HMO: basis of calculation for a rent repayment order

In Vadamalayan v Stewart [2020] UKUT 183 (LC); [2020] PLSCS 189, the Upper Tribunal (Lands Chamber) (UT) held that Parker v Waller [2012] UKUT 301 (LC); [2012] PLSCS 266 must not be followed by the First-tier Tribunal (FTT) when making a rent repayment order (RRO) under section 40 of the Housing Planning Act 2016 (the 2016 Act). The UT has firmly reiterated this position in Chan v Bilkhu and another [2020] UKUT 289 (LC); [2020] PLSCS 190. It is an offence under section 72(1) of the Housing Act 2004 (the 2004 Act) for a person having control of or managing a house in multiple occupation (HMO) to fail to license it if so required. The FTT has power under sections 40 and 43 of the 2016 Act to make an RRO against the landlord upon the application by the tenant, if it is satisfied beyond a reasonable doubt that an offence has been committed. In deciding the level of the RRO, the factors which the FTT must take into consideration include the conduct of the landlord and the tenant, the landlord’s financial circumstances and whether he has been guilty of other related offences under the legislation (section 44(4) of the 2016 Act). The FTT had previously derived its jurisdiction for making RROs under sections 73 and 74 of the 2004 Act, now repealed in England. Under these sections, it could make an RRO if the amount to be repaid was reasonable. In Parker, decided under sections 73 and 74 of the 2004 Act, the UT interpreted “reasonableness” as a sum that would strip a landlord of his profit. Accordingly, sums spent by a landlord in meeting his mortgage obligations could be deducted to arrive at a reasonable sum. In Vadamalayan, a case decided under section 40 of the 2016 Act, the UT found that the 2016 Act had removed the test of reasonableness. The starting point for an RRO should be the whole of the rent for the relevant 12-month period, with the amount ordered not generally circumscribed by the landlord’s profit. In Chan, the tenant was granted a 12-month assured shorthold tenancy of a two-storey property in Coventry commencing on 12 July 2018. The second respondent was his landlord. The FTT found that the tenant occupied the property with four other individuals who were not members of his household. The FTT also found that the property was an HMO that was required to be licensed and had not been for the duration of the tenant’s tenancy. The tenant had paid rent totalling £4,482.50 during the term of his tenancy. In determining the sum of the RRO, the FTT considered the criteria under section 44(4) of the 2016 Act, but awarded the tenant £1,494.17, purportedly based on the test in Parker. The FTT stated that the sum awarded represented one-third of the landlord’s rental profit. In allowing the appeal, the UT was critical of the FTT’s approach. It found that, in light of the 2016 Act and the decision of the UT in Vadamalayan, it was inappropriate for the FTT to use the methodology in Parker as the basis for calculating the RRO. Additionally, even if Parker was the correct basis, which it was not, the FTT’s order remained “troubling” as it ordered the repayment of one-third of the rent, which did not appear to be calculated by reference to the landlord’s profit. The UT also noted that the FTT had erred in determining that the property was licensable for the duration of the tenant’s tenancy. On 1 October 2018, the Licensing of Houses in Multiple Occupation (Prescribed Description) (England) Order 2018 (the 2018 order) came into force. From that date, HMOs had to be licensed if occupied by five or more persons living in two or more households. The requirement for the HMO to have three storeys was removed. As the property was only a two-storey property, it became licensable on 1 October 2018, when the 2018 order came into force. Elizabeth Dwomoh is a barrister at Lamb Chambers