Rakusen (Respondent) v Jepsen and others (Appellants) [2023]
The case was heard in the Supreme Court to determine who a Rent Repayment Order (RRO) could be made against. Whether only the immediate landlord or if a superior landlord could also be liable. The situation in this case may arise where the landlord enters into a “Rent to Rent” Agreement, meaning the tenant is allowed to sublet for commercial gain.
Facts
Mr Rakusen a leaseholder granted a tenancy of his flat to Investment Group Ltd who themselves entered into agreements with the Appellants granting them each possession of a room within the property. in doing so the property was a house in multiple occupation (HMO) and as such required to be licenced under Part 2 of the Housing Act 2004. The flat did not have the required licence.
The Appellants applied to the First-tier Tribunal for a RRO against the Respondent pursuant to Section 41 of the Housing and Planning Act 2016 on the basis that the Respondent had committed the offence of being a person having control of or managing a HMO without complying with the licencing requirements.
The Respondent argued he had not committed the offence as he was not the Appellants’ immediate landlord.
Decision
The Supreme Court took the view that it should apply a straightforward interpretation of the statutory provisions. It found it would be “artificial and unnatural” to extend the definition of a landlord to anyone other than the immediate landlord.
Superior landlords may still not be ‘home and dry’.
An order should only be made against the party in receipt of the actual rent paid from the tenant as a RRO requires the rent to be returned to those who have paid the rent, supporting that an immediate landlord ought to be the party responsible.
However it is important to note that lines can become blurred where superior landlords do have an interest within the immediate landlord’s affairs. This has been seen in Mansour v Lopez and Vicente the first Tribunal decision since Rakusen v Jepsen. In Mansour v Lopez and Vicente the superior landlord (Mr Mansour) was deemed to be liable. The reason being that there was no clear agreement between Mr Mansour and the company KJSZ Ltd who he argued was the immediate landlord. Further there was no difference between Mr Mansour and KJSZ Ltd as Mr Mansour had agreed himself with the tenants that they could pay KJSZ Ltd and therefore argued that KJSZ Ltd was acting as agent.
The decision should come as a stark warning to all landlords and agents.
Impact and considerations for landlords and agents
Any landlords attempting to create a separate company in a bid to try and absolve any personal liability and contract could still be deemed liable should contracts between themselves and tenants are considered ‘sham contracts’. Discussions between industry experts pose that changes in legislation making company directors liable for a RRO could assist in removing this option/’work around’ of the system and drive rogue landlords out of the sector.
Superior landlords must also be clear that even if they are not subject to RRO proceedings they could have criminal or civil sanctions imposed on them for breaching licencing or other legal requirements for which they are responsible to ensure compliance.
Whilst the decision in these cases was clear there is the imposing Renters Reform Bill which could reverse the Supreme Courts decisions if legislation is changed to implement superior landlords and not immediate landlords. Or perhaps by making both jointly liable.
For arguments sake it remains unclear whether there could be successful cases between immediate landlords and superior landlords and therefore vigilance is required.
There remains a further question over whether there could be a ‘defence’ should the superior landlord argue they did not know anything about their tenant’s intention to be letting rooms within the property to different individuals. Such an argument could be made where the tenant has been introduced to the landlord by an agent.
Typically, we would not expect such an argument to be successful given that the agent is considered an extension of the landlord and thus the landlord and agent are considered to know or to ought to have the same knowledge as one another when it comes to affairs relating to the property.
Agents ought to be careful that they are not leaving themselves vulnerable where they are recommending tenancies with companies or persons whose intentions are to let the property. These are often paraded as “rent guarantee tenancies” and in recommending these to landlords, agents could be leaving the landlord vulnerable to a number of other issues in addition to those contained within this article but potentially including possession.
Published 21 March 2023
