Can a direct relationship of landlord and tenant be created between a superior landlord and subtenant when an intermediate landlord company is dissolved? Elizabeth Dwomoh finds the answer.
Key point
- When an intermediate company landlord is dissolved, section 18(1) of the Housing Act 1988 does not apply and accordingly no direct relationship of landlord and tenant exists between the superior landlord and subtenant
Rent to rent arrangements occur when a property owner lets their premises to a company under a tenancy and the company sublets the premises, usually under an assured shorthold tenancy, to individual subtenants. Since the decision of the Supreme Court in Rakusen v Jepsen and others [2023] UKSC 9; [2023] EGLR 20, it is now settled law that a rent repayment order cannot be made against a superior landlord. In Cussinel and another v Guerin and others [2023] UKUT 235 (LC); [2023] PLSCS 165, the Upper Tribunal (Lands Chamber) was asked to determine whether an RRO could be made against superior landlords in circumstances where the intermediate landlord company had been dissolved and it was contended that by virtue of section 18 of the Housing Act 1988 a direct relationship of landlord and tenant was created between the tenants and former superior landlord.
First you add…
Edouard and Tavy Cussinel were the owners of a five-bedroom house in east London. In 2016, they let the premises to De Beauvoir and Company Ltd for a term of five years at a rent of £3,050 a month. The company had permission to sublet the premises under the terms of the agreement. From 1 August 2016, the company began letting out individual rooms in the premises.
At the hearing of the tenants’ application for an RRO, the tenants gave evidence that they were led to believe the Cussinels were their landlords and James Manero, who owned the company, was acting as an agent on their behalf. The First-tier Tribunal was satisfied that the premises was a house in multiple occupation from 1 October 2018 because it satisfied the requirements for mandatory licensing. Under part 2 of the Housing Act 2004, the premises was required to be licensed, but neither the company nor the Cussinels had applied for the same.
Then you sprinkle…
The FTT found that the Cussinels were the superior landlords only, but were aware of how the premises was being managed. Further, due to the premises being unlicensed, the FTT was satisfied that an offence under section 72(1) of the 2004 Act had been committed. As the Cussinels were in receipt of rack rent from the company, the FTT found they came within the definition of “persons having control” of the premises under section 263 of the 2004 Act.
Due to the decision of the UT in Rakusen – namely that an RRO could be made against a superior landlord – in June 2021, the FTT made RROs in favour of the tenants in the total sum of £68,000. The Cussinels appealed to the UT but their appeal was stayed pending the outcome of the subsequent appeals in Rakusen.
Hey presto!
Following the Supreme Court’s decision in Rakusen, the UT indicated that, on its face, the Cussinels’ appeal would be allowed and the RROs set aside. Yet, the tenants, in their cross-appeal sought to argue a new point – namely, that a direct relationship of landlord and tenant existed between each of them and the Cussinels. To establish their claim, the tenants sought to introduce new evidence – documents from Companies House concerning the registration and dissolution of the company in January 2017.
A number of points were advanced by the tenants as to why a direct relationship existed but the ground the UT found had potential merit centred on the effects of the dissolution of the company in January 2017. The tenants argued that, on the dissolution of the company, by virtue of section 18(1) of the 1988 Act they became the direct tenants of the persons who were otherwise entitled to actual possession of the premises – the Cussinels.
Or not…
As the tenants sought to rely on new evidence that was not before the FTT, they had to meet the conditions for the admission of new evidence set out in Ladd v Marshall [1954] 1 WLR 1489. The condition that concerned the UT most was whether the tenants could show that the evidence would have materially influenced the outcome of the case. The UT found that it would not.
At common law, on the determination of a tenancy any subtenant’s interest carved out of it would ordinarily be extinguished. Section 18(1) of the 1998 Act operates so as to prevent this from happening in the case of an assured tenancy, except where the superior landlord is incapable of being the landlord under an assured tenancy. Accordingly, if a landlord under an assured tenancy was themselves a tenant whose tenancy came to an end, the assured subtenant would be protected and they would enter into a direct relationship of landlord and tenant with the former superior landlord.
The UT noted that, when a company is dissolved, section 1012 of the Companies Act operates so that the property of the dissolved company is deemed bona vacantia and vests in the Crown. Accordingly the company’s tenancy did not cease to exist when the company was dissolved and section 18(1) of the 1988 Act did not bite. The tenants’ application to admit new evidence was refused. The Cussinels’ appeal was successful.
Elizabeth Dwomoh is a barrister at Lamb Chambers
