In our Legal Update sent in January this year (here), we reported on the Upper Tribunal’s decision in Goldsbrough v CA Property Management Ltd and others [2019] UKUT 311 (LC), which considered who the appropriate Respondent is to an application for a Rent Repayment Order (RRO), for a failure to license a property which is required to be licensed as a House in Multiple Occupation (HMO). The Upper Tribunal found earlier that the application could be pursued both against the immediate landlord as well as the freeholder/any superior landlord(s), in a ‘rent-to-rent’ arrangement, so long as both parties had committed an offence under the relevant legislation. The issue has now been revisited by the Court of Appeal in the recent case of Rakusen v Jepson & Ors v Safer Renting (Intervenor) (2021) EWCA Civ 1150, giving the final say on matters.

The facts

Mr Rakusen held the long-lease of a flat in Finchley Road. In 2016 he granted a tenancy to Kensington Property Investment Group Ltd (KPIG), who were introduced to him through his letting agents, Hamptons, for a term of 36 months less 1 day. In turn, KPIG let out separately the various rooms in the flat to various individuals, including Mr Jepson and the other applicants. It was accepted that the flat was an HMO that required licensing. It does not appear that any such application was ever made to the Local Authority for such a license. KPIG’s tenancy was not renewed after the end of the fixed term.

In September 2019, Mr Jepson and others applied to the FTT for an RRO exceeding £26,000 against Mr Rakusen, for being "in control or management of an unlicensed HMO". Mr Rakusen applied to strike out the application, on the basis that an RRO could only be made against the immediate landlord (KPIG). Mr Rakusen's evidence was that he only became aware of the agreements entered into by KPIG after the applications for RROs were made. He denied committing an offence, claiming he was not a person having control of the HMO or a person managing it. In the alternative, he claimed to have had a reasonable excuse for having control or management of an unlicensed HMO. The FTT refused to strike out the application against Mr Rakusen, as it was bound by the Upper Tribunal’s decision in Goldsbrough, e.g. that an RRO could be made against a superior landlord and not just the immediate landlord. Mr Rakusen unsuccessfully appealed to the Upper Tribunal, and then appealed to the Court of Appeal.

The Court of Appeal’s decision

By contrast to the Upper Tribunal’s earlier decision and the decision in Goldsbrough, the Court of Appeal decided that the correct Respondent to an application for an RRO is the tenant’s immediate landlord.

The Court of Appeal agreed with Mr Jepson and Safer Renting (the interested group joined as intervener in the proceedings) that the relevant provisions in the Housing and Planning Act 2016 were aimed at combatting a “significant social evil” and that the Courts should interpret the statute with that in mind. The Court also accepted that the policy of requiring landlords to “comply with their obligations or leave the sector” was one that a legislator could well regard as applicable to superior landlords as well as immediate landlords. But, nonetheless, that was a policy only to be implemented to the extent provided for by the language in the 2016 Act.

Taking account of the wording of the relevant provisions in Section 40 of the Housing and Planning Act 2016, the Court decided that the references to ‘landlord’ must refer to the landlord under the same tenancy held by the tenant. That could not possibly include the superior landlord(s), but only the immediate landlord to the tenant making the application. The Court found that “the language used connotes a direct relationship of landlord and tenant”.

Although offences can be committed by superior landlord(s) for a failure to ensure the licensable property held an HMO license, section 40(2)(a) of the 2016 Act did not go further to say that RROs can be made against any person who commits one of the specified offences.

As a result, the application for an RRO against Mr Rakusen was struck out (he not being the immediate landlord of Mr Jepson and others) .

Conclusion

For now this is the final say on the matter (unless there is a further appeal). It is certainly a logical decision, although one can see arguments on both sides. It is of course the immediate landlord who has received the rents from the tenant, and the freeholder or superior landlord may have little control or knowledge of the precise circumstances of any underletting, or the creation of an HMO which requires licensing. However, that is not to say that they shouldn’t be aware of what is happening with their properties. Plus, freeholders or other superior landlord(s) will nonetheless have benefitted financially from the underletting by taking a rent from the immediate landlord in a ‘rent-to-rent’ arrangement.

Either way, there is some concern that the decision removes a layer of protection or safeguard for tenants in terms of actually recovering any sums awarded by an RRO. Often in a ‘rent-to-rent’ arrangement the immediate landlord who arranges the underlettings will be a shelf company with little or no assets against which a tenant could enforce any RRO awarded, by contrast to any freeholder or superior landlord who has an asset in the property that could be pursued. By removing the ability of the tenants to pursue the party with known assets (or ‘the deepest pockets’) in such scenarios, tenants are potentially put at a disadvantage and possibly discouraged from making applications for an RRO, if they will never actually see any of their rents re-paid. That is obviously not always going to be the case and each case will need to be assessed on its merits and in the specific context of the immediate landlord in question, but tenants will need to make a risk verses benefit analysis in terms of the costs involved in making the application and any actual financial return.

If you have any queries whatsoever, please get in touch with a member of the team on 01435 897297 or info@kdllaw.com.

Disclaimer

This legal update is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of KDL Law or by KDL Law as a whole.

If you have received this update in error or wish to unsubscribe from future updates then please email us at info@kdllaw.com.