Mea culpa – When is a director liable for a company’s breaches pursuant to section 251 of the Housing Act 2004?

In this edition of Lay of the Land, Abbi Robinson considers the requirements for director’s liability under section 251 of the Housing Act 2004 in the light of two recent Upper Tribunal decisions.

1. Two recent decisions of Upper Tribunal Judge Elizabeth Cooke have provided some clarity as to the meaning of consent and neglect in section 251 of the Housing Act 2004, as well as guidance for local authorities on the need to avoid double-counting when issuing penalties under the same. This is an area which has previously seen little established authority, so the cases of Khuja & Ox1 Limited v Cherwell District Council [2026] UKUT 363 (LC) and Salford City Council v Brown¹ [2026] UKUT 393 (LC) provide an interesting insight into the Tribunal’s approach to the interpretation of this section.

The Law

2. Both cases concerned the offence of failing to comply with regulations in respect of houses in multiple occupation (HMO) under section 234 of the Housing Act 2004 (the 2004 Act). Under section 249A of the 2004 Act a local housing authority is able to impose a financial penalty on a person if they are satisfied that they have committed a section 234 offence.
3. Where matters become more complicated is when the “person” for the purposes of the above sections is a corporate body. Due to the possibility of evasion of any penalty due to the corporate structure, section 251 of the 2004 Act effectively pierces the corporate veil by allowing local authorities to impose financial penalties on a director of a company which has committed an offence, as follows:

   Offences by bodies corporate

   1. (1)Where an offence under this Act committed by a body corporate is proved to have been committed with the consent or connivance of, or to be attributable to any neglect on the part of—
      1. (a)a director, manager, secretary or other similar officer of the body corporate, or
      2. (b)a person purporting to act in such a capacity,

      he as well as the body corporate commits the offence and is liable to be proceeded against and punished accordingly.

4. Both Khuja and Salford were appeals against the respective local authority’s decision to impose penalties on Mr Khuja and Mr Brown as directors of companies which had allegedly committed offences under section 234. Although originally heard together, the appeals dealt with different aspects of section 251 and accordingly were given separate judgments.

Khuja v Cherwell DC – consent and double-counting

Background

5. Mr Khuja was the sole director of Ox1 Limited. Ox1 was the freeholder and landlord of The Blarney Stone, a property consisting of three flats above commercial premises. Ox1 had let the flats to tenants and had employed a managing agent to handle the day-to-day management of the property.
6. On the 8th, 10th and 16th August 2023 Cherwell Council inspected the property and identified urgent work which was required. They notified the agent of this, who in turn notified Mr Khuja. Mr Khuja had not been aware before this point that the property was an HMO.
7. Subsequently the council served an improvement notice on Ox1 and a notice of intention to issue a financial penalty on both Ox1 and Mr Khuja. On 11 July 2024 the council served a final notice of the decision to impose a financial penalty of £24,975 for eight breaches of the HMO regulations separately on each party. Ox1 and Mr Khuja appealed to the First-Tier Tribunal.
8. The First-Tier Tribunal found that Mr Khuja was liable for a financial penalty as he was the sole director and shareholder of Ox1 and its directing mind, so that any breaches of the regulations must have been with his consent. They did however reduce the penalty charge for both Mr Khuja and Ox1 to £11,000 each.
9. Mr Khuja alone was granted permission to appeal to the Upper Tribunal on two grounds:
   1. (1)There was no basis for finding that he consented to the offence, and
   2. (2)The First-Tier Tribunal, in imposing identical penalties, fell into the error of double-counting.

Decision

10. Noting the lack of authority on section 251 of the 2004 Act, the Judge considered authorities concerning section 37 of the Health and Safety at Work Act 1974, which is virtually identical in wording to section 251 of the 2004 Act. She noted that in these authorities consent, connivance and neglect could all be established by inference as well as express agreement. Such inference was easy to draw when the director’s area of responsibility encompassed the taking of steps which had caused the breach; conversely the more remote his area of experience was from those steps, the more difficult it was to draw such an inference [8].
11. Considering Attorney General’s Reference No 1 of 1995,² the Judge reasoned that for consent to be proved either directly or indirectly it must be shown by the local authority that the director knew of the facts that constituted the offence [11]. A finding that he ought to have known what was happening or that compliance with housing regulations was within his area of responsibility may indicate neglect, depending on the circumstances, but was not sufficient for a finding of consent, as inference of consent must be an inference of actual knowledge.
12. Accepting Mr Khuja’s position that he did not know anything about the defects at the property before 8 August 2023, the Judge found that consent could not therefore be inferred due to a lack of evidence of any prior knowledge [28]. She rejected the local authority’s submission that all decisions of the company were taken with Mr Khuja’s consent as being solely based on the fact that he was the only director and because all of the breaches were by omission so no active decision of the company had been taken for these to occur. For the above reasons, she set the decision on liability aside [29] – [30].
13. The Judge went on to consider the authorities regarding double-counting when a penalty is imposed under section 249A of the 2004 Act. She noted that there was a need to be aware of double-counting when penalties were imposed on multiple parties and that this was particularly the case where the company was a solvent one-man entity as the owner would effectively have to bear both penalties [12]. In such circumstances, as was the case for Mr Khuja, the penalty imposed on the director should not be determined without regard to that imposed on the Company and should be adjusted accordingly. Bearing the above in mind, the Judge held that the financial penalty against Mr Khuja be set aside in any event [34].
14. Interestingly, the Judge refused to remit the matter to the First-Tier Tribunal for the possibility of neglect under section 251 of the 2004 Act to be explored on the basis that no evidence had been adduced which would adequately evidence the relationship between the company and the management agent so that neglect could be proven [37]. She also found that it would be unfair to subject Mr Khuja to another round of proceedings after he had been found liable for a criminal offence without any proper basis [38].

Salford CC v Brown – neglect

Background facts

15. Mr Brown was the sole director of Want This Room Limited, a company which managed rental properties on a landlord’s behalf. One of the properties which it managed was 151 Manchester Road, Worsley, which the local authority believed to be in breach of the HMO regulations pursuant to section 234(5) of the 2004 Act. Consequently, they imposed a financial penalty of £10,850 on Mr Brown under sections 249A and 251 of the 2004 Act. Unlike in Khuja, there does not appear to have been a separate penalty imposed upon the company.
16. Mr Brown appealed against the penalty to the First-Tier Tribunal on the basis that he only managed the finances of the company whereas the day-to-day operations were managed by an alleged shadow director, Ms Egan. Ms Egan was not an employee, statutory director or officer of the company.
17. The First-Tier Tribunal accepted that Mr Brown was not involved in the day-to-day running of the company and found that he could not be liable for neglect pursuant to section 251 of the 2004 Act because he had delegated regulatory compliance to Ms Egan, he was entitled to rely on her expertise and was not under a duty to supervise her to ensure compliance.
18. Salford City Council appealed to the Upper Tribunal on the grounds that the First-Tier Tribunal had erred in finding that any offence could not be attributable to Mr Brown’s neglect and had misconstrued section 251 so as to circumvent its purpose as an anti-avoidance provision.

Decision

19. The Judge looked again to authorities regarding section 37 of the Health and Safety at Work Act 1974 when construing the meaning of neglect in the 2004 Act. She concluded that neglect could be inferred where the matters concerned were within the responsibility of the director so that the circumstances in which the breach arose were under their direction or control, and that the more remote his area of responsibility from those circumstances, the harder it would be to draw the inference of neglect [7] – [8].
20. The Judge concluded from various authorities that where there was more than one director of a company and each had a different role, one was not required to supervise the other’s operations and was unlikely to be liable for breaches which fell solely into the other’s sphere of operation. However, when there was a sole director of a company the responsibility for all its actions fell to him and could not be delegated to someone who was not a director, officer or an employee of the company. As such, the Frist-Tier Tribunal was wrong to rule out liability on the ground that Mr Brown had properly removed his responsibility for compliance with the regulations by delegation to Ms Egan.
21. In this case, unlike Khuja, the matter was remitted to the First-Tier Tribunal with directions to start afresh. In particular, the Judge was critical of the Tribunal’s failure to first consider whether any offence had been committed by the company and directed that this be its first consideration before considering whether any breach was attributable to Mr Brown’s neglect.

What does it mean for clients?

22. Both cases have provided some much-needed authority regarding section 251, and in particular have made it clear that, although section 251 is an anti-avoidance provision, the Tribunal should not be quick to find liability where consent, connivance or neglect has not been made out by the adduced evidence.
23. As far as the requirement for consent, it is clear that the local authority must establish some basis for this other than simply that the person in question was the sole director of the offending company. Evidence must be shown that the director had knowledge of the offence before it was brought to his attention by the local authority. As such, careful consideration should be given as to the availability of evidence which can demonstrate prior knowledge before issuing a penalty and/or before any proceedings. It is also worth noting that, should consent be disproven on appeal, the Tribunal will not automatically remit the case for another attempt on a new basis such as further evidence or neglect. It is key to ensure that the evidence in support of the case is adduced at first instance and, if alternative grounds are available, these are pleaded.
24. Where neglect is concerned, the Tribunal has made it clear that delegation to a party with no formal relationship with the company will not absolve directors of their statutory responsibilities. Interestingly the Judge made a point of highlighting that Ms Egan was not only not a director but also not an officer or employee of the company. This raises the question as to whether delegation to an officer or employee would be sufficient to remove a director’s liability for neglect. Unfortunately, this was not addressed by the Judge and so remains unanswered for the time being.
25. The Judge’s comments in Salford also make it clear that the fact that a person is the director of a company is not in and of itself sufficient to infer neglect. Consideration should therefore be given early on to the strength of evidence regarding whether the events leading to any breach were sufficiently within the director’s sphere of operations. In particular, the Judge highlighted in Khuja that when management of the day-to-day operations has been delegated to a management agent, evidence should be adduced of the relationship between the company/director and the agent in order to demonstrate neglect.
26. Finally, the judgment in Khuja makes it clear that local authorities must consider double-counting when imposing penalties on multiple parties. In particular, if penalties are imposed on both a company and its sole director, both penalties must be taken into account and adjusted accordingly. There is nothing in this to prevent the larger penalty being imposed upon the director, but the company penalty should accordingly be reduced in order to protect the penalty order should it be appealed.