Rent Repayment Orders: A Recent Legal Case Explores Liability

In this post we will look at rent repayment orders and at an interesting appeal case in the Upper Tribunal. It has provided more insight on rent repayment orders and also who is liable to pay them.

Rent repayment orders – the basics

Rent repayment orders (or RROs) are a provision dating back to 2004 and extended under the Housing and Planning Act 2016. In simple terms, where a landlord infringes certain letting laws as specified in the Act, a tenant can make a claim for repayment of up to 12 months rent.

Rent repayment orders are particularly relevant to houses in multiple occupation or HMOs. For example, if an HMO is unlicensed when it should have been under the Housing Act 2004 then tenants can claim repayment of the rent simply for that reason.

A RRO involves a civil claim and is not a fine or penalty. Tenants have to make a claim against their landlord in the First-tier Tribunal Property Chamber (Residential Property).

How this case began

Mr. Amlendu Kumar owned the freehold of a three bedroomed rental property in London SW17. However (and very relevant in this case) Mr. Kumar did not find or deal with the tenants himself. In April 2018 he had granted a tenancy (or headlease) to a company called Like Minded Living Ltd. (or LML for short). LML granted sub-tenancies to individual tenants. The tenants paid the rent under their tenancy with LML to LML. LML paid the rent LML owed under their tenancy with Mr. Kumar to him.

Essentially this was a rent to rent agreement. But two things made it more complicated: The tenancies LML granted to their tenants were longer than the headlease LML had from Mr. Kumar. Briefly, these tenants had tenancies with LML running from mid-2019 to some point in 2020 but LML’s tenancy expired at the end of September 2019. Also at some point and without Mr. Kumar’s knowledge the house became an unlicensed HMO.

How the rent repayment order arose

Although the headlease between Mr. Kumar and LML included a clause that the house could not be let to more than four people LML subsequently granted tenancies to five people. This made the house an unlicensed HMO. This is an offence under the Housing Act 2004. It is committed by the person managing or having control of the property. It automatically puts the landlord at risk of a rent repayment order claim under the Housing and Planning Act 2016.

In February 2021 three of the tenants in the property applied to the First-tier Tribunal (or FTT) for a RRO against Mr. Kumar. Their claim was not decided by the FTT until October 2023. In the meantime it appears that LML had ceased to trade.

The FTT considered the case and decided that Mr. Kumar had committed an offence under the Housing Act 2004 (of being a person having control of or managing an unlicensed HMO). They decided that he was liable to repay rent to the tenants in the property and granted the RRO.

The FTT decided that Mr. Kumar should repay 60% of the rent which each of the three tenants had paid to LML which together totalled £7,549.25 – plus the tribunal fees they had paid. (There were also some issues relating to the condition of and maintenance in the property. These did not affect the granting of the RRO but were relevant in deciding the size of it.)

What happened at the Upper Tribunal

Mr. Kumar subsequently decided to appeal the RRO to the Upper Tribunal (Lands Chamber). At this tribunal, held in July 2024, Mr. Kumar was represented by his lawyer. The three tenants were represented by advocacy organisation Justice for Tenants.

The appeal to the Upper Tribunal was based on the issues of whether Mr. Kumar (the appellant) had control of and was the person managing what had become an unlicensed HMO. Also whether he was actually the three tenants’ (or respondents’) landlord.

Mr. Kumar’s representative contended that he was not, as he had handed over management of the property to LML and had not received any rent from the tenants as such. However, the FTT’s decision to grant the RRO was based on the belief that he was in both cases. The basis for this was that because the tenancies granted to the tenants were longer than the headlease Mr. Kumar had granted to LML he had effectively become their landlord.

This case involved the consideration of some relevant legal cases. In the Rakusen v Jepsen case in 2023 the Supreme Court ruled that a rent repayment order may only be made against a tenant’s immediate landlord, who receives the rent, rather than a superior landlord. The Milmo v Carreras case dating back to 1946 established a principle of English property law. It confirmed that where a tenant grants a sub-tenancy for a term equal to or longer than the remaining term of their own tenancy then the sub-tenant becomes the direct tenant of the head landlord by assignment.

At the appeal the Upper Tribunal considered the grounds which had given rise to the appeal more closely:

Ground 1: Was Mr. Kumar the respondents’ landlord?

The Upper Tribunal carefully examined this issue. They looked at the wording of the Housing & Planning Act 2016 and referred to the rulings in the Rakusen v Jepsen and several other relevant legal cases.

The tribunal examined the argument that as Mr. Kumar had not received any rent directly from the tenants he could not repay what he had not received. It examined whether he had become the tenant’s landlord after LML’s headlease with him ended but the tenants were still in the property, and decided that he had not. The tribunal decided it was particularly significant that the tenants kept on paying their rent to LML even after LML’s headlease with Mr. Kumar ended.

Subsequently the tribunal made its most significant finding of the whole case and overruled the findings of the FTT that Mr. Kumar was the responsible landlord. It summarised: ‘It follows that Mr. Kumar was not the respondents’ immediate landlord and they paid no rent to him. He was not a person against whom a rent repayment order could be made in their favour.

‘For these reasons I allow the appeal and set aside the rent repayment order made by the FTT.’

Ground 2: Was Mr. Kumar a ‘person having control of or managing an HMO’?

The FTT had decided that Mr. Kumar was both a person having control and a person managing an unlicensed HMO. Under the law this is an offence and it made him liable for the rent repayment order.

However at the Upper Tribunal the parties involved agreed Mr. Kumar was not managing the property and that he received no rent from the tenants, either wholly or in part. The Upper Tribunal considered some complex legal arguments but decided not to make a ruling on this last point, on the basis that it would not be helpful to do so and would not affect the outcome.

Ground 3: The defence of reasonable excuse

The Housing Act 2004 permits a landlord to have what is known as a ‘reasonable excuse’ for managing or being in control of an unlicensed HMO. Given the decisions on grounds 1 and 2 this became a largely academic argument. However, the Upper Tribunal found that the FTT had not properly considered this issue. Mr. Kumar may have had a reasonable excuse and so would not have been liable. It said that, if there had not already been a reason for overturning the RRO, this would have been a reason for doing so as Mr. Kumar did have a reasonable excuse.

Ground 4: The quantum (or size) of the rent repayment order

Again, given the ruling on grounds 1 and 2 this became largely academic. However, the Upper Tribunal decided that the FTT had assessed this wrongly. It had based the amount of the RRO on the rent the tenants had paid to LML not on the rent received by Mr. Kumar. It said that, if there had not already been a reason for overturning the RRO, this would also have been a reason for overturning it.

The decision: In an Upper Tribunal decision published on 29 August 2024 Martin Rodger KC, Deputy Chamber President, allowed Mr. Kumar’s appeal. The decision of the FTT was set aside and the rent repayment order was discharged.

Summary: What we might learn from this case

A key learning from this case might be that rent repayment orders, and the liability for them, are a risk for landlords. And they can be more complicated than you might expect!

In addition, because they are fairly uncommon landlords and tenants usually have precious little or even no knowledge about them. Even legal advisers and the property tribunals themselves do not always have a great deal of experience dealing with them.

Some might ask, should the tenants have applied for a rent repayment order against Mr. Kumar in the first place? (They were advised in the matter by the Justice for Tenants organisation.)

This case reraises a general point we often make: It is always advisable to question any enforcement actions you are faced with. And essential to take expert advice to guide you.

This case also raises a particular issue if you are party to a rent to rent scheme: Be sure to know what your legal responsibilities under it are. And make sure the arrangement you have with the other parties safeguards your interests and minimises your risk.

The decision of the Upper Tribunal can be read in full here.