The Proceeds of Crime Act 2002 - A wake-up call for landlords

A recent court decision has highlighted the importance of landlords being proactive in managing their property portfolios. A landlord, T&M Property Investments Limited (T&M), has been fined £18,750 and ordered to pay £174,074 in confiscated rental income, declared to be proceeds of crime under the Proceeds of Crime Act 2002 (POCA), following non-compliance with a planning enforcement notice.

Background

T&M held a 999-year lease of a commercial property in Manchester. The property was let to Dubai Café for use as a restaurant. Although restaurant use was authorised under an existing planning permission, Dubai Café altered the front of the restaurant to accommodate an area for shisha smoking without obtaining planning permission for either the alteration of the property or its change of use.

In September 2018, an enforcement notice was issued by Manchester City Council (the council) requiring the unlawful use as a shisha bar to cease. Despite the authorities raiding the property twice, Dubai Café ignored the council’s requests to cease the illegal use.

Unfortunately for T&M, they proved to be the only viable target for the council. The company which owned the freehold had been dissolved more than 20 years prior, and having failed to procure a satisfactory response from the tenant (which was subsequently dissolved as well), the council then brought proceedings against T&M.

Outcome for T&M

Although a breach of planning control is not itself a criminal offence, failure to comply with a planning enforcement notice is and can lead to an unlimited fine. In this instance T&M received a fine of £18,750. A landlord that does “everything he could be expected to do to secure compliance with the notice” has a defence to criminal prosecution for non-compliance with the enforcement notice, but here T&M had failed to take any action against its tenant despite being aware of the planning breach.

The Crown Court also made a confiscation order against T&M under POCA. POCA aims to recover and confiscate proceeds received from criminal activities and money laundering. The confiscation order required T&M to pay £174,074, representing the rent T&M had received from the date of service of the enforcement notice up until Dubai Café’s lease was eventually forfeited.

A wake-up call for landlords

This case demonstrates how POCA may be used to confiscate rental payments where a landlord acquiesces in a tenant using a property illegally, so long as the landlord knows or suspects that illegal activity has taken place. Given that any confiscation order under POCA may well outweigh any fine for the actual offence itself, it is vital that commercial landlords remain vigilant and ensure they actively manage their properties. This should include regular site visits to identify potential breaches of planning law, breaches of tenant covenants or any other illegal activity.

Where a breach is discovered, landlords should take prompt action against the tenant to ensure that the breach is remedied and to minimise the risks imposed by POCA. Where enforcement action is taken in respect of a breach, landlords should engage with the relevant authorities making it clear that they are taking all necessary steps to ensure compliance.