Written by Felix Otouke.

The case is about an appeal to the Upper Tribunal (Lands Chamber) by Mr Rakusen against the decision of the First-tier Tribunal (Property Chamber) (FTT). It was issued on 18^th December 2019.

Case breakdown

In 2006 the freeholder of the building granted a lease of Flat 9, Mandeville Court, Finchley Road, London, NW3 to Mr Rakusen for a term of 999 years, In 2013 he assigned the lease to himself and his partner Ms Field. They lived there as their home and later moved elsewhere and decided to let the flat.

31^st May 2016, Mr Rakusen granted a tenancy of the whole flat to Kensington Property Investment  Group, Ltd (KPIG). The tenancy was for a term of thirty-six months for a rent of £2,643.33 a month.

Later in 2016, KPIG entered into a separate written agreement with the three respondents Mr Jepsen, Mr Murphy and Mr McAuthur. They were each granted the right to occupy a room in the flat. They had licence agreement and provided for a licence fee. The total sum paid by the respondents was £2,297.00 per month. The documentary evidence did not show how many rooms were in the flat and how many people lived in the flat with the respondents. There is material which suggests that by November 2018 there were four people living in the flat. Mr Rakusen in his witness statement acknowledges that there were more than three people forming two or more households occupied the premises. On that basis, he accepted that the flat was a house in multiple occupation (HMO) and was required to be licensed under Part 2 of the Housing Act 2004.

In November 2018, Hamptons informed Mr Rakusen that KPIG wished to apply to the local housing authority for an HMO licence. The evidence showed that no such application was made and no licence was granted. Mr Rakusen did not renew the tenancy of KPIG at the end of the fixed term in May 2019.

On 27^th September 2019, the respondents applied to the FTT under section 41, 2016 Act for rent repayment order totalling £26, 140.00 against Mr Rakusen and Ms Field. The grounds for making the application were stated to be control or management of an unlicensed HMO and in support of that application respondents provided copies of the agreements between themselves and KPIG.

In response to the application, MR Rakusen and Ms Field invited the FTT to strike out the application on the grounds of that there was no reasonable prospect of it succeeding. They argued that a rent repayment order could only be made against the immediate landlord of the person who made the application. Mr Rakusen was not the immediate landlord of the applicants and Ms Field had never been party to any agreement in respect of the property with either KPIG or the applicants. Hence, no order can be made against either of them.

The FTT directed that the application to strike out the claim should be determined as a preliminary issue, and the applicants request, at a hearing. On 18^th December2019, the FTT issued its decision. It struck out the application against Ms Field on the grounds, that there was no reasonable prospect of it succeeding against her. It refused to strike out the application against Mr Rakusen, as it was bound by the decision of this Tribunal in Goldsrough v CA Property Management Limited [2019] where Judge Coke held that determined that an application for a rent repayment order could be made against a superior landlord.  The FTT granted permission to appeal.

The issue in the appeal was whether a rent repayment order under the Chapter 4 of the Part 2, Housing and Planning Act 2016 can only be made against the immediate landlord of the tenant in whose favour the order is made.

Martin Rodger QC Tribunal Deputy Chamber President of the United Kingdom Upper Tribunal (Lands Chamber) in his disposal or determination ruled that “ there has been no investigation of the facts in this case and I stress that it has not been established that the appellant has committed any offence. The offence of having control or management of unlicensed HMO is subject to the statutory defence of reasonable excuse under section 72(5) (a) of the Housing Act 2004. The Appellant filed evidence with the FFT in support of his reasonable excuse defence, but couple it with an application to strike out the claim which he asked to be dealt with at a hearing. Procedurally it would have been much simpler if the FTT had heard the evidence at that hearing and dealt with the defence in its decision, but it did not do so and the application for rent repayment order must now be referred back to the FTT to be determined.”

The disposal or determination of the Deputy Chamber President brings to mind the following essential information:

First, the objective of the provision of the whole of Part 2 Housing and Planning Act 2016, is deterrence rather than compensation. It is to deter the commission of housing offences and discourage the activities of rogue landlords in the residential sector by imposing stringent penalties in situations involving unlicensed Home in Multiple Occupation (HMO). The offences to which Chapter 4 applies is provided in section 40 (3), namely: violence or harassment using violence to secure entry contrary to section 6 (1), Criminal Law Act 1977; unlawful eviction or harassment of occupiers contrary to section 1 (2), (3) or (3A), Protection from Eviction Act 1977, failure to comply with improvement notice contrary to section 30 (1) or a prohibition order contrary to section 32 (1) or being in control or management of an unlicensed house contrary to section 72 (1) and breach of a banning order contrary to section 21, 2016 Act. Parliament have intended that the expansion should also expose an additional class of landlords who commit those new housing offences to the risk of a rent repayment order.

Second, the First-tier Tribunal (Property Chamber) (FTT) has jurisdiction to make a rent repayment order against any landlord who has committed an offence to which Chapter 4 applies, including a superior landlord (freeholder). Thus, section 40 of 2016 Act provides that (1) “this chapter confers power on the First-tier Tribunal to make a rent repayment order where a landlord has committed an offence to which this chapter applies. (2) A rent repayment order is 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 a rent under the tenancy.” It is important to note, that the landlord in question must have committed one of the relevant offences. The FTT must be satisfied to the criminal standard of proof and that is, “beyond reasonable doubt,” before an order may be made.

Third, identifying who may be required to make the payment is very important. Section 40 (2) defines a rent repayment order as an order requiring “the landlord under a tenancy of housing in England” to make the payment. The landlord in question has already been identified by virtue of the definite article (the) which is the landlord who has committed the offence in section 40 (1). It links the person against whom an order may be made against to the offence. The landlord in section 40 (2) is the landlord under “a tenancy.”  The indefinite article (a) is required because no particular tenancy has yet been identified. Hence, a rent repayment order requires the landlord under a tenancy in England to repay an amount of rent paid by a tenant. A tenant may only apply for an order against a person who has committed an offence if the offence relates to housing, at the time of the offence, was let to the tenant. Under section 40 (2) (a), “a tenant”, means that there is no necessity for an immediate relationship between the landlord under the tenancy and the tenant to whom an amount of rent is to be repaid. The main thing is, that the recipient of the payment is a tenant, the landlord who is to make the payment many not be the immediate landlord of the tenant who receives it. Under section 40 (2) (b) a rent repayment order may require “the landlord under a tenancy to pay, to a local housing authority an amount in respect of the Universal Credit paid (to any person) in respect of rent under the tenancy.” There is a direct connection between the landlord and the rent in respect of which Universal Credit has been paid.

Fourth, the offences listed in section 40 (3) can be committed by somebody who is not the immediate landlord of the occupier of housing in England. The offence of doing acts likely to interfere with the peace or comfort of a residential occupier contrary to subsection 1 (3), may be committed by any person. It is an offence, contrary to subsection 1 (3A), 1977 Act, for the landlord of a residential occupier or an agent of the landlord to do acts likely to interfere with the peace or comfort of the occupier or members of their household, knowing that the conduct is likely to cause the occupier to give up occupation of the premises or refrain from exercising any right. Under subsection 1 (3C), the meaning of landlord include the immediate landlord of the occupier but also the superior landlord.

Fifth, it is worth identifying whom to serve an improvement notice. An improvement notice is a notice served by a local housing authority requiring the person on whom it is served to take specific remedial action in respect of a hazard found to exist on a residential premises under section 11 (2) and 12 (2), Housing Act 2004. Where the premises in question are licensed under Parts 2 2 or 3 of the 2004 Act, any improvement notice must be served by the local housing authority on the licence holder under paragraph 1, schedule 1, of the 2004 Act. Where the premises are not licensed an improvement notice may be served in the case of a dwelling, on the person having control of the dwelling, and in the case of an HMO, either on the person having control of the HMO or the person managing it under paragraph 2, schedule 1 of the 2004 Act.

The local housing authority must be satisfied that the applicant is fit and proper person to be licence holder, and that of all the persons reasonably available to be the licence holder in respect of the house, that they are the most appropriate. A local housing authority must consider the practicality of the recipient of an improvement notice being able to carry out the necessary remedial works. If this is the case, an intermediate landlord has no significant repairing obligations and no right to carry out major repairs to the building. The local housing authority ,may well consider that the appropriate recipient of an improvement notice is the superior landlord. Thus, a banning order may be imposed on superior landlord other than the immediate landlord in these circumstances.

Sixth, the person who receives the rack-rent of the premises (whether on his account or as agent or trustee of another person), or who would so receive it if the premises were let at a rack-rent may be considered as a person having control of the premises under section 263 of the Housing Act 2004. Rack-rent means, a rent which is not less than two-thirds of the full net annual value of the premises. A person who is owner or lessee of the premises may be considered as a person managing the premises under section 263 of 2004 Act.

Thus, if a house is let on a rack rent the person having control is the person who receives the rack-rent under section 263 (1) of the 2004 Act. If the house is not let at a rack-rent (for example because the only letting is at a ground rent) the person having control is the person who would receive the rack-rent if the premises were subject to a letting at a rack-rent. The formula used in this definitions are explained in Pollway Nominees Ltd v Croydon LBC [1987 1 AC 79.  The purpose of the definition is to identify the person or group of persons who collectively have relevant interest, who may be made subject to a statutory obligation to undertake work or make a contribution to the cost of public works. In Urban Lettings (London) Ltd v LB Haringey [2015] UKUT 104 (LC), it was accepted that more than one landlord could be in receipt of rack-rent at the same time. Hence, superior landlord and the intermediate landlord can be in receipt of rack-rent at the same time.

Seventh, there is a statutory defence of reasonable excuse under section 72 (5) (a) of the Housing Act 2004. It is an extremely difficulty defence to establish because the defendant must be able to demonstrate that things have occurred outside of their control. Ordinarily, inaction or ignorance will not suffice.

In the light of the above information, you can see that the issues arising are rife with litigation between landlords and tenants. It is pertinent where tenants fall victim to rogue landlords especially in circumstances of HMO. Hope is not lost if you are a tenant and you find yourself in difficulty with your landlord. Do feel free to contact our litigation team if need be. They have the expertise in this area of law to assist you in resolving the concerns you may have with your landlords especially if they are rogue landlords.

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