Why Rent Repayment Orders can pose a significant financial risk for private landlords
It is over 12 years since Rent Repayment Orders were first introduced under the Housing Act 2004. The legislation enables local authorities and/or tenants to recover up to 12 months rent if a landlord operates a licensable property without applying for a licence or a temporary exemption from licensing.
In the early years, tenant applications were rare as the landlord had to be convicted of operating a licensable but unlicensed property before the tenants could apply.
In April 2017, the Housing and Planning Act 2016 introduced significant changes to the Rent Repayment Order regime. Firstly, the ability to apply for an Order was applied to a wider range of offences:
- Using violence to secure entry
- Eviction or harassment of occupiers
- Failure to comply with an improvement notice or prohibition order
- Operating a licensable but unlicensed property
- Breach of a banning order
Secondly, tenants no longer have to wait for the landlord to be convicted of a relevant offence. Instead, tenants can apply directly to the First-tier Tribunal if they can prove beyond reasonable double that an offence has been committed.
These new rules apply to offences committed since April 2017 and include situations where a licence application is not submitted until after the tenants have moved in.
Tenant application for Rent Repayment Order
A recent case helps to illustrate the risk. Mr Z was a private landlord who had been renting out his two bedroom flat in Camden since 2011. It was his only property and he had instructed a major high street letting agent to manage the property on his behalf.
In August 2017, Mr Z entered into a one year assured shorthold tenancy agreement with three tenants who had been referenced and recommended by his managing agent.
It was not until after he agreed the tenancy that his agent pointed out the need for an HMO licence. This was because occupation by three people comprising two households fell within Camden’s additional licensing scheme. The agent had initially told the tenants that no licence was needed.
To ensure compliance, Mr Z asked his agent to sort out the licence for him as he had no involvement in the day to day management of the property. The agent declined, saying it was not a service they offered and nor did they signpost him to anyone else. With just four days before the tenants were due to move in, he therefore started to complete the council’s online application form.
On discovering the need to upload an electrical certificate, he asked his agent for the latest certificate, only to be told it had expired. Thus, one day before the tenants were due to move in, an urgent electrical inspection was arranged.
The electrical test found the installation to be unsatisfactory. The electrician sourced by the agent quoted over £9,000 to rewire the flat, with the work likely to take two weeks. Thus the licence application was delayed and by now the tenants had moved in.
Concerned at the high cost, Mr Z instructed another electrician to carry out the work which was completed on 15 December 2017 at a cost of £2,400. Negotiating access with the tenants to complete the work had added to the delay. An Electrical Installation Condition Report (EICR) was received on 19 December and the licence application was submitted the following day.
On 5 January 2018, the tenants submitted a Rent Repayment Order application to the First Tier Tribunal. They were seeking to recover £10,894.91 which was the total rent paid from 18 August to 20 December 2017.
In accordance with Tribunal Directions, each side prepared a bundle of documents and an oral hearing took place on 30 May 2018.
In a decision made on 17 July 2018, the Tribunal found that an offence had been committed of operating a licensable HMO without a licence. They rejected a defence of reasonable excuse. The Tribunal decided to make a Rent Repayment Order under section 43 of the Housing and Planning Act 2004.
In determining the amount, the Tribunal took account to account of relevant factors including:
- The conduct of the landlord and the tenant;
- The financial circumstances of the landlord; and
- Whether the landlord had been convicted of a relevant offence.
There was no dispute about the amount of rent that had been paid. It was acknowledged that this was Mr Z’s only property, that he had no prior history of non-compliance and he had not been convicted of any offence. It was also acknowledged that he had employed a managing agent to advise him of his obligations.
During the period in dispute, Mr Z had paid out more than he had received in rent. Over £16,000 was spent on management fees, repairs and maintenance, mortgage payments and other ancillary costs, with the Tribunal noting he had not been well served by his agent in relation to this matter.
It was noted that the tenants were well aware of the HMO licensing rules and their opportunity to reclaim rent, and that they could have declined to accept the property until a licence application had been submitted. It was also noted that they had use and occupation of the property throughout the relevant period.
Taking all these factors into account, the Tribunal decided it would be fair and reasonable to make an order for £4,500, with Mr Z required to pay each tenant £1,500 within 28 days.
As this case demonstrates, if a private rented property needs to be licensed, it is important to ensure that the licence application is submitted before the tenants move in. Otherwise, the landlord may be ordered to pay up to 12 months rent.
Other sanctions could also apply, including prosecution in the Magistrates Court, or a civil penalty of up to £30,000. In this case, the council took no legal action against the landlord as they noted he had been fully compliant throughout their investigation and there were no aggravating factors. However, they did issue the managing agent with a financial penalty.
Case reference: LON/00AG/HMK/2018/0003
The author of this blog, Richard Tacagni MCIEH CEnvH, MD, London Property Licensing was instructed to represent the landlord in the proceedings. You can contact him at Richard@londonpropertylicensing.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.
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