Housing – House in multiple occupation – Rent repayment order – First-tier tribunal (FTT) making rent repayment order in favour of respondent tenants – Appellant landlord appealing – Whether FTT using correct method to calculate amount payable pursuant to section 44 of Housing and Planning Act 2016 – Appeal allowed
The appellant was the leasehold owner of 236D Finchley Road, London NW3. The respondents held an assured shorthold tenancy of the property from 9 September 2017. They moved out and surrendered the tenancy on 19 July 2019. 21. It was not disputed that the property should have been licensed throughout the 23 months during which the respondents rented the property, as required by the Housing and Planning Act 2016, because it was a house in multiple occupation (HMO).
The respondents applied to the First-tier Tribunal (FTT) for an RRO for the 12 months from 1 February 2018. There was no dispute that that was the appropriate period, nor that the maximum payable was £28,599.96, the rent payable for those 12 months.
The FTT in considering the level of the penalty took the view that the conduct of the parties was not relevant, although it was unimpressed by the appellant’s explanation for his failure to get a licence. The FTT considered a schedule of what the appellant said he had spent on the property and should be deducted from the maximum penalty, reminding itself of the decisions in Parker v Waller [2012] UKUT 301 (LC); [2012] PLSCS 266 and Fallon v Wilson [2014] UKUT 300 (LC); [2014] PLSCS 214.
After considering the appellant’s schedule of deductions and the respondents’ representations, the FTT decided to deduct £5,373.89. It then considered what would be a reasonable amount to pay, and deducted 25% of the balance of £23,226.07 because the appellant had fixed problems at the property that had not been caused by any fault on his part. The appellant was ordered to pay £17,420.
The appellant appealed challenging the FTT’s calculation of the deductions and contending that the FTT had not taken into account the financial penalty paid to the local authority.
Held: The appeal was allowed.
(1) Under the Housing and Planning Act 2016, the rent repayment order was no longer tempered by a requirement of reasonableness as it had been under section 74 and 75 of the Housing Act 2004; and it was not possible to find in the current statute any support for limiting the rent repayment order to the landlord’s profits. That principle should no longer be applied. Therefore, it was not appropriate to calculate an RRO by deducting from the rent everything the landlord had spent on the property during the relevant period. That expenditure would have repaired or enhanced the landlord’s own property, and would have enabled him to charge a rent for it. Much of the expenditure would have been incurred in meeting the landlord’s obligations under the lease. The tenants would typically be entitled to have the structure of the property kept in repair and free of damp and pests. There was no reason why the landlord’s costs in meeting his obligations under the lease should be set off against the cost of meeting his obligation to comply with an RRO.
In cases where the landlord paid for utilities, as he had in Parker v Waller, there was a case for deduction, because electricity for example was provided to the tenant by third parties and consumed at a rate the tenant chose; in paying for utilities the landlord was not maintaining or enhancing his own property. It would be unfair for a tenant paying a rent that included utilities to get more by way of rent repayment than a tenant whose rent did not include utilities. But aside from that, the practice of deducting all the landlord’s costs in calculating the amount of the RRO should cease. Therefore, it was not appropriate to calculate an RRO by deducting from the rent everything the landlord had spent on the property during the relevant period. That expenditure would have enhanced the landlord’s own property and enabled him to charge rent for it. Much of the expenditure would have been incurred in meeting the landlord’s obligations under the lease; there was no reason why the landlord’s costs in meeting his obligations should be set off against the cost of complying with an RRO.
The only basis for deduction was section 44 itself. and there would be cases where the landlord’s good conduct, or financial hardship, would justify an order less than the maximum. But the arithmetical approach of adding up the landlord’s expenses and deducting them from the rent, with a view to ensuring that he repaid only his profit, was not appropriate and not in accordance with the law. There might be a case for deduction where the landlord paid for utilities, as those services were provided to the tenant by third parties and consumed at a rate chosen by the tenant; in making those payments the landlord was not maintaining or enhancing his own property. Fines or financial penalties should not be deducted, given parliament’s obvious intention that the landlord should be liable both to pay a fine or civil penalty and to make a repayment of rent: Parker v Waller and Fallon v Wilson not followed.
(2) In the present case, the FTT’s decision was irrational because its reasoning could not be understood and was inconsistent with the decision it made, and had to be set aside. In any event, the deduction of the landlord’s expenditure was not in accordance with the law. The Upper Tribunal could make any order that the FTT could have made and it had sufficient information to re-make the decision rather than remitting it to the FTT. On the facts, the maximum amount payable under an RRO was the rent for 12 months, approximately £28,600. There was no relevant conduct by the parties to be taken into account. If the tribunal had been making the decision without any prior proceedings in the FTT it would not have deducted anything from the maximum figure in the absence of better evidence about the appellant’s financial circumstances. However, the respondents had agreed that some items should be deducted. It would be unjust if the outcome of the appellant’s appeal was that he had to pay a great deal more than he was ordered to pay by the FTT. Accordingly, an RRO would be made in the same sum as the FTT had ordered, namely £17,420.
The appellant appeared in person. The respondents appeared by their representative.
Eileen O’Grady, barrister
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