HMO: Rent repayment orders and exceptional circumstances

A landlord in control of a house in multiple occupation is responsible for ensuring that the HMO is licensed if so required. Failure to do so is a criminal offence under section 72(1) of the Housing Act 2004. Under the Housing and Planning Act 2016, a local housing authority can ask the First-tier Tribunal to make a rent repayment order against a landlord who is convicted of such an offence. Pursuant to section 45 of the 2016 Act, the FTT can order a landlord to repay the amount of any universal credit received in respect of rent under the tenancy for a period not exceeding 12 months during which the offence was committed. Under section 46 of the 2016 Act, the FTT must order the landlord to repay the full amount unless “exceptional circumstances” exist. In Ball v Sefton Metropolitan Borough Council [2021] UKUT 42 (LC), the Upper Tribunal (Lands Chamber) underscored that the threshold for exceptional circumstances was high. Further, only the FTT had jurisdiction to assess whether the threshold had been met. The UT could only interfere in such an assessment if the FTT had misdirected itself in law or failed to take a relevant matter into consideration. Ball was the landlady of the Cresta Hotel, Southport. Although described as a hotel, the property was classed as an HMO under Part 2 of the 2004 Act. It was three storeys tall and contained five bedrooms with shared facilities for rent by individuals who were not members of the same household. The majority of Ball’s tenants were referrals from Sefton Metropolitan Borough Council’s homelessness services. Ball received rent from these tenants through direct payments of universal credit. In August 2018 the council inspected the property and determined that it was an HMO. In May 2019 Ball was convicted of being in control of an unlicensed HMO contrary to section 72(1) of the 2004 Act. In June 2019 the council informed Ball of its intention to apply to the FTT for a rent repayment order. Ball argued that she believed she was exempt from any regulatory requirements because her use of the property to house individuals in need of emergency accommodation had been sanctioned by the council. The FTT ordered Ball to repay the full amount of universal credit received for the relevant 12-month period. It found that the circumstances of Ball’s case were not exceptional so as to merit any reduction being made. Ball appealed. She argued that the FTT had failed to consider the council’s actions in referring tenants to her. Secondly, it had failed to deduct the utility costs that she had incurred in running the property in accordance with Vadamalayan v Stewart [2020] UKUT 183 (LC); [2020] PLSCS 189. The UT dismissed the appeal. The fact that the council directed tenants to Ball’s establishment did not precluded her from having to comply with her legal obligations or exempt her from enforcement action in the face of a breach. The UT observed that it was parliament’s intention that as a matter of public policy universal credit should be repaid by a landlord who failed to licence an HMO. An important takeaway from this case for both landlords and practitioners was that the UT found that section 46(5) of the 2016 Act did not preclude the FTT from taking into account a landlord’s financial position when considering whether the exceptional circumstances threshold had been met. Vadamalayan was not applicable in circumstances where the landlord was convicted of an offence by virtue of section 46(1) of the 2016 Act. Elizabeth Dwomoh is a barrister at Lamb Chambers