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Legal case: rent repayment orders - honesty the best policy


A Rent Repayment Order (RRO) is an order that allows a tenant or local authority to reclaim rent or housing benefit where a landlord rents out an unlicensed property, such as a house in multiple occupation (HMO).

Rent Repayment Orders are obtained through a residential property tribunal (RPT).

Whereas tenants can now apply for a RRO direct to the tribunal, local authorities can only apply for a RRO where tenants pay their rent with the assistance of housing benefit.

In order avoids evicting all the tenants in an HMO when the landlord is successfully prosecuted by a local authority. For example, this might be when the landlord is operating without an HMO licence, potentially creating a chaotic situation.

The RRO was introduced in the Housing Act 2004 Act. It allows a compromise situation: the Act specifies that tenants' contracts in an unlicensed HMO must continue to operate, and tenants must continue to pay rent. However, they could then have the right to a rent repayment from their landlord.

In The Housing and Planning Act 2016, the RRO legislation was amended and expanded to include the following situations:

  • Breaches of improvement orders and prohibition notices and of licensing requirements under the Housing Act 2004
  • Violent entry under the Criminal Law Act 1977
  • Unlawful eviction under the Protection from Eviction Act 1977
  • Breach of Banning Orders (new in this Act)

Two cases are of interest here: In the Leibel v Baird case [May 2021], an application for a RRO was made by one tenant in respect of an unlicensed HMO property, and she included in her application a Rule 13* costs application.

In the Supreme Court case of Rakusen v Jepsen & Ors [2023], the question arose as to whether a RRO can only be made against a tenant's immediate landlord, or whether they can be made against a landlord (usually owner) higher up in a chain of tenancies (e.g. the landlord of the tenant's immediate landlord) – referred to as a "superior landlord". This affects the so call rent-to-rent market where owners rent to managers who intent to rent out and manage the property themselves.

Leibel v Baird

In Leibel v Baird, Ms Leibel was one of five tenants in the HMO property, on a tenancy agreement made with Mr Baird, the property owner. The property did not have an HMO license to operate and Ms Leibel realised this was illegal and applied to the Tribunal for an RRO in the sum of £5382. The landlord Mr Baird's defence was based on his argument that the property did not need a licence as there were only four occupants.

A house in multiple occupation (HMO) is a property rented out by at least 3 people who are not from one 'household' (for example, when it's a family) but share facilities like the bathroom and kitchen. It's sometimes called a 'house share'. Landlords renting out an HMO in England or Wales should check with the local authority to see if it needs a licence. Large HMOs always need one if it is rented to 5 or more people who form more than one household and some or all tenants share toilet, bathroom or kitchen facilities.

Submitting evidence before the hearing, Mr Baird had sent in a copy of a tenancy agreement which was signed by only four tenants. In response to this Ms Leibel sought and was given permission to submit additional witness statements from two of the other tenants, stating that there were 5 tenants in the property. When the tenancy commenced all the tenants had signed the agreement together and Mr Baird took the document away.

Mr Baird at the hearing gave evidence, insisting that there were only four tenants and he was very unpleasant to Ms Leibel in cross examination. Mr Baird was then asked to produce at a further hearing the original copy of the tenancy agreement, along with his bank statements showing rent payments. He was reminded that he might seek legal assistance given his evidence was being challenged.

The crunch

On day two, around three weeks later, Mr Baird was represented by Mr Des Taylor of 'Landlord Defence' who said he had sent in a copy of the tenancy agreement and the relevant bank statements. He said he hadn't realised that the Tribunal needed the original copy of the agreement, but in fact Mr Baird had destroyed it, which he claimed he did routinely after scanning.

Mr Taylor went on to say that the bank statements showed payments from five people and that his client now realised that he was operating a property which should have been licensed as an HMO.

The Judge asked if Mr Baird now accepted that he had committed the offence alleged of running an HMO without a licence and that he was liable for a RRO? Mr Taylor said his client was no longer relying on the evidence he had originally filed and was withdrawing it, including all his statements and documents filed, save for the bank statements. He stated that his client now accepted that a RRO should be made out in the sum claimed of £5,382.

The Judge asked Mr Taylor to confirm that his client was admitting the criminal offence of operating without an HMO license and that the Tribunal should make out a rent repayment order in the sum of £5382. Mr Taylor confirmed.

Rule 13 costs

The Tribunal then turned to matter of the Rule 13 costs application, made on the basis that Mr Baird had acted unreasonably in defending or conducting the proceedings: lying about the number of tenants in the property, putting forward a false account, forging a tenancy agreement and aggressively cross examining the claimant.

Mr Taylor tried in vain and at length to defend some of Mr Baird's actions but the Judge reminded Mr Taylor he had on behalf of his client already admitted the offence. Mr Taylor accepted this but questioned the amount of the legal costs (£22,000) being claimed. He suggested it was not reasonable to apply such high costs to the claim of £5832 and that the solicitor's hourly rate was excessive.

The Tribunal made out the RRO in the sum of £5,832, plus a £300 application fee. In respect of the Rule 13 costs, the Tribunal found that Mr Baird had deliberately obfuscated matters and in signing the statement of truth he had deliberately misled the Tribunal - 'It would now appear that there is nothing within Mr Baird's statement which can be said to be true' and Mr Baird has treated the Tribunal with contempt.'

Costs were awarded on an indemnity basis, the Judge stating that the legal costs were reasonable and costs of £21,512 was ordered.

The Lessons here:

By trying to hoodwink the Tribunal and defend the indefensible in this way Mr Baird's conduct exacerbated matters and brought down the wrath of the Tribunal on his head.

The case shows not only the importance of being honest in these matters, but of following the rule of the law in the first place, and of keeping and producing accurate documentary evidence. Rule 13 costs on RROs are not commonly applied by claimants. This claimant it seems was very well advised.

*Rule 13 permits the Tribunal to make an order for costs if a claimant or defendant has acted unreasonably in bringing, defending or conducting proceedings. The rule was introduced under the new First Tier Tribunal (FTT),lifting the previously capped costs ceiling of £500.

Rakusen v Jepsen & Ors

In the second case, the Supreme Court appeal case of Rakusen v Jepsen & Ors [2023], the respondent, Mr Rakusen, was the landlord leaseholder of a flat in London. In May 2016 he granted a short residential tenancy of the flat to a company called Kensington Property Investment Group Ltd ("KPIG"). KPIG subsequently entered into separate agreements with each of the three tenants by which they were each granted a right to occupy one room in the flat in exchange for a fee.

As a result of this arrangement the flat was required to be licenced as a "house in multiple occupation" or"HMO" under the Housing Act 2004. However, no such licence was ever obtained by Kensington Property.

In 2019 the tenants applied for Rent Repayment Orders against Mr Rakusen on the basis that he was said to have committed an offence of being in control or management of an unlicensed HMO contrary to section 72 of the Housing Act 2004. Mr Rakusen denied that he committed such offence. He also applied to strike out the tenants' claims arguing that a Rent Repayment Order could only be made in favour of the against the immediate landlord, that being KPIG.

The First-tier Tribunal had refused to strike out the tenants' claims against Mr Rakusen and the Upper Tribunal dismissed Mr Rakusen’s appeal. Both held that it was possible to make a Rent Repayment Order against a superior landlord. However, the Court of Appeal subsequently reversed that decision.

To the landlord's relief, and that of other landlord who rent out to property managers by way of what has become know as rent-to-rent, The Supreme Court unanimously dismissed the tenants' appeal. It holded that a Rent Repayment Order cannot be made against a superior landlord. Lord Briggs and Lord Burrows give a joint judgment with which the other members of the panel agree.

Reasons behind the Supreme Court Judgment

A straightforward interpretation of the words in section 40(2) of the Housing and Planning Act 2016 is that a Rent Repayment Order cannot be made against a superior landlord and can only be made against the immediate landlord of the tenancy that generates the relevant rent.

This is because Rent Repayment Orders can be made against "the landlord under a tenancy of housing in England" (section 40(2)), who can be required to "repay an amount of rent paid by a tenant"(section 40(2)(a)). The "rent paid by a tenant" plainly refers to the rent paid under the "tenancy of housing" referred to previously. 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.

The words "repay … rent paid by a tenant" also support this interpretation. They refer to a landlord repaying rent that it has received directly from the tenant. 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.

The Court considered that, on balance, wider contextual factors and an examination of the purpose of the provision support or, at least, are consistent with this straightforward interpretation.

First, when Rent Repayment Orders were originally introduced by the Housing Act 2004. They could only be made against the immediate landlord. There is no indication, including in pre-legislative material, that the purpose was to change this when the legislative scheme was revised in 2016.

Second, although some of the offences which form the basis of a Rent Repayment Order can be committed by superior landlords, some can also be committed by people who are not landlords at all (eg property agents). There was no suggestion that Rent Repayment Orders could be made against these other non-landlord offenders. It seems that the purpose was to restrict Rent Repayment Orders to those who directly benefit from the payment of rent – i.e., immediate landlords.

Third, there is a range of other sanctions available to combat rogue landlords. These include fines, civil penalties and banning orders. Ultimately it is a matter for Parliament to decide whether these are sufficient, said the judges.

Fourth, allowing a Rent Repayment Order to be made against a superior landlord could create complexity as to how much was payable by whom and to whom where there is a chain involving numerous tenancies.

Fifth, the straightforward interpretation is supported by reading section 40(2)(a) together with section 44(3) of the 2016 Act. Support is also found in the fact that certain offences under the Protection from Eviction Act 1977 expressly extended the definition of landlord to include "any superior landlord", but this was not done in the provisions relating to Rent Repayment Orders.

Sixth, taken as a whole, the pre-legislative materials are consistent with the straightforward interpretation that Rent Repayment Orders are not available against a superior landlord.

Finally, the straightforward interpretation is supported by the principle that where there is any doubt as to whether a statutory provision imposes a penalty on someone it should be resolved in favour of not imposing the penalty.

The conclusion reached by the Court was that the additional relevant interpretative factors on balance support or, at least, are consistent with the straightforward interpretation of the words of section. A Rent Repayment Order cannot therefore be made against a superior landlord.

The Lessons here:

This judgement provides some protection to the landlord who decides to rent to a property manager. However, there are many issues arising from rent-to-rent arrangements when letting to irresponsible managers. These arrangements can result in many legal complexities, so care must be taken to ensure that the arrangement is set-up and documented properly - always consult an experienced property solicitor in these situations.


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