Paragraph 8 of the consultation document reads:
‘We intend to use secondary legislation to apply mandatory licensing to HMO’s with 3 or more storeys and 5 or more residents who constitute more than one household (other than where the building comprises self contained blocks or certain exempted categories).  We are targeting these properties because: 
•	Physical conditions in some of these HMOs are very poor.
•	There is a significantly increased risk of dying or being injured in a fire in such properties.  The fatality rate in HMOs of three or more storeys is around four times higher than that for one or two storey HMOs
•	A range of health, safety and general welfare problems for residents can arise where structural conditions are unsuitable for the number of persons accommodated, or where conversion has been poorly undertaken.
•	There are often problems of management in such HMOs, especially where facilities are shared.
•	Tenants in these HMOs are often vulnerable and may not have access to other Housing Options.’
(emphasis supplied)
20.	The Consultation at paragraphs 33 to 38 refers to a survey of housing conditions and health risks in a document called the ENTEC report. That report was not concerned with blocks of “purpose built” flats: Paragraph 34 states:
‘These HMOs have been chosen on the basis of risk. Research indicates that certain types of HMOs present significantly greater health and safety risks to tenants than comparable single occupancy dwellings.  Risk assessment carried out by ENTEC for the Department of the Environment, Transport and the Regions on fire safety in HMOs concluded that in all houses converted into bedsits, the annual risk of death per person is 1 in 50,000 (six times higher than in comparable single occupancy houses). In the case of bedsit houses comprising three or more storeys the risk is 1 in 18,600 (sixteen times higher).’

21.	It is the size of the HMO that is the focus of concern rather than the size of the building in which an HMO is found. Thus paragraph 37 states:
‘Nevertheless we believe that the risks to tenants in the larger HMOs remain significantly higher than in other properties. We therefore propose to apply licensing to those houses which were also found to pose the highest risk based on the ENTEC assessment. We have decided that the threshold should be set at those HMOs with three or more storeys and 5 or more persons.’

22.	Part 3 of the Consultation deals with implementation. 
‘Consultation on Proposals for Secondary Legislation
STOREYS
4.	We will need to make it clear what we mean by three or more storeys. We believe that in calculating the number of storeys, regard should be given to attic or basement accommodation used, or capable of being used, for residential purposes.  In calculating the number of storeys regard should also be given to the internal layout of the property within the building, so for example, if one of the units is a maisonette on two floors, each of those floors will be included separately in the calculation of the number of storeys. Any part of a building (including any addition, extension or annex) which is below 3 storeys will be regarded as part of that building for licensing purposes (if it has been built or converted for residential use). We are minded to specify that mezzanine floors will count towards the three storeys.  However, we recognise that in some cases these floors will be little more than architectural features and not what would perhaps normally be recognised as a storey.  Our aim is to include types of property that represent the highest risk, but we do not want  to overly complicate the provision as to what defines a storey.  We would welcome any thoughts you have on this in your answer to the question below.
5.	QUESTION 4: How should three storeys be defined in order to include high risk HMOs, but not to extend the definition unnecessarily widely?
It is also intended that any part of a building not used for residential purposes, such as commercial premises on the ground floor of a building, will form part of the HMO for determining the number of storeys, but shall be excluded for all other purposes.  This is because the height of the building is a relevant factor in determining the risk to occupants, for example a fire.
	(emphasis supplied)

23.	Following the consultation document the Order was drafted.  When the Order was published the Office of Deputy Prime Minister prepared an explanatory memorandum that contained the  following :
7.6	The Government believes that licensing should be properly a targeted measure, used only where it is necessary to improve standards in the sector.  In making this Order mandatory licensing will only apply to the highest risk HMOs which have been identified as those of three storeys or more and occupied by five or more persons( who together form two or more households). The threshold has been set at this level because of the risks of fire and escaping from fire are greatest in buildings of three or more storeys.  In 1997 the Entec (consultants) report ‘Fire Risk in HMOs’ concluded, “The number of occupants influences the risk.  Accordingly it is valid to distinguish between HMOs by reference the level of occupation”.
7.7	…
7.8	For the purpose of mandatory licensing, any storey, including basements, attics and mezzanine floors that is used wholly or partly or in connecting with living accommodation will count towards the calculation of number of storeys.  Commercial premises above or below living accommodation, except where they are located in the basement, will also count towards the calculation of storeys.  This will include commercial premises that are not in connection with or as an integral part of the living accommodations such as offices, shops, restaurants or pubs.

24.	Attached to the guidance note was the final regulatory impact assessment where the point is repeated that not all HMOs were to be licensed.
25.	These documents are contemporaneous expressions of the mischief to which the Order was directed and thus admissible aids to construction. Not admissible for this purpose, but of some persuasive interest  is the subsequent view of the sponsoring department as reflected in a briefing note on the meaning of the Order by a local government group LACORS. The two options for construction deployed by the present parties were set out and the note continues:
‘Communities and Local Government (CLG) supports option one.  They say you cannot count the storeys below the flat, if they are self contained flats, as they are not part of the HMO.  The critical wording is found in SI 371(3)(2) (a) which says that when counting storeys, you can only include ‘the HOMO or any part of it…’. Their view is that counting storeys which form part of the building but fall outside the curtilage of the HMO may be difficult  to justify if challenged, unless they are storeys occupied by businesses.
The FAQs section of the CLG website says: 
“Is a block of flats an HMO? A purpose built block of flats is not an HMO. However, an individual flat within it might be if it is let to 3 or more tenants (at least one of which is unrelated).  The flat will not be subject to mandatory licensing but could be subject to additional licensing if the local authority chooses to introduce a scheme locally.”
In an email to LACORS of 2.1.07 CLG says:
“a proper reading of SI 2006/371 Article 3(3) provides that in calculating the number of storeys of the HMO, or the relevant part of the building forming the HMO, you take account of all the relevant floors in the building (and exclude others), but as section 254 is clear such parts will not form the HMO unless they are actually part of it, applying the tests in either 254 (2) or 254(4)”
So there is a case for option one above.  However if option one is followed a flat above or below business premises in a three storey building  would need a licence whereas if these storeys are occupied by self-contained flats no licence will be needed.’

26.	By contrast, Mr Drabble observes that Option 2 was the preferred interpretation adopted by the Crown Court in a local authority prosecution described by LACORS:
‘The case for the second option was successfully argued by Cotswold DC in an appeal heard at Gloucester Crown Court on 27 June 2008: R v Roderick John Williams (case number A200800007). In dismissing the appeal the court determined that storeys containing self contained flats should be counted in the same way as storeys containing businesses, when deciding whether a flat needs to be licensed under a mandatory scheme.
The appeal concerned a two storey maisonette, occupied by five people in three households, above a ground floor owner- occupied self-contained flat, with a separate entrance. The appellant, the landlord Mr Williams, presented the case for appeal himself, he is not a lawyer.’

27.	Mr Drabble pointed out that high buildings themselves may be fire risks. Mr Arden countered that building regulations for “high rise” purpose-built flats addressed fire risk as did other measures of regulation.
28.	 Mr Arden referred to the penal consequences of the claimant’s construction, despite the views to the contrary of the Department that promoted the legislation. He would have been entitled to cite Bennion ‘Statutory Interpretation’ (5th edition, 2008) at 271:
It is a principle of legal policy that a person should not be penalised except under clear law (in this Code called the principle against doubtful penalisation).  

The court should “strive to avoid a construction which penalises a person where the legislator’s intention to do is doubtful, or penalises him or her in a way which was not made clear”.

Conclusions
29.	In my judgment, Mr Arden’s submissions are to be preferred to those of Mr Drabble. The need for ‘clarity’ stressed in the consultation may seem ironic given the legitimate division of opinion as to the meaning of the Order reflected in the LACORS document, but it was the search for a comprehensive approach as identified in the consultation that lead to the drafting of Article 3(3) as a supplement to the general principle of Article 3(2). 
30.	Article 3(3) does not substitute for Article 3(2) and deprive it of its natural meaning, but sets out special rules for the limited purpose of bringing business premises and certain uses associated with the HMO into the equation whereas they would otherwise be excluded. 
31.	It is the HMO that must comprise the three storeys and not the building in which an HMO happens to be found. 
32.	The hapless tenant of a “purpose built” flat in a tower block who sub-lets a flat to two households of five people, should not be at risk of prosecution for failing to obtain a licence, as the Order was not intended to apply in such circumstances.   If there is a perceived local need to regulate activity, the local authority can promulgate its own supplementary scheme.
33.	Article 3 (3) (f) of the Order does not bring each cluster flat in Charles Morton Court into the licensing regime because each flat is on one storey and is “self contained”. The living accommodation in the HMO and other parts of the premises used ‘in connection with and as an integral part of the HMO’ do not comprise more than one storey and so when the ground floor business use is added to the HMO the “three storey” threshold is not reached.
34.	I therefore dismiss the claimant’s application and grant the defendant the declaration in the terms it seeks.