In our Legal Update sent in January 2020 (here), we reported on the Upper Tribunal’s (UT) decision in Goldsbrough v CA Property Management Ltd and others [2019] UKUT 311 (LC). In August this year (here), we also reported on Rakusen v Jepson & Ors v Safer Renting (Intervenor) (2021) EWCA Civ 1150. Both cases considered who the appropriate Respondent is to an application for a Rent Repayment Order (RRO) where a landlord has failed to properly license a property that is required to be licensed as a House in Multiple Occupation (HMO).

Today we focus on another important case Williams v Parmar & Ors (2021) UKUT 244 (LC), another RRO application, this time made by six former tenants of an unlicensed HMO.

Conditions at the property had meant the tenants asked the local authority to inspect. That resulted in:-

1. The tenants being informed the property was not licensed as an HMO,

2. A ‘Preliminary Improvement Notice’ listing a number of defects to be remedied by the landlord, and

3. A finding that one of the bedrooms was too small for the licensing scheme.

The landlord, self described as a ‘professional landlord’ with a ‘modest portfolio’ of properties, did apply for a licence in February 2020, shortly before the tenants left in March 2020, but the application was rejected because of the small room size (point 3 above) and the lack of completion of remedial works as required under the Preliminary Improvement Notice (point 2 above).

The tenants had applied to the First Tier Tribunal (FTT) for a rent repayment order in light of the above issues relating to the lack of licence. The FTT had made an award requiring 100% of rent, minus an amount for utilities costs (following the UT decision in Vadamalayan v Stewart and others (2020)) should be repaid to the tenant’s under the RRO.

 The Appeal

 The landlord appealed the FTT’s award on the following grounds:

1. The correct rental period was not applied by the FTT in calculating the amount of the RRO, and so the amount should be reduced (Ground A);

2. The amounts of the interest-only mortgage monthly payments paid by the landlord should have been deducted from the amount of the RRO, since an RRO should only reflect the profit made by the landlord from the commission of the relevant offence (Ground B);

3. The FTT had insufficient regard to the landlord’s financial circumstances and state of health in determining the amount of the RRO (Ground C).

The Upper Tribunal’s Findings  

 Ground C was not pursued and Ground A failed.

 Ground B was certain to fail as originally pleaded but turned into an argument “that the FTT had erred in its approach to quantifying the amount of the RRO by rejecting as irrelevant all factors other than those specified in s. 44(4).”

 The UT first had to consider if it should allow the appeal where the ground as originally pleaded had in essence morphed into something different by the time of the hearing. It was prepared to entertain the amended argument and found that the “tenants, with some assistance from the Tribunal, were able to participate fully in arguing the point, to the extent that, as non-lawyers, they were able to do so. They were fully able to make observations about whether the FTT had gone wrong in awarding them too high a figure. Their skeleton argument also ranged more widely than the narrow question of the interest-only mortgage repayments. I do not consider that they were disadvantaged by the fact that a ground of appeal had not spelt out the argument that the landlord advanced at the hearing. In those circumstances, I consider that it is just to allow the landlord to raise the point without notice and I grant permission for an amended Ground B to include the argument that I have summarised.”

The amended Ground B was successful! at the appeal too. The UT made a number of findings on the correct approach to assessing the amount of an RRO. We attach a copy of the full case report (here) and refer to paragraphs 39, 40, 41, 50 and 51 in particular, which show how the UT explained the correct approach to assessing the correct amount due as an RRO.

 The Upper Tribunal Decision

It was found that there was no bad conduct by the tenants. The landlord did not have any relevant previous convictions but she was, however, a (self proclaimed) professional landlord who must be taken to have known the requirements for licensing an HMO. The failure to apply for a licence was unexplained in evidence, save that the landlord said that she overlooked it.

There was nothing found by the UT in the landlord’s financial circumstances or her conduct to justify reducing the amount of the RRO. Furthermore, the landlord only applied for an HMO licence after an environmental health officer had visited the property and itemised deficiencies and the absence of a licence.

Had the landlord applied for one, the property would not have successfully obtained a licence in any event without further substantial works, and the landlord’s February 2020 application was refused because the previously notified and required works had not been undertaken.

The conclusion was that the landlord wanted to be able to obtain rental income from the property before she was in a position to do the further works that were necessary to enable her to obtain an HMO licence. There were serious deficiencies in the condition of the property, which affected all the tenants.

 The UT held that these circumstances were an example of ‘the kind of evaluative exercise that the tribunal needs to conduct when making an RRO in a case where the maximum amount provisions do not apply’. This was also ‘a reasonably serious offence of its kind, though not the most serious case that could be imagined.’ 

The UT made an award of 80% of rent (less the utilities figures) for each tenant, except the tenant of the undersize room who had been particularly affected and who received an award of 90% of rent. The UT commented that “where the unlicensed house has serious deficiencies and the landlord is a professional landlord, more substantial reductions would be appropriate, even for a first-time offender.”

 Final Thoughts

This case presents a new set of problems for RRO applications and it is expected that there will be a lot of different FTT decisions to come, together with many appeals.

As mentioned in our January 2020 Legal Update and as this case shows, owners and landlords of properties should exercise great care when entering into and dealing with rent-to-rent or guaranteed rent arrangements. If you require any guidance then please follow our all important Golden Rule from our June 2018 and February 2019 Legal Updates:

 The Golden Rule

 If in doubt - ask the lawyer first and only then act!

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