The Supreme Court has ruled that Rent Repayment Orders cannot be made against a superior landlord.
The landmark ruling has implications for rent-to-rent arrangements and means tenants cannot go after superior landlords – property owners or leaseholders - when seeking redress.
It is good news for those who find their property has been sublet unknowingly in rent-to-rent set-ups but not for tenants who struggle to take dodgy companies to task.
The case concerned landlord Martin Rakusen, the leaseholder of a flat in Finchley Road, London, who granted a tenancy to Kensington Property Investment Group (KPIG) which then let out the property without an HMO licence to three tenants - Mikkel Jepsen, Ronan Murphy and Stuart McArthur. The tenants applied to a First Tier Property Tribunal for a rent repayment order of £26,140 against Rakusen.
He challenged the order, arguing that it could only be made against the immediate landlord of the person making the application.
The Upper Tribunal dismissed his appeal, but the Court of Appeal subsequently found in his favour, agreeing that an RRO could not be made against a superior landlord.
The Supreme Court was unanimous in its decision that a RRO cannot be made against a superior landlord but only against the immediate landlord of the tenancy that generates the relevant rent - in this case KPIG.
The Justices said: “It would therefore be unnatural to interpret ‘landlord under a tenancy’ as referring to any landlord other than the landlord of the tenancy which generates the rent of which repayment is sought. It would strain the language to say that a superior landlord is ‘repaying’ rent to a tenant from whom it had never received any rent.”
They added that the law’s purpose was to restrict RROs to those who directly benefit from the payment of rent and that there were already a range of other sanctions available to combat rogue landlords such as fines, civil penalties and banning orders.
The NRLA had feared that it the case had gone the other way, then authorised rent-to-rent arrangements would have become less common, leading to a lower availability of budget accommodation to rent on a room-by-room basis.
NRLA chief executive Ben Beadle welcomes the judgement and adds: “The ruling makes clear that it is the responsibility of rent-to-rent companies acting as a landlord to ensure that relevant legal requirements are met, since it is they who receive tenants’ rent.
"t is simply not right that such companies can take money from people without any responsibility for the property they are running.”
Paul Shamplina of Landlord Action, says: "This is great news for landlords and it's clear the court has used common sense in realising that the contract was between the rent-to-rent operator Kensington Property Investment and the tenants, not the 'superior landlord' Mr Rakusen.
"Great work by the NRLA and David Smith, which sets a good precedent and will stop future spurious RROs being made in the future against head/superior landlords who are not involved in the transaction with the tenant, which has happened many times in the past.
"There remains a lot of work to be done on the rent-to-rent industry largely because there are so many rogue operators within it."