In Rakusen (Respondent) v Jepsen and others (Appellants)  UKSC 9, the Supreme Court has found that Rent Repayment Orders ("RROs") can only be made against immediate landlords. This departs from tribunal decisions which found that an RRO could be made against a superior landlord as well as an immediate landlord.
This case was followed with interest by landlords using the rent-to-rent model, with the National Residential Landlords Association getting permission to put in written submissions. The court was clear that, notwithstanding its judgment, there were still plenty of ways to ensure that superior landlords could be held to account if hiding behind shell companies in rent-to-rent schemes which treated residential tenants poorly. If necessary, Parliament could legislate further to address superior landlords directly.
- The governing legislation is now Chapter 4, Part 2, Housing and Planning Act 2016 ("the 2016 Act").
- Section 40 of the 2016 Act gives the First-tier Tribunal jurisdiction to make an RRO against "the landlord under a tenancy of housing".
- An RRO is an order requiring a landlord to pay an amount of rent paid by a tenant, or paid by a local authority in respect of universal credit awarded in respect of rent, where the landlord has committed one of more of certain housing-related offences.
- Seven sets of offences can give rise to an RRO being made against a landlord. One such offence is control or management of an unlicensed House in Multiple Occupation ("HMO"). Other offences include eviction of occupiers in breach of the Protection from Eviction Act 1977, or failure to comply with an improvement notice.
- The maximum payable under an RRO cannot exceed the rent paid during a 12-month period.
Mr Rakusen and Ms Field, the long leaseholders of a flat in Finchley Road, London, granted a tenancy to 'Kensington Property Investment Group Ltd ("KPIG"). The tenancy was for a term of 36 months less a day, and gave KPIG the ability to "sublet each unit individually or the whole as part of the day to day management of their business". In turn, KPIG let the individual rooms in the flat to the appellants via individual licence agreements. This amounted to an HMO, and an HMO licence should have been sought from the local authority. No licence was ever granted.
The appellants sought an RRO against both their immediate landlord, KPIG, and the long leaseholders of the flat, on the grounds that the HMO did not have the required licence. They argued that both the long leaseholder and KPIG were landlords "under a tenancy of housing", so were both liable.
The Upper Tribunal also agreed with this interpretation of the 2016 Act, noting that a superior landlord could also commit the offences for which RROs could be made. If RROs could only be made against the immediate landlord, this penalty could be easy to avoid by granting a short-term tenancy to an insubstantial intermediary which would then sub-let.
However, the Court of Appeal departed from the tribunal's view, finding that the language used in Section 40(2) connoted a direct relationship of landlord and tenant. This did not catch superior landlords. The case proceeded to the Supreme Court.
The Supreme Court agreed with the Court of Appeal. A straightforward interpretation of the words in the 2016 Act was needed, using ordinary and generally understood meanings. On that basis, "landlord under a tenancy of housing" plainly indicated the immediate landlord only. Therefore:
- An RRO cannot be made against a superior landlord;
- RROs can only be made against the immediate landlord under the tenancy which generates the relevant rent; and
- Rogue landlords operating rent-to-rent schemes were a major concern and on the Supreme Court's finding can now avoid RROs. Although the offences giving rise to RROs can be committed by the superior landlord, there are sanctions available under the criminal law, through civil penalties under the Housing Act 2004. Furthermore, directors of any straw company established to shield liability from an RRO could be at risk of liability for wrongful trading under section 214 Insolvency Act 1986.
To discuss any of the points raised in this article, please contact real estate litigators Martin Thomas or Senay Nihat.