Repaying Rent

This week the Supreme Court handed down judgement in the case of Rakusen v Jepsen. JMW Solicitors intervened in this case on behalf of the National Residential Landlords’ Association.

Background

Where a landlord is required to have a property licence under the Housing Act 2004 and does not then they are liable for prosecution or for a civil penalty from the local authority. So are letting agents who have collected the rent and also superior landlords subject to certain limitations. There is a further penalty, which is intended to ensure that no landlord can let a property out without the proper licences and just discount the penalties due to the profits they are making. This is the Rent Repayment Order (RRO). A RRO allows a tenant to claim up to 12 months rent from their landlord although they rarely get anywhere near that much. It also allows a local authority to reclaim housing benefit or the housing component of Universal Credit. However, such a claim cannot be made against an agent.

What is (or was) uncertain was whether a RRO could only be made against a tenant’s immediate landlord or whether they could seek a RRO against a superior landlord despite their being no direct agreement between them.

Rent to Rent

A lot of this pressure comes from the Rent to Rent sector. This is growing and appears to be growing fastest in the more questionable and lower quality parts of the Private Rented Sector (PRS). It was suggested in the Supreme Court that some superior landlords deliberately create companies and rent to them in order to evade RROs by simply dissolving the company when an order is sought, in other cases the superior landlord is not involved but the rent to rent company is dissolved by its controllers in order to avoid a RRO.

The Legislation

In England, RROs were originally created under the Housing Act 2004. AT that time they were only useable where a landlord had been prosecuted or a local authority had obtained an RRO and so there was a substantial limit on their use. The provisions were re-enacted under the Housing and Planning Act 2016 with them being made applicable to more situations and also obtainable by tenants without prior prosecution. Given the very mixed enforcement picture from local authorities this has meant that RROs have become a key mechanism for enforcement in the PRS, helped by a growing number of organisations that exist to help tenants make those claims, usually taking a cut of the winnings as their fee.

However, the amended wording of the 2016 Act suggested that an RRO could not just be sought against the tenant’s immediate landlord but against any landlord of the property.

The Case

In this case Mr Rakusen (R) had rented his property to Kensington Property Investment Group (KPIG). They had sublet it as an HMO. No licence had been obtained. The sub-tenants sought a RRO against R on the basis that KPIG and R applied for this claim to be struck out on the basis that a RRO could only be sought against an immediate landlord. The First Tier Tribunal was bound by an earlier decision of the Upper Tribunal and so could not strike out the RRO against R but they allowed an appeal on the basis that they thought the previous Upper Tribunal was wrong. The Upper Tribunal said that on a first look it seemed clear that a RRO could not be made against a superior landlord but that on a deeper consideration they felt that the statutory language did allow for such an order to be made. The UT was swayed by the fact that a number of the new offences which an RRO was capable of being made for could be committed by superior landlords and so it made sense that such an order could be made against them.

The matter then proceeded to the Court of Appeal. They reversed the position of the UT holding that the language of the 2016 Act did not allow a RRO to be made against a superior landlord.

Supreme Court

So the position as the matter arrived before the Supreme Court was that a RRO could not be made against a superior landlord. It was something of a surprise that the Supreme Court accepted the case as they had turned down the appeal in the gas safety/s21 case of Trecarrel v Rouncefield not long before but the different answers at each lower level was probably persuasive. The case had also collected two intervenors who wanted to make wider points relating to the effect of RROs and this case on the wider PRS- Safer Renting (who had intervened in the Court of Appeal) and the NRLA (who I acted for).

The Supreme Court ultimately took the view that the wording of the 2016 Act, when read as a whole did not allow for a RRO to be made against a superior landlord. They were presented with a lot of other argument relating to statutory interpretation but the primary mechanism is to look at the language of the statute and having held that this was unambiguous then the Supreme Court dismissed the additional points as being largely irrelevant. The argument that the language used the words “a landlord” which implied an RRO could be made against any landlord associated with a property as opposed to the specific immediate landlord was not accepted as the SC said the entire section had to be read together and in context.

So, the summary is that a RRO can only be made on application by a tenant against their immediate landlord.

For some, this is a bit of a waste in that the amount of money was quote small (just over £20,000) and it was largely an argument over the meaning of a word. But in a common law justice system these points must be resolved by the courts and the outcome of this case would have affected many more landlords and tenants. Criticism should be reserved for Parliament for writing the legislation badly to begin with.

Next Steps

This might be thought to be the end of the matter. However, it is not. The SC had argued before it a more moral argument based on the fact that landlords were being claimed to manipulate company status to avoid RROs. The SC refused to engage in this argument and said this was a matter for Parliament to deal with. However, the Renter’s Reform Bill is expected back before Parliament, possibly this month. If the government does not change things on the face of the Bill it is likely that one or more amendments will be laid to make changes to the legislation to change the decision of the Supreme Court. Therefore this decision may not in fact stand for long.