Warning for landlords when tenants breach planning rules

A Judge sitting at Manchester Crown Court has recently ordered a landlord convicted of failing to comply with a planning enforcement notice to repay monies it received  during the period of non-compliance. This order was in addition to the fine imposed at sentence and an order to pay prosecution costs.

To caveat what follows, all of the information we have about the case comes from media reports. There is no reported judgment from which we can verify the facts or the Judge’s reasoning, or know the precise details of the confiscation order.

Nevertheless, the case is an important reminder of the commercial, criminal and reputational risks to landlords if they do not:

1. actively monitor their rental properties;
2. operate quickly and decisively in the event of a planning breach; and
3. ensure that their leases contain suitable termination provisions.
   

The property in Manchester was owned by T&M Property Investment Ltd (‘T&M’) under a 999-year lease and let to a tenant who operated the Dubai Café out of the premises. The property benefited from planning permission for use as a restaurant, but the local council found that it was being used as a shisha bar, in contravention of the permission.

The council accordingly served an enforcement notice on T&M as landlord in September 2018 ordering them to procure that the tenant cease the operation as a shisha bar. However, two raids and four years later the restaurant was still selling shisha and the landlord had not terminated the lease. The lease was only forfeited once the landlord was prosecuted.

T&M is reported to have pleaded guilty to offences under the Town and Country Planning Act 1990 and was ordered to pay a fine of £18,750 along with court costs of £5,700.

Following conviction, the council brought an application under the Proceeds of Crime Act 2002 (‘POCA’).

POCA enables prosecutors to seek to recover assets (‘confiscation’) from convicted defendants who have benefitted from their criminal conduct. Once a confiscation order is made, the defendant has a set time to pay the amount ordered. Non-payment of a confiscation order made against an individual can result in a default sentence of imprisonment being imposed, although the obligation to pay is not expunged.

In this case, it appears that the council brought the confiscation proceedings on the basis that it was the rent received by T&M that represented the ‘benefit’ to the company from its criminal conduct. The reported confiscation order amount of £174,974 presumably represents some or all of the rental income received from the tenant during the period of non-compliance. 

1. Actively manage rental properties

In the Dubai Café case the Judge warned landlords and their agents to be proactive in managing their properties to monitor for planning breaches. Should a landlord suspect a planning breach or any other unlawful activity at their property, they should take action to ensure it is remedied by the tenant.

2. Ensure the lease contains a well-constructed forfeiture clause

A well-constructed forfeiture clause, in the circumstances of this case, would allow the landlord to terminate the lease in the event of a tenant’s planning breach. 

Landlords should also ensure they do not act in a way that causes them to lose the right to forfeit the lease. A right of forfeiture might be lost where the landlord acts, with knowledge of the breach, in a way that is consistent only with a decision to continue the lease. Whilst the breach in this case might have been a continuing one, so that it is treated as being re-committed every day, it is still sensible for landlords to put a rent stop on the account and take legal advice before communicating with the tenant about the lease.

3. End tenancies where tenants refuse to stop breaching planning permission over a long period

Landlords should consider bringing tenancies to an end if a tenant refuses to stop breaching a planning permission and where local authority enforcement action has been commenced or threatened. Although this may temporarily leave the property vacant, the Dubai Café case has shown that this could very well be preferable to the financial and reputational impacts of being prosecuted, as well as the further, heavier, financial impact of confiscation. 

Our planning team can advise you across a broad range of planning issues, including drafting to allow for forfeiture in the event of a planning breach and navigating a tenant’s breach of planning law. 

In the event of anticipated or actual criminal investigation or prosecution, including confiscation, please contact our fraud and criminal litigation team.