England and Wales High Court (Administrative Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT

		Leeds Administrative Court The Court House, 1 Oxford Row, Leeds LS1 3BG
		30/04/2015

Mr Justice Stewart:

Introduction

1. The claimant challenges the defendant's decision of 17 December 2014. That decision approved the designation of four areas in Rotherham as being subject to selective licensing pursuant to section 80 of the Housing Act 2004 (the Act) with effect from 1 May 2015.
2. In the claim form there were two grounds of challenge; these were:

(i) Ground 1: the defendant has failed to take reasonable steps to consult persons who are likely to be affected by the designation. The consultation process was accordingly inadequate and unlawful, and in breach of section 80(9)(a) of the Act.

(ii) Ground 2: the defendant has failed to properly or at all consider whether there were other courses of action available to them (or consider the representations obtained from consultees in the case of voluntary accreditation as required by section 80(9)(b)) such that section 81(4)(a) of the Act has not been followed.

3. Because of the 1 May 2015 date, Judge Belcher made an order on 25 March 2015 for a hearing on 16 April 2015 to determine:

(a) whether to grant permission for judicial review

(b) whether to grant an interim injunction restraining the defendant from proceeding with the scheme pending the full challenge.

4. The matter came before Judge Belcher on 16 April 2015. She granted permission to bring a claim for judicial review but limited to Ground 2 only. She listed the matter on 28 April 2015 and provided (paragraph 5 of the order) that "At that hearing, the defendant has permission to revisit the issue of delay as it relates to the question of what, if any, relief should be granted."

The Skeletal Facts

5. The claimant is a private company limited by guarantee. It has been recently incorporated to represent the interests of private residential landlords in Rotherham. Previously the Rotherham District Landlords Association (RDLA) co-ordinated a response to the defendant's plans for selective licensing but, because landlords outside the RDLA were objecting to the scheme, it was decided to form the claimant company.
6. A Voluntary Landlord Accreditation Scheme was first suggested in Rotherham in or about 2003 as a pilot scheme commencing in Eastwood and Brinsworth. Afterwards the defendant decided not to pursue accreditation but the idea was revived in 2011. A brief chronology thereafter is:

22 May 2013 The defendant's Cabinet agreed to receive a report setting up the business case for selective licensing (the recommendation to the defendant was originally to proceed with an Accreditation Scheme).

27 November 2013 The Cabinet recommended that selective licensing should be considered in an area covering 2029 licensed properties.

12 December 2013 The business case was produced.

January – March 2014 The formal statutory consultation.

19 March 2014 Interim report presented to Cabinet.

23 July 2014 The defendant's Improving Places Select Commission (the Commission), which is an Overview and Scrutiny Committee, recommended a landlord led voluntary quality landlord scheme as an alternative to selective licensing.

17 December 2014 The Cabinet designated four areas (Eastwood, Masborough, Maltby South East and Dinnington) for selective licensing under Part III of the Act. The new boundaries were in some respects significantly different from those consulted upon and the central Rotherham area was removed such that the 2029 properties anticipated to be covered by the scheme were reduced to 1394. The Cabinet also requested a report on 18 March 2015 in order to agree the license fees.

7. The present proposal is that the scheme will come into force on 1 May 2015 for a period of 5 years.

Relevant Legislation

8. It is Part III of the Act which is relevant. This covers Selective Licensing of Other Residential Accommodation and provides a local housing authority (LHA) with significant powers to regulate and control the private rented stock in all or parts of their area. This part deals with houses which are not in multiple occupation.
9. By section 80(1) an LHA may designate the whole of their district or an area within it as subject to selective licensing if the requirements of subsections (2) and (9) are met. The key part of those subsections are as follows:

"Designation of selective licensing areas

……

(2) The authority must consider that—

(a) the first or second set of general conditions mentioned in subsection (3) or (6), or

…….

are satisfied in relation to the area.

(3) The first set of general conditions are—

(a) that the area is, or is likely to become, an area of low housing demand; and

(b) that making a designation will, when combined with other measures taken in the area by the local housing authority, or by other persons together with the local housing authority, contribute to the improvement of the social or economic conditions in the area.

(4) In deciding whether an area is, or is likely to become, an area of low housing demand a local housing authority must take into account (among other matters)—

(a) the value of residential premises in the area, in comparison to the value of similar premises in other areas which the authority consider to be comparable (whether in terms of types of housing, local amenities, availability of transport or otherwise);

(b) the turnover of occupiers of residential premises;

(c) the number of residential premises which are available to buy or rent and the length of time for which they remain unoccupied.

(5) The appropriate national authority may by order amend subsection (4) by adding new matters to those for the time being mentioned in that subsection.^[1]

…"

[The second set of general conditions requires that the area is experiencing anti social behaviour problems; it is acknowledged in this case that that ground was not satisfied]

10. Two other sub sections need to be set out:

Section 80(9)

"Before making a designation the local housing authority must—

(a) take reasonable steps to consult persons who are likely to be affected by the designation; and

(b) consider any representations made in accordance with the consultation and not withdrawn."

11. Section 81(4)

"The authority must not make a particular designation under section 80 unless—

(a) they have considered whether there are any other courses of action available to them (of whatever nature) that might provide an effective method of achieving the objective or objectives that the designation would be intended to achieve, and

(b) they consider that making the designation will significantly assist them to achieve the objective or objectives (whether or not they take any other course of action as well)."

Witness Statements

12. I have witness statements from the following people:

Maurice Edward Healey. He is a Director and Member of the claimant and Chairman of the RDLA. His statements are dated 10 March 2015 and 15 April 2015.

Carl Agar. He is the local representative of the National Landlords Association (NLA) and is a residential landlord operating in the defendant's district and a local agent. His witness statement is dated 10 March 2015.

Matthew Finn, Community Protection Manager for the defendant within Housing, Asset Management and Neighbourhood Services. He is a qualified environmental health officer. His statement is dated 31 March 2015.

Paul Benson. His statement is dated 16 April 2015.

Maggie Godfrey. She is a Councillor, being one of the 3 elected Councillors for the Maltby ward. Her witness statement is dated 22 April 2015.

July 2014 – December 2014

13. The report to Cabinet dated July 2014 specifically adverted to the statutory duty in paragraph 6.2. It said:

"Recommendations

It is recommended that the Cabinet

…….

6.2 Decide to introduce either a mandatory selective licensing scheme or the alternative proposal advocated by a range of landlords for a voluntary scheme. In taking this decision Cabinet should consider Department of Communities and Local Government Guidance which stipulates that when considering the introduction of selective licensing, the Council must also consider whether there are any other courses of action available to them that might provide an effective method of achieving the objectives that the designation would be intended to achieve."

In paragraph 7.4 there was an Option Appraisal. I shall cite certain sections:

"7.4.1 Option 1 – Landlord led Voluntary Quality Landlord Scheme

Guidance relating to Selective Licensing makes clear that realistic alternatives should be sought to a mandatory scheme in the first instance. To not do so could potentially run the risk of judicial review. This is a credible option that has arisen out of the consultation process.

This option allows the local PRS landlords with support from national landlord organisations to lead on the development of an alterative borough wide quality landlord registration scheme, in partnership with the Council and other local landlord/letting agent based organisations, in order to meet similar objectives as set out in the Selective Licensing business case…

Option 2 – Cabinet agree to designate areas for selective licensing

The results of the consultation demonstrate that residents are overwhelmingly in favour of the introduction of a Selective Licensing Scheme. However, as with all regulatory activity, the emphasis is on a proportionate and measured approach to enforcement. The comparative benefits of the Selective Licensing and voluntary schemes are detailed in appendix 2 and it is believed that with the co-operation of the landlords the benefits of the mandatory scheme can be achieved via the voluntary route. This would satisfy the requirements of the residents to have safe and well-maintained properties and address the problems of low housing demand.

Therefore whilst the Selective Licensing Scheme had support, it is recommended that this option should not be pursued currently, to enable the operation of the voluntary scheme to be evaluated…"

14. On 23 July 2014 the Commission minutes record in respect of the report in paragraph 13:

"Resolved:-

(1) That the report be received and its contents noted.

(2) That, insofar as the Improving Places Select Commission is concerned, the introduction of a landlord-led voluntary quality landlord scheme is the preferred option…."

15. By December 2014 the position had changed. The report to Cabinet states:

"6. Recommendations

It is recommended that Cabinet:

6.1 Accepts that there is evidence and considerable support for the Selective Licensing of private rented properties in identified neighbourhoods of the borough.

6.2 Resolves to designate the 4 areas detailed in this report as Housing Act 2004 Part III Selective Licensing Areas as per the designations and maps in appendix 5, together with the standard licence conditions in appendix 9…"

Paragraph 7.4 again contained an Option Appraisal stating:

"7.4.1 Option 1 – Cabinet agree to designate areas for Selective Licensing.

With all regulatory activity, the emphasis is on a proportionate and measured approach to enforcement.

The comparative benefits of the Selective Licensing and voluntary schemes are detailed in Appendix 4.

A formal designation is the only way that a high degree of certainty can be achieved that all landlords will be involved in the scheme, as it involves legal penalties for failing to obtain a licence or complying with the conditions of a licence.

The results of the consultation demonstrate considerable support from residents for the Introduction of a Selective Licensing Scheme and the business case supports the introduction on the basis that in these areas there is a need for the scheme arising out of the low housing demand criteria.

The opportunity to fully consider matters arising from the consultation, particularly in the re-assessment of the initial Selective Licensing boundaries, has resulted in the proposal now narrowing down the areas that should be included in the designated areas. These recently assessed changes are detailed in section 7.3.3 of this report….

The exclusion of these areas reduces the number of licensable privately rented houses covered by the scheme to approximately 1,394 from the previous total of 2,029.

It is critical that all landlords with properties in the rationalised areas actively engage in improving the areas. The only way to guarantee this co-operation is via a mandatory scheme….

7.4.2 Option 2 – Landlord led Voluntary Quality Landlord Scheme

Considerable work has been put into an alternative proposal to mandatory licensing, by a group of landlords with assistance from the National landlords Association. This has produced a comprehensive and credible proposal.

The introduction of a landlord led voluntary scheme has been seen previously to be one to merit support and achieve some of the benefits sought from a mandatory scheme (see Appendix 4 for comparison).

Guidance relating to Selective Licensing makes clear that realistic alternatives should be sought to a mandatory scheme in the first instance and this was taken into account within the report presented to the IPSC on 23^rd July 2014 where it was recommended that a voluntary scheme should be tested prior to introducing a mandatory scheme (should it have proved necessary).

Since the IPSC, however, further work has taken place to consider the outcome of the consultation. This has resulted in a significant reduction, as detailed in 7.4.1, in the geographical areas under consideration. Consequently, it is apparent that these newly defined smaller geographical areas will have a greater concentration of issues which will require more intensive intervention, than those areas previously considered. To achieve this it will be imperative that all landlords with properties in the rationalised areas actively engage in improving the areas. The only way to guarantee this co-operation is via a mandatory scheme. This factor sways the earlier views expressed to the IPSC and suggests that the emphasis placed on support for a voluntary scheme is now inappropriate.

Contrary to the focused and more targeted approach, the industry's proposals would involve a borough wide scheme, with specific marketing in the 5 areas the Council had identified in the business case for Selective Licensing. This would involve landlords voluntarily signing up to a code of conduct, obtaining independent housing standards assessments and payment of a fee to the independent company which would be set up to administer the scheme. The Council would have access to those landlord details on demand. It would also involve lighter touch regulation of those registered properties by the Council to enable more landlords to become involved.

A previous attempt to introduce a voluntary accreditation scheme was made several years ago. This did not achieve widespread support. However it could be argued that more landlords are now sympathetic to the need for a scheme and there is greater support. Equally it can be argued that a voluntary registration scheme by its very nature will not attract those landlords who cause the most concern, and from whom the most significant change would be expected.

The voluntary scheme's NLA representative has stated that they can expect a take-up in the identified priority areas that would match, within the first year of operation, the Council's Selective Licensing scheme targets i.e. 50% of the licensable properties. However, to ensure that the scheme is on target to meet this expected take-up, a target of 25% take-up within 6 months of operation has been included. The scheme would also attract interest from landlords with private rented properties outside of these areas. However such compliance cannot be guaranteed, and will only be demonstrated or not with the passing of time.

Whilst it is believed that with the co-operation of the landlords, the benefits of the mandatory scheme can be achieved to some degree via the voluntary route, it would not present a situation where landlords who wished to avoid the scheme would be compelled to join if they wanted to let properties.

To introduce such a scheme would delay formal interventions by a further 18 months and would require a fresh consultation. A formal performance framework would also be required if such a voluntary scheme was introduced in order to ensure delivery of critical success factors. Such a performance framework is shown at Appendix 6."

16. The minutes of the meeting of Cabinet on 17 December 2014 referred to the options appraised and contain the following extracts:

"The Appraisal presented as part of the evidence for and against each option was set out in detail as part of the report along with the finance and risks and uncertainties associated with each option.

Consideration was given to each option for a voluntary landlord led scheme and whilst this had some merits a voluntary scheme would not provide any compulsion to register or penalties for failing to register. It was noted that a voluntary scheme did not apply to landlords, who needed to improve their tenancy and property management, to join and they were able to avoid any further obligations unless they were detected through routine enforcement methods.

Following appraisal of the consultation responses it was proposed that the scheme focus on specific areas in the 4 areas of:

Masbrough

Eastwood

South East Maltby

Dinnington.

This had also resulted in the number of properties for inclusion being reduced from 2000 to 1400. The originally suggested fee of £687 had been reviewed as a result of the expected reduction in the number of licensable number of properties and a review of the processing methods for applications, with the aim of reducing the burden on applicants…."

17. Reference was then made to the July 2014 noting that it had recommended a voluntary scheme and continuing:

"The Improving Places Select Commission, however, made the caveat that, if a voluntary scheme failed, they would wish to see the Council move to a mandatory scheme as quickly as possible."

18. So far as is material to the issue before me, the minutes continue with:

"Cabinet members were in support of the proposals and could only see this being a benefit to the people of Rotherham in the raising of standards in private rented accommodation.

Resolved:- (1) That there was evidence and considerable public support for the Selective Licensing of private rented properties in identified neighbourhoods of the borough…"

Councillor Godfrey's Evidence

19. Councillor Godfrey was the Cabinet member responsible for the proposed Selective Licensing Scheme. She refers to the fact that the Cabinet meeting was broadcast online and the DVD containing extracts of the meeting is attached to her statement as is a transcript of her presentation to Cabinet.
20. In the transcript of her presentation the following is to be found:

"Since the consultation concluded the Council has looked carefully at an alternative Landlord-led Voluntary scheme which has been put forward by a group of landlords with assistance from the National Landlords Association. Such a scheme would operate borough wide with specific marketing in the areas being considered for Selective Licensing …such a scheme in my view undoubtedly has merits and has been carefully considered especially as it is incumbent on the Council to consider all credible alternative measures to deal with the identified problem before moving to a mandatory scheme. However, I agree with the conclusions of officers that Selective Licensing is the best way forward and that is for a number of reasons:

Firstly, a formal designation is the only way that a high degree of certainty can be achieved that all LLs will be involved in the scheme as it involves legal penalties for failing to obtain a licence.

Secondly, there is a legal requirement to comply with the conditions of the licence and remedy defects found.

Thirdly, there is a legal requirement on LLs to take action over ASB associated with their tenants.

Fourthly, the Council has attempted to introduce a voluntary accreditation scheme in the passed. It has achieved very limited support. Furthermore a voluntary registration scheme as now proposed is unlikely to attract those landlords who caused the most concern in those areas.

Fifthly, if a voluntary scheme is not successful there will be a considerable time delay and another full consultation period before moving to a mandatory scheme.

Lastly, the consultation process has demonstrated considerable support from residents for the introduction of a Selective Licensing Scheme.

….

The consultation exercise has resulted in reassessment of the initial Selective Licensing boundaries. The proposal is now to focus these down to areas to be included so we are focusing only in those areas which most closely fit the low housing demand criteria. The four areas are Masbrough, Eastwood, South East Maltby and parts of Dinnington. The number of private rented properties to be included is now just under 1400 reduced from a previous total of just over 2000.

The proposed licence fee has also be reduced to no more than £625 with a £100 reduction for accredited licence holders…"

21. In her statement Councillor Godfrey makes the following points:

(i) The first time Cabinet actually considered which approach to adopt was on 17 December 2014 (paragraph 9).

(ii) The rationale in relation to the lower number of properties justifying Selective Licensing was that in some areas the position was more acute than in others and the problems of bad landlords were more entrenched. The original voluntary scheme would have caught some of the better landlords who may well have been receptive to such an approach; however a voluntary accreditation scheme would have been less effective for the worse landlords where the more entrenched problems were. Therefore, by December 2014, the position had changed. In Councillor Godfrey's view, because the wider areas have been removed from the proposed scheme so as to focus on the more entrenched more serious problems, the need for balance or compromise had gone. That balance or compromise with a borough wide scheme was whether (unnecessarily) to impose mandatory controls on landlords who did not need them or whether to (possibly unsuccessfully) attempt a voluntary scheme which may not be successful in relation to the more entrenched areas.

Discussion

22. I return to the central issue under section 81(4) of the Act, namely whether the Defendant "considered whether there are any other courses of action available to them…that might provide an effective method of achieving the objective or objectives that the designation would be intended to achieve": that objective being tackling low demand housing.
23. It is clear from the December 2014 report, minutes of the meeting and Councillor Godfrey's evidence that there was very substantial consideration of the two options.
24. Therefore the claimant's case is that the Court must look at the reasons why the defendant says it complied with section 81(4) in rejecting the voluntary accreditation approach and if no reasonable person could be satisfied on those reasons then set the decision aside.
25. The claimant's submission can be summarised as follows:

(i) In July 2014 the report to the Commission and the recommendation of the Commission was that a voluntary scheme be tried in preference (initially at least) to the Selective Licensing Scheme.

(ii) The December 2014 report to Cabinet described the voluntary proposal put forward by a group of landlords as "comprehensive and credible" and Councillor Godfrey said that such a scheme "undoubtedly has merits".

(iii) All 6 reasons given by Councillor Godfrey in favour of mandatory licensing existed and presumably were known as at July 2014 and therefore could not represent a rational reason for departing from the Commission's view.

(iv) Therefore a voluntary scheme was a viable alternative course of action which "might" achieve the same object as Selective Licensing.

(v) The basis of departing from the July 2014 report, namely the reduction in geographic local area and numbers of properties to be included in the mandatory scheme does not bear scrutiny because:

(a) it does not follow that there being 635 fewer properties than originally proposed will have any impact on the fundamental operation of whichever approach adopted. The bad landlords and the entrenched areas of "bad landlordism" were and are in the present designation.

(b) It is axiomatic that a voluntary scheme cannot require adherence but that was known in July 2014. Nothing in the final designation alters the position or the rationale of the Commission that Selective Licensing could be used if the voluntary scheme proves unsuccessful.

(c) Consideration of the alternative option of a voluntary scheme was done under the false premise that such scheme (or rather attempted to set one up) had previously failed.

(vi) Therefore Cabinet's conclusion was perverse and/or irrational.

26. Before grappling with the central issue, and in deference to the defendant's submissions, I shall briefly set out some non controversial oppositions:

• Whilst there is focus by the claimant on the December 2014 report to Cabinet and in particular paragraph 7.4.2, the question is whether the decision made by the defendant on 17 December 2014 was perverse and/or irrational.

•    In order to decide this issue I need to look at the central core of the reasons. There are a number of warnings in the authorities against an approach which is over legalistic or nit-picking in relation to precise words used. See for example R v London County Council exparte London and Provincial Electric Theatres Limited [1915] 2KB 466 at 490/491; R v Somerset County Council ex parte Fewings [1995] 1WLR 1037 at 1051C/D and Holmes–Moorhouse v Richmond upon Thames LBC [2009] UKHL 7; 2009 1 WLR 413 at [47] – [52]. This last case concerned the correct approach to the construction of statutory review decisions under section 202 of the Housing Act 1996. In paragraph 50 Lord Neuberger said:

"…A benevolent approach should be adopted to the interpretation of review decisions. The Court should not take too technical a view of the language used, or search for inconsistencies, or adopt a nit-picking approach…that is not to say that the Court should approve incomprehensible or misguided reasoning, but it should be realistic and practical in its approach to the interpretation of review decisions."

27. A preliminary issue for determination is whether the statute requires the defendant to adopt a least invasive measures approach. On the face of section 81(4)(a) the only statutory requirement is to consider whether any other course of action available might provide an effective method of achieving the objective.
28. In the July and December 2014 reports there is reference to Guidance. This is, I am told, the draft Guidance para 299 published by the Department for Communities and Local Government on 27 January 2010. However, there is nothing in the paragraph which deals with this precise issue of construction.
29. Returning to section 81(4) itself, there is no dispute but that the defendant complied with 81(4)(b). It is the construction of section 81(4)(a) which needs to be examined. Section 81(4) begins with mandatory words "The authority must not make a particular designation under section 80 unless". The question is the exercise which section 81(4)(a) requires an authority to undertake. To take an example: imagine circumstances where (i) a voluntary scheme might provide an effective method of achieving the objective that designation would be intended to achieve and (ii) the authority gives proper consideration to the voluntary scheme but (iii) comes to the conclusion that a mandatory scheme is likely to be more effective than a voluntary scheme – are the authority empowered to make a designation? The wording of the subsection could be clearer.
30. In my judgment the construction of section 81(4)(a) is:

(a) There is a mandatory duty on an LHA to consider other available courses of action that might be effective.

(b) If the LHA does so consider then it may make a designation even if there are other courses of action that might be effective.

(c) In making that decision which is a discretionary one for the LHA, the LHA must not act perversely or irrationally. Whether a decision is perverse or irrational will depend on the circumstances of the case. Having regard to the way the statute is drafted, those circumstances are likely to include (i) that there is an identifiable advantage in a mandatory scheme over a voluntary scheme which might achieve the desired objective and (ii) in the presence of such a voluntary scheme a mandatory scheme should be a proportionate measure to achieve that objective.

I am fortified in that construction by the fact that Counsel for both parties accepted it.

31. I therefore consider whether the decision was perverse or irrational. Too much emphasis must not be given to the July 2014 report and recommendation by the Commission. Its reasoning can properly be part of the background to a perversity/irrationality challenge but it was in no way binding on Cabinet in December 2014. Nor is the fact that a voluntary scheme was described as for example "comprehensive and credible" anywhere near sufficient for it to be considered to be perverse and/or irrational for the LHA not to prefer it to a mandatory scheme.
32. For those reasons a submission that Mrs Godfrey's 6 reasons were known in July 2014 and therefore could not represent a rational reason for departing from the Commission's view is misplaced. The test is not whether Cabinet had a sound and clear basis to pursue a different course from that previously recommended.
33. I therefore consider the 6 reasons given by Councillor Godfrey against the backdrop of the December 2014 report. I do not regard there being any perversity and/or irrationality in Cabinet, on the basis of that reasoning, choosing a mandatory scheme over a voluntary one, having considered the voluntary scheme. Looked at on their merits they are cogent reasons for preferring the mandatory scheme.
34. In any event had there been a necessity for Cabinet to demonstrate why they were departing from the July 2014 recommendation, in my judgment there was a proper rational basis for so doing. As paragraphs 10 – 15 of Councillor Godfrey's statement make clear, a mandatory scheme was justified. Part of the borough was omitted and the four proposed areas for licensing were smaller than in the original scheme. This shifted the balance which may, had it been a borough-wide scheme, tilted in favour (in Cabinet's discretionary view) of a voluntary approach so as not to impose some unnecessary mandatory controls more extensively on good landlords. As I put it in argument, it was decided that heavy artillery in smaller areas with more intensive problems was more effective than lighter artillery over a wider area containing both these areas and others with fewer problems. In addition, such a response was more proportionate.
35. In those circumstances the claim must fail. Had the claim succeeded so far I would have needed to consider the defendant's alternative submission that relief should be refused on the basis of detriment to good administration. Given my above decision, all agreed that it is unnecessary for me to deal with this.

Note 1   SI 2015/977 has subsequently (with effect from 27 March 2015) specified sets of conditions in addition to those in subsection 4.    [Back]