“Rent to Rent” tenancies - The Supreme Court confirm in Rakusen v. Jepsen that Superior Landlords are not liable for Rent Repayment Orders
3rd March 2023
3rd March 2023
We have previously provided insight into the interpretation of the Housing and Planning Act 2016 (the 2016 Act) in relation to Rent Repayment Orders (RRO). For more details, and a greater understanding of the issues prior to reading this update, see our earlier Legal Updates entitled Rent Repayment Orders - Who is liable? and Rent Repayment Orders - How much rent?
Rent Repayment Orders - what is their purpose?
The jurisdiction to make RROs is conferred to the First Tier Tribunal. A tenant can apply to the FTT for an RRO and, where relevant conditions are satisfied, the FTT may require a landlord to repay an amount of rent paid by a tenant where the landlord has committed one or more of a list of seven housing-related offences including:-
Using or threatening violence for securing entry into premises (s.6 Criminal Law Act 1977)
Illegal eviction or harassment (s.1 Protection from Eviction Act 1977)
Failure to comply with improvement notice (s.30 Housing Act 2004)
Failure to comply with prohibition order (s.32 Housing Act 2004)
Breach of banning order (s.21 Housing and Planning Act 2016)
Having control of, or managing, an unlicensed property (s.95 Housing Act 2004)
Having control of, or managing, an unlicensed HMO (s.72 Housing Act 2004)
We focus in this Legal Update on the Supreme Court’s decision this week in Rakusen -v- Jepson & others  UKSC 9 on the responsible party where there is unlicensed HMO.
RROs are a sanction against rogue landlords. The aim is to encourage landlords to comply with the law and to drive them out of the market if they do not. They were originally introduced in relation to the non-licensing of houses in multiple occupation by the Housing Act 2004 (the 2004 Act) but are now governed in England (but not Wales) by Chapter 4 of Part 2 of the Housing and Planning Act 2016.
The background of this case, in brief, is that Mr Rakusen held the long-lease of a flat in Mandeville Court, 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 entered into separate written agreements with various individuals, including Mr Jepsen and the other appellants, each of whom was granted the right to occupy one room in the flat. The documents were described as licence agreements (as distinct from tenancies) and made provision for the payment of a licence fee.
It was accepted during the proceedings that the flat was an HMO and that required licensing. It does not appear that an application was ever made to the Local Authority for such a license. KPIG’s tenancy was not renewed after the end of the initial 36 month fixed term.
In September 2019, Mr Jepsen and others applied to the FTT for an RRO of £26,140 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 insofar as he was unaware of its existence.
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 to the Court of Appeal. The Court of Appeal allowed Mr Rakusen’s appeal, holding that a Rent Repayment Order could not be made against a superior landlord.
The appellants were not satisfied with the decision of the Court of Appeal and lodged an appeal with the Supreme Court. The appeal was heard on 26 January 2023, and Judgment given on 1 March 2023.
The Supreme Court Judgment
The decision of the Supreme Court was that an RRO cannot be made against a superior landlord and can only be made against the immediate landlord of the tenancy that generates the relevant rent, in this case KPIG and not Mr Rakusen.
In reaching their decision, they gave detailed consideration of the factual background of the case, the 2016 Act, the 2004 Act and the pre-legislative materials. It was the Supreme Court’s view that the answer lay in the interpretation of the words in section 40(2) of the 2016 Act as follows:
(2) A rent repayment order is an order requiring the landlord under a tenancy of housing in England to -
(a) repay an amount of rent paid by a tenant, or
(b) pay a local housing authority an amount in respect of a relevant award of universal credit paid (to any person) in respect of rent under the tenancy.
It was the view of the Supreme Court that RROs can only be made against landlords (and not, for instance, property agents who receive the rent on behalf of the landlord). It seems that the purpose was to restrict Rent Repayment Orders to those who directly benefit from the payment of rent. For the implementation of that policy it is entirely rational to confine RROs to those to whom rent is directly paid and that means the immediate landlord only. It would therefore be unnatural to interpret section 40(2) as referring to any landlord other than the landlord of the tenancy which generates the rent of which repayment is sought.
In addition to the focus on section 40(2) of the 2016 Act, it was noted that section 40(3) of the 2016 Act, went further at Section 1(3A) where the word “landlord” was extended to include “any superior landlord”. There is no equivalent provision in relation to the meaning of landlord in the context of defining an RRO. The Supreme Court Judges considered that it would have been a simple matter to include such a definition and the omission to do so may be regarded as carrying with it the inference that an extended meaning of “landlord” is not applicable in relation to an RRO.
Pre-legislative material was reviewed and found to be consistent with the interpretation set out above.
In reaching its decision, the Supreme Court acknowledged that it made RROs less effective against rogue landlords but noted that there is a range of other sanctions available to combat rogue landlords including fines, civil penalties and banning orders. Ultimately, it is a matter for Parliament to decide whether these are sufficient or if they should be amended.
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This Legal Update describes the position in law as at the date of this article and care should be taken to note any subsequent amendments to the position as set out above. The 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.
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