The Upper Tribunal (Lands Chamber) held that the First-tier Tribunal was wrong to treat a landlord as a person having control of an unlicensed HMO, applying a practical reading of "rack-rent" in section 263(1) of the Housing Act 2004.
Key facts
- Who: Owners of houses in multiple occupation (HMOs) who receive a fixed sum from a manager, and anyone whose liability as a "person having control" depends on the rack-rent.
- From: 7 May 2026 (judgment date)
- Source: Dr Noshaba Khiljee v London Borough of Waltham Forest [2026] UKUT 171 (LC)
The Upper Tribunal (Lands Chamber) decided the appeal on 7 May 2026 in [2026] UKUT 171 (LC).
Dr Noshaba Khiljee owns 15 Fairview Close, London E17 5HJ. By a written agreement dated 22 April 2019, she engaged We Invest Ltd (WIL) to manage it. WIL was to pay her a fixed £3,400 a month, collect all the rental income, and not let the property as an HMO.
The property was nonetheless let as an HMO, with WIL collecting £7,000 to £10,000 a month from occupiers. The London Borough of Waltham Forest granted a one-year HMO licence on 1 February 2022. Use as an HMO continued after it expired. On 11 December 2024 the council issued notices of a decision to impose a financial penalty on both Dr Khiljee and WIL for an offence as at 14 March 2024. Dr Khiljee's penalty was £24,500.
The First-tier Tribunal (FTT) upheld the penalty on 6 September 2025, reducing it to £19,600. It referred to evidence that the maximum rack-rent for a single family dwelling in the area was £5,000 a month, and concluded that she was a person having control of the property.
The question
Under section 263(1), "rack-rent" means a rent of not less than two-thirds of the full net annual value of the premises. The question was how that is worked out where the property is in fact used as an HMO, including whether it is valued as if it were lawfully used as something else.
The decision
His Honour Judge Johns KC held that the FTT was wrong to find that Dr Khiljee was in receipt of the rack-rent and was therefore a person having control of the property.
The reasoning
The judge gave several reasons:
- The offence concerns an HMO, and section 263 asks who is in control of that HMO. Nothing in the section expressly requires the HMO use to be ignored.
- A practical approach applies. The sums in fact received from occupiers are used as evidence from which to find the rack-rent for the premises. A letting of the whole could be expected to produce a somewhat lower figure, but not a higher one.
- Valuing the property as if it were not an HMO would be less workable and more uncertain, often needing valuation evidence. Here, Dr Khiljee's £3,400 was 68 per cent of the FTT's £5,000 figure, so liability could have turned on a few hundred pounds of monthly value. Questions about licences, planning permission and lawful uses would also be open to debate.
- The FTT's approach involved two rack-rents, one founding WIL's liability and another founding Dr Khiljee's. The section refers to "the" rack-rent and "the" full net annual value.
The judge also noted that what Dr Khiljee received under the agreement was only just over two-thirds of the notional rack-rent, even ignoring HMO use.
What this means for landlords and property owners
The judgment clarifies that, in deciding whether a person receives the rack-rent under section 263(1), the sums actually received from occupiers are evidence of the rack-rent for the premises, and the property's HMO use is not ignored.
Whether a person is a "person having control" of an HMO depends on the facts, including what that person actually receives compared with the rent the property produces.
Sources
- Dr Noshaba Khiljee v London Borough of Waltham Forest [2026] UKUT 171 (LC), Upper Tribunal (Lands Chamber), 7 May 2026: https://caselaw.nationalarchives.gov.uk/ukut/lc/2026/171