As well as the process of criminal convictions and fines which results from the failure to have the necessary property licence as required by the Housing Act 2004 there is a further penalty which can be imposed on unlicensed landlords. This is the Rent Repayment Order or RRO.
The RRO allows the occupiers of a property, or the relevant local authority, to recover rent or housing benefit paid to an unlicensed landlord. The Order is pursued, not through the Courts but through the Residential Property Tribunal (RPT) who have a jurisdiction to hear a number of matters under the Act.
The exact purpose of the RRO, as a recovery or a punishment is not entirely clear. There is a clear advantage for a local authority in recovering housing benefit payments and also for an occupier to recover payments made and the RPT has said that they are partly there to “prevent exploitation of public resources by those who have acted in breach of statutory requirements” (see Newham LBC v Ring). What is less clear is whether a recovery by an occupier is to compensate for the reduced value of an unlicensed property or actually to punish the landlord for not having a licence. The RPT has stated in some decisions that it sees the RRO as a punishment (see for example the decision of the Midland RPT in Jennings & Others v Malik) but when calculating how much to return to the occupiers it tends to look at the condition of the property and its reduced value to the tenants due to its failure to be in a condition which it would need to be in to obtain a property licence. More probably, the real reason for allowing occupiers to recover money by way of an RRO is to incentivise them to report unlicensed properties and so assist local authorities with the detection of them.
The right of recovery is only available as against a landlord. The RPT recently dismissed a case against a managing agent on the basis that they were not liable (see Corless & Others v Citi Quays Ltd). LACORS had previously suggested in guidance that a managing agent could be liable for an RRO but this guidance has now been revised.
A local authority can apply for an RRO in respect of housing benefit as soon as it believes that a landlord is not properly licensed. If the landlord has already been convicted by a magistrates court of non-possession of a licence then the RPT will simply look at what should be returned. However, if the landlord has not already been convicted the RPT will need to make a determination as to whether the landlord has operated an unlicensed property in breach of the law and it has held that it will adopt a criminal standard of proof in so doing (see Newham LBC v Ring). To be able to obtain an RRO the local authority must have sent the landlord a notice informing him of their intention to seek an RRO within 12 months of an offence of operating an unlicensed property being committed. Section 74(8)(a) of the Act also imposes a litigation on recovery of benefit payments to a maximum period of 12 months immediately prior to the date of the notice described above.
An occupier is more restricted in his rights to apply for an RRO. Section 73(8)(a) prevents an occupier from making an application until the landlord has either been convicted of operating an unlicensed HMO or the local authority has made a successful application in respect of housing benefit. Therefore an occupier is dependent on the local authority taking action in order to be able to exercise his rights. More importantly, the occupier is further restricted by s74(8)(b) in that he can only recover monies paid in the 12 months immediately proceedings his application to the RPT. This is, of course, different from the position of the local authority who can recover monies for the 12 months preceding their formal notification to the landlord and places the occupier completely in the power of the local authority in respect of whether and how much, they can recover.
This problem for occupiers is not lost on many landlords who will attempt to delay criminal proceedings against them so as to ultimately reduce the amount that can be recovered by occupiers under an RRO. If one considers that the maximum fine for a failure to obtain a licence is £20,000 while a large HMO can easily earn more than £60,000 per annum in rent it can be seen that it is in a landlord’s interest to plead not guilty to a summons for a failure to obtain a licence, accepting the probability of a slightly greater fine on conviction, to draw out proceedings by a month or two and thereby reducing the period of time for which the occupiers can seek an RRO. Therefore, occupiers and their advisors should keep pressure on local authorities to prosecute promptly and not to allow proceedings to be delayed by unavailability of witnesses or the like. Equally, occupiers who are asked to be a witness in a criminal prosecution should remember that their own interests are best served by a prompt prosecution and should not make themselves unavailable for hearings.
The need for an occupier to wait for the local authority to act is a significant flaw in the legislation that is crying out for amendment. At the very least the occupiers should be permitted to make a recovery in the 12 months preceding a service of a notice of recovery by the local authority, which would at least put them on an equal footing. Local authorities could do more to help by making sure that prosecutions happen promptly and also by making the punishments more severe to discourage landlords from deliberately drawing proceedings out. This is can be accomplished to some extent because a landlord who fails to have a licence is almost inevitably in breach of one or more of his obligations under the HMO Management Regulations, breach of which caries a maximum fine of £5,000 for each count. Therefore local authorities should ensure that they prosecute every offence available to encourage the landlord to plead guilty on the basis that the reduction offered by this will be less than the amount they stand to gain by delaying an RRO. The magistrates courts could also assist by being aware of the desire of landlords to delay matters and imposing maximum fines on those who have clearly done so in order to hinder and RRO application.
Other key points for those representing occupiers to note are the fact that it is up to the occupiers to make the application and to provide the evidence and therefore they should not simply rely on the Council to do their work for them. In a recent case the Council did attend the hearing to provide evidence but the occupiers themselves, having provided the evidence failed to actually turn up. While they did get an award the RPT commented on their lack of attendance and it probably did not help the level of award made (see Corless & Others v JCS Developments Ltd). Parties do have the option of asking the RPT to proceed on paper only. However, many occupiers wish to ‘have their day’ and insist on an oral hearing even though they have little to actually contribute. Advisors and occupiers should consider whether their attendance, rather than provision of written evidence will add any real value to the process, particularly in light of the RPT’s reluctance to award costs.