Margaret Florence Cabo v Karen Tamie Dezotti

The FTT found that the Property “does constitute a mandatory HMO”: see paragraph 68 of the FTT Decision. It explained in paragraph 69:

“In support of the fact that we do not consider that the agreement with the tenants were intended to be short term lets, but was something of a sham, is the use of the wording in Mr Grasso’s letter to Miss Dezotti referring to her use as a ‘home’. Also, his concern that he wanted to make sure the Property appeared to be let so that people living there could be ‘chummy chummy’ with each other. This does not suggest a short-term holiday rent situation. Accordingly, on the criminal balance of beyond reasonable doubt we are of the view that the Property was an HMO and that a licence was required and that the failure to do so breached section 72(10 of the 2004 Act.”

Turning to whether Ms Cabo was “a person having control of or managing” the Property, the FTT noted in paragraph 70 that “Top Holdings appear to be entrusted with maintaining the Property but with no property interest” and that the suggested separation between Ms Cabo and Mr Grasso “does not appear to be borne out by the on-line information Miss Dezotti collected” before saying:

“we find it unrealistic to accept that Ms Cabo would pay the mortgage, the council tax and the insurance, at a total of around £2,000 per month and allow her allegedly estranged husband to receive and retain the totality of the rent, which could be in the region of £60,000 per annum without her having some benefit”.

Having referred to evidence relating to the “licence fees”, the FTT commented that, following the Upper Tribunal decision in Rakusen v Jepsen, “it would seem that there can be more than one party entitled to receive a rack rent” and that “[s]uch a person is, in our finding Ms Cabo and accordingly she is a person in control”: see paragraph 71. In the next paragraph, the FTT said, “We do not find this arrangement between Ms Cabo and Mr Grasso to be credible”. The FTT went on to say, however, that “even if this arrangement is true Ms Cabo will still fall within the definition of ‘person managing the property’”: see paragraph 73. The FTT accordingly concluded in paragraph 74 that “Ms Cabo falls within the definition in s.72(1) and is the person committing the offence”.

As for whether Ms Cabo was “the landlord”, the FTT said this in paragraph 75:

“We must then consider whether Ms Cabo is the landlord in relation to the Property under the 2016 Act. Top Holdings have a contract for management but have no legal interest in the Property. The company cannot therefore be a landlord. They are acting on behalf of Ms Cabo and she must be the landlord of the property.”

The FTT further recorded, in paragraph 76, that, “[a]lthough not specifically raised”, it had “considered whether Ms Cabo has a reasonable excuse for the offence” before determining that there should be a rent repayment order in the sum of £9,600.

The Deputy President concluded that the FTT had not been entitled to find that Ms Cabo had been a “person having control” of the Property. For that to have been the case, Ms Cabo would have had to have been in receipt of a rack-rent. While, however, the FTT “was entitled to reject Ms Cabo’s and Mr Grasso’s evidence that she received nothing from the renting of the Property”, “there was no evidence about how much money was going to Ms Cabo from the arrangements with Top Holdings and Mr Grasso” and the FTT did not “make any finding about how much Ms Cabo received; in particular it did not find that she received a rack-rent”: see paragraph 48 of the UT Decision. Moreover, “sums which [Top Holdings/Mr Grasso] collected from Ms Dezotti and other occupiers of the Property before passing it on to Ms Cabo, however much they were, could not cause her to be a person having control of the Property” since “[i]ndirect receipt is not enough for the purpose of section 263(1) [of the 2004 Act]”: see paragraph 50.

On the other hand, the Deputy President considered that “the FTT’s finding that section 263(3)(b) applied was correct and its alternative finding that Ms Cabo was a person managing the Property was also correct”: see paragraph 59. Even taking the Management Agreement at face value, the requirements of section 263(3) of the 2004 Act were met as Ms Cabo would have received rents “but for having entered into an arrangement … with another person who is not an owner or lessee of the premises by virtue of which that other person receives the rents or other payments”: see paragraphs 52 to 58.

There remained the issue of “whether the FTT was right to find that Ms Cabo was Ms Dezotti’s landlord”: see paragraph 71. In that connection, the Deputy President considered Ms Cabo to have been an “undisclosed principal”: see paragraph 74. The evidence, the Deputy President said, “shows that although [Top Holdings] let the Property in its own name, it did so on behalf of Ms Cabo as her agent” and “it thereby created the relationship of landlord and tenant between Ms Cabo and Ms Dezotti” and, since Ms Cabo was the owner of the freehold legal estate, “a tenancy granted by an agent acting on her behalf would be good against the world”: see paragraph 81. The Deputy President had said in paragraph 77:

“The FTT’s rejection of the evidence of Ms Cabo and Mr Grasso about the financial arrangements between them is important in this regard. If they had genuinely agreed that the income from letting the Property was to be retained by the company ‘with no recourse or accountability’ to Ms Cabo, then it might have been said that Top Holdings was acting on its own behalf, and not as agent for Ms Cabo when it entered into the permitted lettings …. But, having heard their evidence, the FTT was satisfied that Ms Cabo and Mr Grasso had not given a true account of what happened to the income from the Property and that Ms Cabo was the person ‘entitled to receive a rack rent’. The only conclusions which can be drawn from that finding are either that the ‘no accountability’ clause was a sham, which was never intended to be acted upon and which did not reflect the true bargain, or that it was subsequently agreed to deal with the letting income differently, and for Ms Cabo’s benefit. In either case, leaving the ‘no accountability’ clause out of the picture, nothing remains to contradict the express statement in the Management Agreement that Top Holdings was to ‘manage the Property on behalf of the First Party’.”

That did not mean that Top Holdings had not granted a tenancy to Ms Dezotti. The Deputy President noted that the decision of the House of Lords in Bruton v London & Quadrant Housing Trust [2000] 1 AC 406 establishes that “a company (or other person) with no proprietary interest in land can grant a tenancy of that land and can be a landlord”: see paragraph 65. In Bruton v London & Quadrant Housing Trust, Lord Hoffmann had explained at 415:

“the term ‘lease’ or ‘tenancy’ describes a relationship between two parties who are designated landlord and tenant. It is not concerned with the question of whether the agreement creates an estate or other proprietary interest which may be binding upon third parties. A lease may, and usually does, create a proprietary interest called a leasehold estate or, technically, a ‘term of years absolute.’ This will depend upon whether the landlord had an interest out of which he could grant it. Nemo dat quod non habet. But it is the fact that the agreement is a lease which creates the proprietary interest. It is putting the cart before the horse to say that whether the agreement is a lease depends upon whether it creates a proprietary interest.”

Accordingly, the Deputy President said, “Top Holdings could grant a tenancy to Ms Dezotti” and “that is what it did, although it tried to disguise the effect of the agreement by increasingly elaborate denials that a tenancy was being created”: see paragraph 67. The Deputy President thought it “likely that [Ms Dezotti] could additionally have made a claim against the company itself, because the contractual relationship of landlord and tenant also existed between them”, but it was not necessary to decide the point: see paragraph 82. What mattered was that Ms Dezotti was “entitled to make her claim for a rent repayment order against Ms Cabo, as her landlord”: see paragraph 82.

Mr Zane Malik KC, who appeared for Ms Cabo with Mr Asad Maqsood, argued that the Deputy President was not justified in finding Ms Cabo to have been an undisclosed principal and, hence, was wrong to conclude that Ms Cabo was Ms Dezotti’s immediate landlord for the purposes of the 2016 Act. Like the Deputy President, Mr Malik cited the summary of relevant principles to be found in Siu Yin Kwan v Eastern Insurance Co Ltd [1994] 2 AC 199 (“Siu”). At 207, Lord Lloyd, giving the judgment of the Privy Council, said:

“For present purposes the law can be summarised shortly. (1) An undisclosed principal may sue and be sued on a contract made by an agent on his behalf, acting within the scope of his actual authority. (2) In entering into the contract, the agent must intend to act on the principal’s behalf. (3) The agent of an undisclosed principal may also sue and be sued on the contract. (4) Any defence which the third party may have against the agent is available against his principal. (5) The terms of the contract may, expressly or by implication, exclude the principal’s right to sue, and his liability to be sued. The contract itself, or the circumstances surrounding the contract, may show that the agent is the true and only principal.”

Mr Malik relied on the first, second and fifth propositions. With regard to the first, Mr Malik pointed out that clause 7 of the Management Agreement stipulated that “any letting shall only be through Licence agreements permitting Holiday Lettings only, as specifically defined under the Housing Act 1988”. That being so, Mr Malik argued, the Management Agreement did not authorise Top Holdings to enter into anything but a holiday letting with Ms Dezotti, and the FTT made no finding to the effect that Top Holdings’ “actual authority” had extended more widely. Neither, Mr Malik said, had the FTT made any finding as to whether Top Holdings was intending to act for Ms Cabo when it entered into the Occupation Agreement. In any event, the terms of the Occupation Agreement were such as to exclude Ms Cabo’s right to sue and her liability to be sued. The terms of the Occupation Agreement and the surrounding circumstances show, Mr Malik submitted, that Top Holdings was the true and only principal.

In paragraph 75 of the FTT Decision, the FTT said that Ms Cabo “must be the landlord” of the Property because Top Holdings were “acting on behalf of” her. On its face, that would seem to imply that the FTT considered Top Holdings to have been acting with Ms Cabo’s authority when it entered into the Occupation Agreement.

It is fair to say that the FTT made this remark after stating that Top Holdings could not be a landlord as it had “no legal interest in the Property”, not in the context of a discussion about the implications of clause 7 of the Management Agreement. It seems clear, however, that Ms Cabo had not suggested that the part of clause 7 on which Mr Malik relied was of significance. Naturally enough, no transcript of Ms Cabo’s oral evidence to the FTT is available, and we have not seen, either, her witness statement for the FTT hearing. However, Mr Malik accepted that there had been no engagement in that witness statement with whether Top Holdings had acted outside the authority it had been given by Ms Cabo. In fact, far from pointing to the terms of clause 7 or otherwise suggesting that Top Holdings had entered into agreements such as the Occupation Agreement without her sanction, Ms Cabo’s position before the FTT appears to have been that she had left everything to Top Holdings. The FTT noted in paragraph 20 of the FTT Decision that Ms Cabo made “no comment as to whether [Top Holdings] was entitled to grant tenancies under the terms of the management agreement she had with them”. Elsewhere, the FTT explained that Ms Cabo had explained that she had left Top Holdings to deal with a notice which the council had sent “as Top Holdings had been managing” (paragraph 57); that, when asked why she had not applied for a licence, she had said that “Top Holdings was handling that issue and she did not have time for it, nor did she manage the Property” (paragraph 61); and that “[h]er idea was to have Top Holdings look after the Property” (paragraph 62). While, therefore, Ms Cabo denied having received any financial benefit from the agreements which Top Holdings had entered into with Ms Dezotti and others who had lived at the Property, she did not disavow the agreements.

On top of that, the FTT found that neither the Occupation Agreement nor the Management Agreement was a fully reliable guide to what was intended. The FTT explained that, contrary to what was said in the Occupation Agreement, the agreements with occupiers were not in fact intended to be short term lets and that the Occupation Agreement was “something of a sham”: see paragraph 18 above. Further, the FTT did not find the arrangement depicted in the Management Agreement to be credible: see paragraph 20 above.

It is noteworthy, too, that the possibility of Ms Cabo having a reasonable excuse under section 72(5) of the 2004 Act was “not specifically raised” by Ms Cabo and was anyway rejected. Had Top Holdings entered into the Occupation Agreement without Ms Cabo’s authority, she could have claimed to have a “reasonable excuse”, but she evidently did not do so.

It is true that, as Mr Malik pointed out, the FTT did not in so many words identify Ms Cabo as an “undisclosed principal” or explicitly find that Top Holdings had been authorised by her to enter into the Occupation Agreement notwithstanding what was said in the latter part of clause 7 of the Management Agreement. That it did not do so is, however, unsurprising given the course which the matter had taken before it. It evidently was not Ms Cabo’s position at that stage that Top Holdings had acted without her authority.

In all the circumstances, it seems to me that the Deputy President was justified in proceeding on the basis that Top Holdings had the requisite authority from Ms Cabo to enter into the Occupation Agreement.

The position is similar as regards the issue of whether Top Holdings was intending to act on Ms Cabo’s behalf when it entered into the Occupation Agreement. The Management Agreement explained that Top Holdings was not being granted any tenancy or licence in respect of the Property but was rather “proposing to manage the Property on behalf of [Ms Cabo]”, was to “manage the Property exclusively for [Ms Cabo]” and was to be “permitted to let the Property” (albeit, according to clause 7, “through Licence agreements permitting Holiday Lettings only”). Top Holdings thus communicated to Ms Cabo its intention to act on her behalf as regards the Property. Nor did Mr Grasso dispute that Top Holdings had been intending so to act when it entered into the Occupation Agreement. The FTT had evidence from him both by way of statement and orally. Neither the statement nor a transcript of the oral evidence is before us, but the FTT summarised Mr Grasso’s evidence in paragraphs 23, 24 and 41 to 54 of the FTT Decision. There was evidently no suggestion that Top Holdings had not seen itself as acting for Ms Cabo, let alone that it had communicated an intention to act otherwise than on her behalf, when it entered into the Occupation Agreement.

In Siu, Lord Lloyd noted that the contract which an agent has made with a third party “may, expressly or by implication, exclude the principal’s right to sue, and his liability to be sued”. Lord Lloyd explained at 207 that the law in this connection had been stated by Diplock LJ as follows in Teheran-Europe Co Ltd v S. T. Belton (Tractors) Ltd [1968] 2 QB 545, at 555:

“Where an agent has … actual authority and enters into a contract with another party intending to do so on behalf of his principal, it matters not whether he discloses to the other party the identity of his principal, or even that he is contracting on behalf of a principal at all, if the other party is willing or leads the agent to believe that he is willing to treat as a party to the contract anyone on whose behalf the agent may have been authorised to contract. In the case of an ordinary commercial contract such willingness of the other party may be assumed by the agent unless either the other party manifests his unwillingness or there are other circumstances which should lead the agent to realise that the other party was not so willing.”

An undisclosed principal was held not to be able to sue in Humble v Hunter (1848) 12 QB 310. There, the plaintiff’s son had executed a charterparty as “the owner of the good ship or vessel called the ‘Ann’” when the ship was in fact owned by the plaintiff. The Court concluded that evidence was not admissible to show that the son had contracted as his mother’s agent. Lord Denman CJ said at 315, “We were rather inclined at first to think that this case came within the doctrine that a principal may come in and take the benefit of a contract made by his agent. But that doctrine cannot be applied where the agent contracts as principal; and he has done so here by describing himself as ‘owner’ of the ship”.

Humble v Hunter was followed in Formby Brothers v Formby (1910) 102 LT 116 and Redebiaktiebolaget Argonaut v Hani [1918] 2 KB 247. All three cases have, however, been distinguished in a number of subsequent authorities. One such was Fred Drughorn Ltd v Rederiaktiebolaget Transatlantic [1919] AC 203, where Lord Shaw observed at 209 that “[t]he time may arise when the principles of [Humble v Hunter and Formby Brothers v Formby] may have to be reviewed in this House” and that he was “not prepared to be held as in any sense agreeing with the decision arrived at by Rowlatt J. in Rederiaktiebolaget Argonaut v. Hani”. In Epps v Rothnie [1945] KB 562, Scott LJ said of Humble v Hunter and Formby Brothers v Formby, at 565, “Both these cases have been discussed on many occasions and I venture to express the opinion that they can no longer be regarded as good law, a view which is, I think, justified by the observations made on them by Lord Sumner in Fred Drughorn, Ld. v. Rederiaktie-bolaget Trans-Atlantic”. In Siu, Lord Lloyd said at 209 that it was “unnecessary for their Lordships to decide to what extent, if at all, Humble v. Hunter (1848) 12 Q.B 310 and Formby Brothers v. Formby (1910) 102 L.T. 116 should still be regarded as good law”, but commented at 208-209 that “[i]f courts are too ready to construe written contracts as contradicting the right of an undisclosed principal to intervene, it would go far to destroy the beneficial assumption in commercial cases”.

The present case is closely analogous to Epps v Rothnie. There, a tenancy agreement had been made in the name of the plaintiff’s brother, described in the agreement as “the landlord”, although the house in question in fact belonged to the plaintiff. Scott LJ said at 565 that “the agreement was an ordinary agreement in writing and even if the plaintiff was compelled to rely on it, evidence would have been admissible on ordinary principles applicable to any contract in writing, to prove that the person signing it as a contracting party, was acting for an undisclosed principal”.

The principle that an undisclosed principal should not be able to sue, and should not be liable, on a contract which has expressly or impliedly excluded such a possibility makes very good sense. I do not think, however, that an intention to exclude the involvement of an undisclosed principal can be inferred from the mere fact that Top Holdings was described in the Occupation Agreement as “the Licensor”. The reference to the plaintiff’s brother as “the landlord” in Epps v Rothnie did not, in Scott LJ’s opinion, prevent the plaintiff from relying on the tenancy agreement; no more should the Occupation Agreement’s description of Top Holdings as “the Licensor” mean that Ms Cabo cannot be regarded as an undisclosed principal. Nor can I see anything else in the Occupation Agreement or the surrounding circumstances which could warrant the conclusion that Top Holdings was “the true and only principal” (to use words of Lord Lloyd in Siu). There is no reason to think that it would have mattered to Ms Dezotti whether she had Ms Cabo as a landlord.

I do not think, therefore, that Lord Lloyd’s fifth proposition is of any help to Ms Cabo in the present case.

In all the circumstances, it seems to me that the Deputy President was justified in concluding that Ms Cabo was an undisclosed principal and, hence, Ms Cabo’s “landlord” for the purposes of the 2016 Act. I would accordingly dismiss the appeal.

I should like, finally, to record that all the counsel who appeared before us were acting pro bono. The parties were very fortunate to have the benefit of such expert representation on that basis.