A landlord may face liability under a Rent Repayment Order (“RRO“) as a consequence of failing to licence a property which is required to be licensed as a House in Multiple Occupation (“HMO”) or where the local housing authority has implemented a selective licensing regime. If landlords fail to secure the required licence, they may be liable to repay rent received as compensation to the tenant, during the unlicensed period, as a result of letting the property illegally.

A tenant can make an application to the First Tier Tribunal Property Chamber (Residential Property) (“the Tribunal”) for the repayment of rent. The RRO can be sought if the property in relation to which the application relates was let to the tenant and an offence listed at section 40(3) of the Housing and Planning Act 2016 (“the Act”) has been committed. The amount of an RRO must relate to rent or benefits paid in respect of a period not exceeding 12 months during which the landlord was committing the offence or, if the offence was harassment, illegal eviction or violence for securing entry into premises, 12 months ending with the date of the offence.

An increasingly worrying question with the variety of guaranteed rent schemes or rent to rent arrangements available, is against whom should the tenant bring the application?

The Housing and Planning Act 2016

Under section 40(1) of the Act the Tribunal has the power to make an RRO where a landlord has committed an offence to which Chapter 4 of the Act applies. The Act does not define the term “landlord”, but one would reasonably assume that that company or individual is identified on the tenancy/licence agreement - or perhaps not! The recent decision in Goldsbrough v CA Property Management Ltd and others [2019] UKUT 311 (LC) has highlighted that the above assumption is not always correct.

The case of Goldsbrough v CA Property Management Ltd and others [2019]

The freeholders of the property had entered a rent-to-rent type arrangement with CA Property Management Ltd (“the Company”). Under the terms of this arrangement, the freeholders had granted a lease for five years to the Company, but the freeholders remained responsible for several management tasks in relation to the property, such as insuring the property, maintenance of the external and internal structure, and obtaining gas safety, electrical and EPC certificates. In return, the Company was free to sublet the property as residential accommodation.

The property was a 2 bedroom flat that had been converted to provide a total of 5 bedrooms. It was let under an assured shorthold tenancy (AST) to Mr Goldsbrough and Mr Swart (“the Tenants”). However, no licence for a house in multiple occupation (HMO) had been obtained in relation to the property. Under section 72(1) of the Housing Act 2004, a person in control of or managing an unlicensed HMO is the party that commits the criminal offence. Section 40(3) of the Housing and Planning Act 2016 specifies that this is one of the offences which allows a tenant to make an RRO application at the Tribunal.

The Tenants brought an application at the Tribunal against both the Company and the freeholders. The application was brought against the freeholders as the landlord of the Tenants on the grounds of being in occupation and control of an unlicensed HMO. The application was made against the Company as agent, based on grounds of harassment and illegal eviction.

The First Tier Tribunal held that the Respondent in both applications should be the Company as the immediate landlord and not the freeholders. However, the Tenants were not happy with this decision and appealed it to the Upper Tribunal Lands Chamber (“UT”).

The UT decision

The UT did not consider whether an offence had been committed in this case, but instead focused on who the Respondent in the claim should be in RRO applications.

The UT held that the Act does not say that the person who committed the offence must be the immediate landlord of the occupier. The Act only states that an RRO can be made against a landlord who has committed one of the offences under Chapter 4. Therefore, the landlord does not need to be the immediate landlord of the tenants and a freeholder/owner can be the landlord. In the case of Goldsbrough, the UT held that both the Company and the freeholders were landlords and remitted the case back to the Tribunal for a decision on whether an offence had been committed.

The effect of the decision

The UT decision has created a potentially confusing situation where the applicant has more than one person against whom they can apply for an order. Tenants must now consider listing several potential Respondents as ‘the landlord’ in their application form and the Tribunal must consider making an RRO against any landlord provided that they have committed the offence.

The UT did not provide any instructions about whether to make the order against both landlords, or whether, and if so, how to choose between multiple landlords. In the recent First Tier Tribunal case of Sergei Liski v Smart Rent Limited & Amarjit Singh Gill more than one Respondent was listed but the applicants did not give any reasons for preferring one Respondent over another. In that case the Tribunal decided to make an RRO against the First Respondent, the tenant’s immediate landlord, who it considered to be the appropriate person to make the order against.

Final thoughts

There are some important lessons to be learnt here:

1. Great care is needed when entering into a rent-to-rent or rent guarantee arrangement;

2. Legally the arrangement is complex and requires a watertight commercial contract – an AST simply will not suffice;

3. Each party should seek legal advice as to potential and continuing liabilities (over which control might be limited) prior to signing any sub-letting agreement;

4. Make sure the property is properly licensed and meets all the regulatory requirements for the intended use;

Freehold owners and landlords of properties should exercise great care when entering into rent-to-rent or guaranteed rent arrangements and be aware that they might find themselves directly liable to tenants for an RRO.

Disclaimer

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