No more RROs against superior landlords – what next after the Court of Appeal’s decision in Rakusen v Jepson?

Monday, September 27th, 2021 - By Robin Stewart, Solicitor, Anthony Gold

The Court of Appeal has ruled that only the ‘immediate’ landlord of a tenant can be liable for a rent repayment order in the important decision Rakusen v Jepson.

In the First-tier Tribunal, and then a second time in Upper Tribunal, the landlord’s argument that they could not be liable for a rent repayment order had been rejected. In a detailed judgment, the Deputy President of the Upper Tribunal Lands Chamber, Martin Rodger QC, had determined that the Housing and Planning Act 2016 permitted tenants in England to apply for an ‘RRO’ against not only their landlord, but also against their landlord’s landlord (the superior landlord), and anyone else higher up in the chain.

The Court of Appeal recently considered the issues afresh in Rakusen v Jepson & Ors, Safer Renting Intervenor (2021) EWCA Civ 1150 and reached the opposite conclusion. The court considered that language of the legislation indicated that RROs applied to the direct relationship of landlord and tenant, and it was irrelevant that no language expressly specified that the RROs could only be made against a tenant’s immediate landlord – this was implicit. This meant that the power for the tribunal to make a rent repayment order could only apply to require a landlord to repay rent received from their immediate tenant.

This outcome has been greeted with dismay by campaigners for tenants, on that basis that this outcome makes it much easier to evade rent repayment orders through the use of ‘rent to rent’ structures and limited companies. In general tenants preferred to bring claims against the property owner as it they would have a much better chance of enforcing any order against a property owner. I understand that the tenants in Rakusen v Jepson have applied to the Supreme Court for permission to appeal, but is likely to be several months before any decision is made on their application, so for the time at least being the Court of Appeal’s decision is the authoritative interpretation of the law.

The full reasons for the decision can be read in the court’s judgment. In this article, rather than summarise the reasons for the decision, I want to consider two aspects of the aftermath of the case. Firstly, what arguments are now likely to arise in the tribunal about who is or is not a landlord, and secondly, what sorts of amendments to the legislation could be made if Parliament wants to strengthen the viability of RROs.

Who is the tenant’s immediate landlord?

In most cases it is obvious who is the immediate landlord of the tenants in occupation as there will be a tenancy agreement saying who this is. However, this is not always the end of the matter.

The law recognises oral tenancy agreements, so the absence of a written tenancy agreement does not prevent tenants from applying for an RRO. However, there may be some argument about who the landlord is, and whether it is one individual or multiple persons acting as joint landlord.

The identity of the landlord can also change. The interest of landlord under a tenancy agreement can be assigned to another person. This can be for a fairly simple reason, such as the sale of the property. More complex scenarios would include the surrender of a lease between the immediate landlord and the superior landlord: upon the surrender to the ‘headlease’, the identity of the landlord will change. Even more complex issues will arise where a ‘rent to rent’ business is sold and the rights to collect rent in respect of a property is sold from one party to another. Tenants may find that they need to investigate these transactions carefully to establish who really was the landlord at the material time.

Finally, there will be cases where the person named on the written agreement was never the true landlord at all. For example, a rogue landlord might use a false name or a sham contract to disguise the true identity of the landlord. To establish who is the landlord, the tribunal will have to consider whether complicated arrangements are legitimate business structures, or whether they shams, designed to distract from the identity of the true landlord.

Before the Upper Tribunal first permitted claims to be made against superior landlord in Goldsbrough & Anor v CA Property Management Ltd & Ors [2019] UKUT 311 (LC) (29 October 2019), tenants were making lots of creative arguments to try to pin liability on property owners in cases where the immediate landlord was not good target. These sorts of issues have already started to re-appear in the tribunal.

Changes to the law

While the landlord won on the law in the Court of Appeal in Rakusen v Jepson, the judges appeared to be receptive to the point made by the intervenor Safer Renting (who were represented by my colleague Giles Peaker with barrister Justin Bates).

The court commented on the problems which the landlord’s interpretation of the law would cause for the letting sector, and accepted that the answer they had come did weaken the power of rent repayment orders to ensure compliance with licensing within the ‘rent to rent’ sector. The answer to this, says the Court of Appeal, is for Parliament to amend the legislation if they are not happy:

41. Safer Renting and the Respondents argue that the regime contained in Chapter 4 of the 2016 Act would be rendered less effective if Mr Rakusen’s interpretation of section 40(2)(a) were upheld, because of the prevalence of so-called “rent-to-rent” arrangements under which a superior landlord grants a lease to a company that rents out the property as an HMO. Such companies may fail to comply with the applicable statutory conditions, but have no assets against which an RRO can be enforced. If this concern proves well-founded, then Parliament may be moved to amend section 40(2)(a), but we have to interpret the provision as it presently stands.

The Renters Reform Bill (primarily the vehicle for the now long-awaited abolition of section 21 notices) does potentially provide a way to introduce such changes. No doubt some MPs will be persuaded that rent repayment orders are the best solution to encourage enforcement of housing standards legislation, since they empower tenants to impose a form of ‘fine’ on bad landlords without relying on resources or willingness from local authorities. However, other MPs may feel that extending powers for tenants to effectively carry out law enforcement duties is unwise, and that pursuing punishment against criminal offenders should remain primarily a matter for the state.

One possible compromise would be to extend the reach of rent repayment orders in a limited way only, so that where an RRO is made against a limited company, it may be enforced against the directors of the company if the offence was committed with their consent, connivance or neglect. That does breach the principle of limited liability of companies (“the corporate veil”) but since various criminal offences (including those under the Housing Act 2004) permit prosecutions against company directors, it would not be entirely novel for company director to face personal liability when companies they control commit criminal offences. This would reduce the risk that ‘rent to rent’ operators can flout the law and then evade punishment, while still limiting rent repayment orders to the direct ‘landlord and tenant’ relationship.

One more appeal?

The Supreme Court only hears the most important cases, and it will be a long wait before the tenant’s application for permission to appeal has been decided. Tenants who discover that they are living in unlicensed properties cannot afford to wait to see what happens, as the ‘limitation deadline’ to bring a rent repayment order application is only one year.

While a Supreme Court decision on rent repayment orders would be very interesting, I hope the Government and MPs give some thought to their strategy for enforcement in the private rented sector generally, whether this results in legislative changes to the rent repayment order regime or not. Local authorities have benefit from the power to impose civil penalties, but many smaller councils have not made the most of this. Some tenants have benefited from RROs, but this has come at a time when legal aid for other types of housing issue has been stripped back. Empowering more tenants to make RRO applications has resulted in more landlords facing consequences for not having a licence, but this is no substitute for proper resources to help tenants with more complex issues – that means well-funded environmental health and trading standards enforcement teams, and legal aid lawyers ready to represent tenants in the courts.

The author of this blog, Robin Stewart, is a Solicitor in the Housing team at Anthony Gold. His email is ros@anthonygold.co.uk.

Please note that the views and opinions expressed in these blogs are those of the author and do not necessarily represent the views of London Property Licensing. These blogs are designed to stimulate discussion and debate within the property industry. This article does not represent legal advice and should not be treated as such.

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