How Proceeds of Crime legislation is important to property investors and developers

Posted by Mark Brassey on
Proceeds of crime is not a topic that you would expect to read about in a property context. The phrase conjures up images of drug dealers, fast cars and money laundering, but surprisingly the Proceeds of Crime Act 2002 can apply in a property context. Local authorities can and do rely upon this legislation to penalise breaches of the planning rules, with catastrophic consequences for property owners.

The 2009 Amendment Order extended the confiscation regime to local authorities, allowing them to use enforcement powers once a defendant had been prosecuted. The objective of the confiscation regime is to deprive a criminal of his ill gotten gains and to act as a deterrent to other potential criminals. Despite its name, the regime does not actually confiscate assets but focuses on the value of the defendant's benefit from his crime.

This regime has been used to target property investors and developers who have failed to comply with enforcement notices for breaches of planning laws. The benefit of the crime, which in a property context would usually be the rent received or increase in value, must be more than £5,000, a very low threshold.

Once a local authority proceeds with an application for a confiscation order, the Crown Court will determine the defendant's benefit from his criminality, rather than his profit, and the value of the defendant's assets. It will then make a confiscation order in the lesser of the two sums

The leading case on the question of "benefit" in this context is R v Del Basso 2010 (EWCA Crim 1119)

In the confiscation proceedings an order was made in the sum of £760,000. The defendants appealed on a number of grounds but most importantly to determine whether the benefit was to be the gross or net proceeds after expenses. The court determined that the benefit was the total value of the advantage gained. This means that the court will not (necessarily) take account of any expenses. It is worth noting that Lord Justice Jackson commented in the 2013 case of R v Harvey (1 WLR 124 (CA)) that the final decision in Del Basso does seem excessively harsh and may arguably be characterised as disproportionate.

Three recent cases are good examples of the approach taken by local authorities and the orders made by the court:

  1. In September 2012 the London Borough of Brent obtained a confiscation order of £1.438m against a landlord who converted a house into 12 flats without planning consent. This is believed to be the highest confiscation order granted so far for breach of a planning requirement.
  2. In June 2013 the London Borough of Brent obtained a confiscation order of £494,314 against a landlord who had been using a property as two or more flats when the property had planning for retail and one flat. On appeal in 2014, the Court of Appeal concluded that although the judgment was severe it was justifiably so and they declined to quash it as being manifestly excessive. The appeals were dismissed.
  3. More recently, in September 2014, Lambeth Council secured a £143,135 confiscation order against a property developer who rented out a property as flats despite being turned down for planning permission. The Council indicated that they hoped this result would discourage others from flouting the planning rules, and in the current economic climate it would not be surprising if local authorities use confiscation proceedings more regularly as a means by which they can raise revenue.

In summary the key points to remember are that:

  • Proceeds of crime legislation does apply in a property context, especially in relation to planning. If you are served with an enforcement notice you should be aware of the consequences of failing to comply. Do not ignore such a notice; take legal advice.
  • The Act applies specifically to the benefit of proceeds of crime in excess of £5,000 and so it is not a high threshold.
  • Benefit means all of the benefit from the crime so gross not net income if rent is applicable. The costs of an unauthorised business cannot be deducted.
  • The prospects are that confiscation orders are more likely in the current economic climate.

 

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With over 18 years' experience, Mark advises clients on all aspects of commercial and residential property litigation.

Mark Brassey
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