Rent repayment orders are important tools in the legal arsenal to sanction rogue landlords who commit housing-related offences. They were originally introduced under the Housing Act 2004, but in England they are now governed by the Housing and Planning Act 2016. Under section 43 of the 2016 Act, the First-tier Tribunal can order a landlord to repay an amount of rent paid by a tenant, or to pay a local housing authority an amount in respect of universal credit awarded in respect of rent, where the landlord has committed a specified housing-related offence.
The question the Supreme Court was asked to resolve in Rakusen v Jepsen and others [2023] UKSC 9; [2023] PLSCS 42 was whether an RRO could be made against a superior landlord.
The facts
The respondent, Martin Rakusen, was the long leaseholder of a flat situated on Finchley Road, London NW3. In May 2016, he granted a contractual tenancy of the flat to Kensington Property Investment Group Ltd (KPIG). The tenancy was for a term of 36 months, less one day, at a rent of £2,643.33 per month. Under the terms of the agreement, KPIG had the right “to sublet each unit individually or the whole as part of the day-to-day management of their business”.
In 2016, KPIG granted each of the appellants, Mikkel Jepsen, Ronan Murphy and Stuart McArthur, licences to occupy one of the rooms in the flat on payment of a licence fee. The aggregate sum paid by the appellants was £2,297 per month.
In November 2018, Rakusen was informed by his managing agents that KPIG wished to apply to the local housing authority for a house in multiple occupation licence as the flat was required to be licensed. A licence was never granted in respect of the flat and, at the end of May 2019, KPIG’s contractual tenancy determined by effluxion of time. Rakusen did not renew KPIG’s tenancy.
In September 2019, the appellants applied to the FTT pursuant to section 41 of the 2016 Act for an RRO in the sum of £26,140 to be made against Rakusen. They argued that, contrary to section 72(1) of the 2004 Act, he was a person having control of, or management of, an unlicensed HMO. Rakusen defended the application on the basis that an RRO could not be made against a superior landlord.
The decisions below
Both the FTT and the Upper Tribunal (Lands Chamber) found for the appellants. They determined that an RRO could be made against a superior landlord.
The UT focused its reasoning on the legislative purpose of RROs and the language of section 40(2)(a) of the 2016 Act, which defined an RRO as an order “requiring the landlord under a tenancy of housing in England” to “repay an amount of rent paid by a tenant”. The UT observed that, at first blush, the language of section 40(2)(a) suggested the need for a direct relationship of landlord and tenant which militated against an RRO being made against a superior landlord. Yet, it took into consideration the wider purpose of RROs. It was persuaded by the fact that a superior landlord could commit one of the offences in respect of which an RRO could be made. Further, it was live to the potential problem of RROs being avoided if they could only be made against intermediate landlords; namely, the problem of rent-to-rent schemes, whereby a short-term tenancy is granted to an insubstantial intermediary who subsequently sublets the property.
The Court of Appeal overturned the decision of the UT on appeal. It focused its analysis on the natural meaning of section 40(2)(a) of the 2016 Act. It found that the landlord under a tenancy of housing referred to in section 40(2) was a direct reference to the landlord under the same tenancy as that held by the “tenant” referred to in subparagraph 40(2)(a). Only one tenancy was referred to and, accordingly, it meant an application for an RRO could only be made by a tenant against its immediate landlord.
The (judicial) last word
Adopting a straightforward analysis of the wording of section 40(2) of the 2016 Act, the Supreme Court upheld the decision of the Court of Appeal. It found that, under section 40(a) of the 2016 Act, the “rent paid by a tenant” or “rent payable under a tenancy” referred to the rent paid by a tenant under a “tenancy of housing in England”. Where a sub-tenancy existed, it would be the rent paid to the intermediate landlord under the sub-tenancy. This straightforward interpretation linked “the landlord” with the tenancy that generated the rent.
The Supreme Court appreciated that its decision left the door open for unscrupulous landlords to avoid RROs by entering into rent-to-rent schemes, where they were effectively shielded by a “straw company”. Yet, as the Supreme Court highlighted, this problem could be resolved by parliament through legislative reform and expressly making RROs directly applicable to superior landlords. Until such time, landlords can breathe a huge sigh of relief.
Key points
- A rent repayment order cannot be made against a superior landlord
- It is a matter for parliament to amend the current legislation to enable an RRO to be made against a superior landlord
Elizabeth Dwomoh is a barrister at Lamb Chambers
