[Stop Press!! – Rakusen v. Jepsen has now been overturned on appeal. So tenants can only claim a RRO against their immediate landlord now. 29/7/2021]
Rent repayment orders are all in the legal news nowadays as tenants wake up to the fact that they may be able to reclaim 1 year’s worth of rent.
Lots of tenants are now bringing claims and securing large awards.
Landlords are outraged about this, but the answer is clear – always make sure you are compliant with the rules. Landlords who are 100% compliant have 100% protection.
But what if you can avoid personal liability by
- Owning the property through a limited company, or
- Subletting the property to a ‘rent to rent’ tenant?
These are tactics often used by the criminal landlord sector (a minor but unpleasantly real part of the Private Rented Sector landscape). Judges are aware of this however and are interpreting the law against landlords who do this (which will also catch out genuine honest landlords).
There have been quite a few cases on RROs recently which bring news, both good and bad, for landlords and property owners.
The bad news
Insofar as owning a property through a limited company, the Judge in the First Tier Tribunal case here re 49 Russell Hill Road, was of the option that a director could not be personally liable. This does not mean though that in an appropriate case, an order couldn’t be made against a director. You are not wholly safe.
However, the case of Rakusen v. Jepson (which is being appealed) found that a property owner could be liable for a Rent Repayment Order where the property had been sublet to a ‘rent to rent’ tenant. [Since this article was first published, this decision has been overturned on appeal but is likely to go to the Supreme Court – so watch this space].
So property owners need to be VERY CAREFUL about ‘rent to rent’ and always take advice before entering into such an agreement. Check the tenancy agreement VERY CAREFULLY too – as that is often where the problems and traps for property owners lie.
The good news
Often landlords try to defend RRO claims on the basis that they have a reasonable excuse – usually this is that they did not know that they were subject to licensing.
Normally this excuse does not work but in one case it did. This was the case of D’Costa v D’Andrea & Ors where Ms D’Costa, the landlord, told the court that a Council Officer, Mr Hempstead, had promised her that the Council would let her know if her property became subject to licensing.
She was therefore outraged to find later the Council acting for her tenants in bringing a claim for a RRO on the basis that she had not obtained a license. The Council also refused to produce the correspondence between Ms D’Costa and Mr Hempstead. As a result of this the Court held that she DID have a reasonable excuse, the Judge saying:
It is difficult to understand why a landlord would not have the defence of reasonable excuse to the offence created by section 72(1) of the 2004 Act where he or she has been told by a local authority employee that their property does not need an HMO licence and that they will be told if that situation changes, and I find that Ms D’Costa had that defence. She therefore did not commit the offence and no rent repayment order can be made against her.
Mind you, this decision will probably be confined to situations where the Local Authority conduct the case for tenants after telling the landlord that they will let her know if she needs to get a license. As the Judge said:
If the local authority chooses to enter the fray it should take pains to do so in a way that is fair to all parties.
If you want to read more about this case there is an excellent post (and comments) on Nearly Legal here.
Another case that brings some good news for landlords is Awan v. Hooley where the tenants claimed for an RRO when they had not paid their rent. When the tribunal made the award, they deducted the arrears outstanding and made a further 75% deduction based on the tenant’s behaviour.
An appeal was dismissed, with the Upper Tribunal saying that although a ‘full rent’ award was the starting point for making awards, that did not mean it was the ‘default position’.
Landlords really do need to get their act together and ensure that they are compliant with all the rules. Tenants can apply for RROs for a number of reasons but by far the most common is failure to obtain an HMO license.
If you rent to five or more sharers who do not form one family and do not have an HMO license (and your property is in England – laws in Wales are a bit different) you will be in breach NOW and could be sued. So contact your Council and get your application in ASAP.
It’s also worth contacting your council anyway to check whether there are any additional licensing requirements for your area. Sometimes you need to get a license even if your property is not subject to mandatory licensing, so its always worth checking. The penalties, if you are in breach, could be very expensive indeed.
Landlords who are unsure of the rules will find a huge amount of help and support on my Landlord Law service including several training courses on HMOs (including guidance on applying for HMO licenses) which come as part of your (Business Level) membership.
Landlords whose tenants bring a claim against them can get advice via our RRO Telephone Hotline service (with Anthony Gold solicitors) which can be found on this page.