Limiting the scope of rent repayment orders

In Goldsbrough v CA Property Management Ltd [2019] UKUT 311 (LC) the Upper Tribunal (Lands Chamber) determined that a rent repayment order (RRO) could be made against both intermediate and superior landlords under the Housing and Planning Act 2016. The decision in Goldsbrough was welcomed by tenants of intermediate landlords, especially in circumstances where their intermediate landlords operated within a “rent to rent” arrangement – the letting of a property to a corporate entity for the purpose of subletting the property as a house in multiple occupation, for profit. Goldsbrough effectively meant that, if an intermediate landlord dissolved the company in the face of an order to pay an RRO, the tenant could pursue its superior landlord who had a chargeable asset; namely, the rental property. In Rakusen v Jepsen and others (Safer Renting intervening) [2021] EWCA Civ 1150; [2021] PLSCS 138 the Court of Appeal has now considered the issue of whether an RRO can be made against a superior landlord. The statutory provisions Section 40(1) of the 2016 Act empowers the First-tier Tribunal to make an RRO when a landlord has committed an offence to which Chapter 4 of the 2016 Act applies. The application for an RRO can be made by a tenant or local housing authority under section 41(1). Section 40(3) of the 2016 Act lists seven offences to which Chapter 4 applies. Included in that list is the offence of being in control or management of an unlicensed house in multiple occupation contrary to section 72(1) of the Housing Act 2004. Section 40(2)(a) of the 2016 Act defines an RRO as “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”. The term “landlord” is not defined within Chapter 4 of the 2016 Act. The factual matrix Martin Joseph Rakusen and Sarah Field were the long lessees of a flat situated at Mandeville Court, Finchley Road, London NW3. In 2016, Rakusen granted a tenancy of the flat to Kensington Property Investment Group Ltd (KPIG). Under the terms of the tenancy, KPIG was permitted to sublet the whole of the flat or individual bedrooms for profit. During 2016, KPIG granted what it described as licence agreements to Mikkel Jepsen, Ronan Murphy and Stuart McArthur. The evidence suggested that, by November 2018, more than four people were living at the flat, forming two or more households. Rakusen accepted that in such circumstances the flat was an HMO that required a licence under part 2 of the 2004 Act. No such licence had ever been obtained by KPIG. In September 2019, Jepsen, Murphy and McArthur applied to the FTT for an RRO against Rakusen and Field in the total sum of £26,140. They claimed that Rakusen and Field were guilty under section 72(1) of the 2004 Act of being in control of or managing an HMO that was required to be licensed, but was not so licensed. The determinations Rakusen and Field both applied to the FTT for the application to be struck out. Field was not a party to the tenancy agreement with KPIG and therefore the application against her was struck out as it had no reasonable prospect of success. The FTT, however, refused to strike out the application made against Rakusen as it was bound by Goldsbrough. The UT upheld this decision on appeal. The Court of Appeal found that the language of section 40(2)(a) of the 2016 Act was suggestive of a single direct relationship of landlord and tenant. Although subsection (a) was devoid of an express limitation in its reference to who could be “the landlord under a tenancy”, this was immaterial because a natural construction of the clause implied a direct relationship. In reliance on section 40(2)(b) of the 2016 Act, the Court of Appeal observed that a local housing authority could only obtain an RRO against a direct landlord. Under subsection (b) a “landlord under a tenancy of housing” was required to pay the local housing authority Universal Credit payments received either directly or indirectly during the relevant period. Accordingly, “the tenancy of housing” had to relate to the tenancy for which the tenant was in receipt of such benefits. The “landlord” could only, therefore, be the tenant’s immediate landlord. As a matter of internal consistency, what qualified as “a tenancy of housing” had to be the same for the purposes of both subsections of section 40(2), and of the section read as a whole. Resolving any mischief Safer Renting, which intervened in the appeal, argued that Chapter 4 of the 2016 Act would lack “teeth” if the scope of section 40(2)(a) was restrictively construed. Yet, as the Court of Appeal observed, it would be a matter for parliament to remedy any perceived shortcomings in the statutory provisions. Key points A rent repayment order cannot be made against a superior landlord It is a matter for Parliament to extend the scope of section 40(2)(a) of the Housing and Planning Act 2016 to include the making of an RRO against a superior landlord Elizabeth Dwomoh is a barrister at Lamb Chambers Image © Andrew H Walker/Shutterstock