By Evveline Loh
A landmark case has just been handed down on 1st March 2023 by the Supreme Court in the case of Rakusen (Respondent) v Jepsen and others (Appellants). This has been a long awaited decision as it has now been ruled that for rent-to-rent arrangements, tenants are not allowed to seek redress from superior landlords (i.e. freeholders or leaseholders).
Summary of the case
In 2016, Martin Rakusen (“Mr Rakusen”) granted a tenancy to Kensington Property Investment Group (“KPIG”). The agreement allows KPIG to sublet individual rooms within the flat to different tenants. The rooms were subsequently rented out to three tenants namely Mikkel Jepsen, Ronan Murphy and Stuart McArthur under separate tenancy agreements. Given the number of occupants, such an arrangement required a House in Multiple Occupancy licence. Consequently, it was a breach of the Housing and Planning Act 2016 (the “Act”) without one and the sub-tenants applied for a rent repayment order (RRO) against Mr Rakusen for such failure.
The issue that arises is who the landlord would be under such an arrangement. The Act is not clear regarding whether the superior landlord, Mr Rakusen, or the immediate landlord, KPIG would be liable.
The sub-tenants in this case made an application against the superior landlord for an RRO. It entitles them to seek all rent collected over the duration of the breach up to a maximum of 12 months.
The First Tier Tribunal held that Mr Rakusen was the landlord of the flat. Hence, he was liable for such a breach. Mr Rakusen appealed against the decision and the case was heard in the Upper Tribunal. The Upper Tribunal agreed with the First Tier Tribunal’s decision. Mr Rakusen then appealed to the Court of Appeal which disagreed with the Tribunals. The court held that Mr Rakusen did not receive any rent payment from the sub-tenants. As such, it found that he should not be ordered to repay the sub-tenants.
The sub-tenants then appealed to the Supreme Court which was heard on 26 January 2023 and the judgment was released yesterday.
The Supreme Court gave a unanimous judgment and decided that the superior landlord should not be liable, and that the immediate landlord that received the rent should instead be liable. It was held under paragraph 28:
“This straightforward interpretation links the landlord with the tenancy that generates the relevant rent. It renders it artificial and unnatural to construe the opening words of section 40(2) as referring to any landlord other than the landlord under the tenancy which generates the relevant rent, that is the rent to be repaid under section 40(2)(a) and the rent in respect of which the universal credit is paid under section 40(2)(b). It excludes a superior landlord because it is not the “landlord under” the tenancy which generates the rent.”
This news is widely welcomed by superior landlords as it gives clarity to those who are on the rent-to-rent scheme. The clarity from this judgment would mean that rent-to-rent companies are responsible to ensure all legal requirements are met given they are the ones receiving rent. This will also prevent rogue immediate landlords from denying responsibilities.
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