Rakusen v Jepson & Ors, Safer Renting Intervenor (2021) EWCA Civ 1150
This is the Court of Appeal judgment on an appeal from the Upper Tribunal (Lands Chamber) appeal (our report here). It is of huge significance for Rent Repayment Order applications where the tenants’ immediate landlord is an intermediate landlord (like all rent to rent set ups) or where there are so many and various companies involved that it is hard to work out who the immediate landlord actually is.
Briefly, the Upper Tribunal had found that section 40 Housing and Planning Act 2016 meant that a rent repayment order application could be made against any landlord of the relevant property for the relevant period of the relevant offence. Section 40 provides:
(1) This Chapter confers power on the First-tier Tribunal to make a rent repayment order where a landlord has committed an offence to which this Chapter applies.
(2) A rent repayment order is an order requiring the landlord under a tenancy of housing in England to—
(a) repay an amount of rent paid by a tenant, or
(b) pay a local housing authority an amount in respect of a relevant award of universal credit paid (to any person) in respect of rent under the tenancy.”
For the Upper Tribunal, the use of ‘a landlord’ in s.40(1) and ‘a tenant’ in s.40(2), rather than ‘the landlord’ and the tenant’ meant that an RRO application could be made against the superior landlord so long as the superior landlord could be found to have (also) committed the relevant offence. And that was what happened in Rakusen v Jepson – a failure to licence case, where the superior landlord was also found to be ‘in control’ because receiving a rack rent from the intermediate ‘rent to rent’ set up.
The superior landlord appealed to the Court of Appeal.
The Court of Appeal accepted that the policy background to the 2016 RRO regime might, in itself, extend to superior landlords as well as immediate landlords, but what fell to be decided in the appeal was the meaning of section 40(2).
I entirely accept that Chapter 4 of the 2016 Act is aimed at combatting a significant social evil and that the courts should interpret the statute with that in mind. I also accept that the policy of requiring landlords to comply with their obligations or leave the sector is one that that a legislator could well regard as applicable to superior landlords as well as immediate landlords. It nevertheless remains the case that Parliament has legislated to implement that policy only to the extent provided for by the language of section 40(2).
On the interpretation of s.40, the Court of Appeal preferred the appellant landlord’s argument.
‘Landlord’ was nowhere defined in Chapter 4 H&PA 2016. The reference to ‘a landlord’ in s.40(1) was because “the indefinite article is generally used where there is no antecedent reference to the landlord”. S.40(2) went on to refer the ‘the landlord’.
It was accepted by the Upper Tribunal that for a local authority, an RRO could only be made against the immediate landlord under s.40(2)(b) in respect of the universal credit paid in respect of rent under the tenancy. It would be illogical for s.40(2)(a) to be different in scope to s.40(2)(b).
The natural interpretation of s.40(2)(a) was
that “the landlord under a tenancy of housing” in the body of subsection (2) must refer to the landlord under the same tenancy as the tenancy held by the “tenant” referred to in paragraph (a). Only one tenancy was referred to, and it was that tenancy which enabled identification of both the tenant who could apply for an RRO and the landlord who could be made the respondent to that application. Otherwise, any tenant in a chain of tenancies could apply against any landlord in the chain.
and
The absence of any express limitation to an immediate landlord is immaterial, because the language used connotes a direct relationship of landlord and tenant.
If the drafter had intended the extension of RRO liability to superior landlords in s.40(2)(a) this would have been made more express.
It was the case that the offences set out in s.40(3) could be committed by a superior landlord, or in many cases, by someone who was not a landlord at all. However
section 40(2)(a) does not provide that an RRO can be made against any person who commits one of the specified offences. Nor does section 40(2)(a) provide that an RRO can be made against any landlord who has committed one of the offences: its wording is more specific.
The wording of section 1(3C) Protection from Eviction Act 1977, defining ‘landlord’ as ‘including any superior landlord’ did not assist the respondents, given the wording of s.40(3) H&PA 2016.
Appeal allowed.
Comment
For transparency, I was instructed by Safer Renting, with Justin Bates and Charles Bishop as counsel, on the written intervention. A crumb of comfort is that the Court of Appeal accepted the the policy intent and the ‘on the ground’ situation with dodgy rent to rent/intermediate landlords may both merit the extension of RROs to superior landlords. But the Court of Appeal consider that is now a matter for parliament, given the reading of s.40 it makes in the judgment.
Practically, this will make a significant difference to those seeking RROs against less than salubrious landlords.
Firstly, there is the problem that many ‘rent to rent’ setups are companies or persons of straw. An RRO may be made against them, but never recovered as the company will just fold, to be replaced by another which is suspiciously similar. For tenants, this means that they are expected to take on the expense of the application and the difficulty of establishing to the criminal standard that a relevant offence has been committed by the landlord, while facing a very high degree of uncertainty that they will ever recover any sums ordered. This is not a way to encourage RROs as a wing of enforcement, driving bad landlords out of the sector.
Secondly, there is the ‘criminal’ problem, as set out by Safer Renting here, where multiple disposable ‘companies’ are involved precisely to obscure responsibility and liability. Being able to enforce against the property owner (often, in the dodgier end of the market, the actual beneficiary of the rent) was an effective way to short circuit the tangled web of intermediate companies.
But, barring any appeal to the Supreme Court, that is now a matter for the Government and Parliament to resolve. In express terms. We will see if it is taken up in the allegedly forthcoming Renters Reform Bill…
Maybe the dictionary definition of “landlord” needs updating before we do anything else.
I don’t see that. There is no question that a property owner who lets to a rent to rent set up is a landlord. Nor that the rent to rent set up which then sub-lets to tenants is a landlord. What was at issue was not whether someone was a landlord, but which landlord the legislation meant.
Our problem is that so often what qualifies an individual or company as a ‘Landlord’ is also partly dependant on the contractual arrangements between owner and agents to clarify but unlike an EHO, a TRO doesnt have the statutory powers to demand documents related to a letting and given the dodgy photoshopped bailiff’s warrants and tenancy agreements we see, can you even trust them if you get them?
No owner will admit to allowing a sub let to take place, even though our subsequent investigations show they knew about it all along. Tenancy by estoppel argument doesnt get you much further in RRO terms either
We have a current case where the landlord set out on the tenancy agreement, is “J.Smith” (obviously not actually the case name) but in reality, as here, just an initial and a common surname but the rent is paid to a letting agent who employs someone of a nearly similar name. Its an RRO but the tenant has already left, so cant invoke s1 LTA 85 or s20A HA 88.
We cant go after J Smith because we have no other form of identity or contact details and whilst the rent is paid to the agent, who we could probably identify as the landlord/respondent but they are an insubstantial limited liability company, so we’d never get the money anyway.
We’re trying to decide whether to throw in the towel or proceed. Thats the future of RROs where the criminal and rogue community operate. We have 3 RROs with hearings coming up that we know we will now lose and several others at different stages of preparation that are probably not worth going ahead with
Of course this causes problems for current cases, we feel that to.
But what is at stake here is the whole RRO legislation and by that the safety and control afforded by licensing regimes. It will not take long for landlords to work out that shell companies give them Pfizer-like (or better!) immunity against RROs. Both routes need to be pursued: a further appeal and lobbying for legislation amendment in the interests of protecting some of the most vulnerable tenants in the Private Rented Sector.
Whilst rent to rent is not illegal in itself, there is a rogue business model that we deal with every single day, that is huge and pervasive, that legislation doesnt really recognise, simply because the various breaches are spread over numerous pieces of fragmented legislation that dont connect up, much of it related to dodgy practices of letting agents, who are normally the preserve of trading standards, in enforcement terms, who are not always best placed to deal with. There being being even less TSOs that housing enforcement and lets face it, this stuff is right in housing enforcement’s back door, not trading standards.
The laws on all this are naively constructed and dont reflect what is actually going on out there. Time to re-write the PFEA, consolidating all the ancillary stuff in one basket, the Housing and Planning Act, s40 Administration of Justices Act, Tenant Fees Act, s6 Criminal Law Act, s27 and s28 damages under the Housing act 88, S251 Housing Act 2004, all the housing and enforcement bits in one place, prosecuted by the same people.
Rogue landlords and agents proliferate partly because there arent enough enforcement officers in local authorities to take effective actin but also because the various laws are dissipated all over the place, the bureaucratic procedure for enforcing those laws are tortuous and unhelpful and there are too many loopholes that the criminals exploit
“Whilst rent to rent is not illegal in itself, there is a rogue business model..”
Then go after the Rogues.
Not the Rakusen’s.
When they hide behind shell ‘intermediate’ companies as supposed rent to rent landlords, how? Genuine question – how?
And once we’ve re-written the OED, then we can really get stuck in and sort things out.
https://find-and-update.company-information.service.gov.uk/company/09902531/filing-history
Well yes, the rent to rent company is skint. Quelle surprise.
At the time of RRO application?
Well yes, obviously if you look at the accounts.
Your blog, your train set, your last word.
You’ve used three different fake email addresses for your last three comments (all from the same IP address). And this last comment makes no sense whatsoever, after you had replied to me and before I had replied to you. But there we are, people are strange.
p.s
No spam emails.
Thanks.
Oh FFS, your email isn’t public, and if you seriously think that we are going to spam you or sell on your details you haven’t spent any time on this site or reading our T&Cs.
We don’t do advertising. We don’t pass any data on to anyone else unless there is a court order. We don’t charge. We don’t make any income from the site at all. It costs us. So you can stop being a pillock.
The problem for honest landlords, as you and I discussed last year https://nearlylegal.co.uk/2020/11/repayment-by-superior-landlord/#comment-6205532, is that even the landlord who forbids subletting/creating an HMO is in the firing line. The line of least resistance for Councils is to pursue the freeholder/person with the deepest pockets. Why should they bother to pursue a shell company or a director (possibly fictitious as Companies House conduct zero due diligence) when there is a hapless landlord with an asset?
I wrote: “.. if you are right that leads to the conclusion that even if a lease forbids subletting, the superior landlord is liable to an RRO because he has committed an offence. No mens rea, no actus reus is required. The superior landlord would be guilty if his tenant, in breach of the lease, creates an HMO which is not licensed. A defence under s72(5) may be difficult because the landlord has to have a “reasonable excuse” for having control of the unlicensed house but if “having control” simply means being in receipt of the rack rent what is the reasonable excuse for being in receipt of the rent? ”
and you replied: “Yes, that is the case, I think, at least for a s.72(1) offence. There may be a defence of reasonable excuse, of course. ‘I expressly didn’t permit this and didn’t know about it’ might well – if evidenced – succeed”
“May be a defence” is not great news for the landlord in the circumstances described.
You comment above: “And that was what happened in Rakusen v Jepson – a failure to licence case, where the superior landlord was also found to be ‘in control’ because receiving a rack rent from the intermediate ‘rent to rent’ set up.” The finding of being in control is a slam dunk, unless the superior landlord received no rent because he will always receive rent from the intermediate landlord.
Thankfully this case provides a fairer result and may reduce the claims against innocent landlords.
I agree that action needs to be taken to clamp down on “dodgy rent to rent/intermediate landlords” but the answer is not to persecute innocent landlords whose tenants act illegally and contrary to covenants in the lease. It would also help if landlords were not faced with the tangle of barbed wire and treacle to get through (complex pettifogging regulations and draconian penalties and being thrown out of court for trivial mistakes) to evict their misbehaving tenants but I cannot see Parliament doing anything on that front.
Disclosure – a few years ago I was falsely accused by a Council of running an unlicensed HMO. I had to spend hours of time to defend myself in what have been the end of my business, all because some Town Hall functionary found it easier to make false statements than to investigate properly. I complained to the Ombudsman but the ex-Council employee could see nothing wrong with Councils making false accusations.
The central issue here is naive landlords with unauthorised sublets vs criminal landlords fully complicit in a smoke-and-mirrors arrangement designed to side-step the law and deny tenants their rights, including compensation for harassment and illegal eviction.
Is it not reasonable to argue that there should be a change in the law such that the responsibility for the activity giving rise to the RRO claim can be assigned to the individual(s) responsible for the activity rather than to the corporate entity that they own or work for?
Harassment and illegal eviction are criminal activities committed by individuals who can be personally prosecuted, yet the RRO, which itself requires evidence to a criminal standard, nevertheless has to be applied for against the corporate landlord. It is also worth pointing out that an HMO licence has to be applied for and put in the name of an individual who is deemed to be a “fit and proper person” so it seems utterly ridiculous that a failure to hold such a licence carries no penalty against an individual but instead is laid against the corporate entity that failed to put forward such an individual and who can then simply fold to avoid any liability for the failure. Meanwhile the individual that SHOULD have held the licence, had they applied as representative of the company, is free to operate a new company that similarly then fails to put that person forward as the appropriate licence-applicant. Making the relevant individual(s) personally liable to the tenant for the wrong-doing would surely be a step in the right direction.
As a side note – a tenant of a corporate landlord who successfully applies for an RRO whilst still in residence presumably becomes the direct tenant of the superior landlord if the intermediate company should fold and therefore can wait a suitable time then pursue another RRO for the failure to license, this time against the superior landlord themselves. Alternatively, since the tenancy was with the since-dissolved company would their rent liability now vest to Crown Estates who hold the Bona Vacantia assets of the dissolved company, rather than to the superior landlord or to any subsequent intermediary that tried to step into the previous company’s shoes, so they could effectively live rent-free if the could avoid being illegally evicted and deal with the likely harassment?
Hi John. Directors as individuals can be gone after for some offences. But not for RROs, and, to be honest, I’m not sure that it would improve matters dramatically, as the directors are often puppet figures. Establishing who is actually behind it, and profiting from the offences, would be extremely difficult for anyone without substantial resources, time, and access to databases and information. Let alone proving it to the criminal standard.
An HMO licence can be granted to companies – it is not the case that it has to be an individual.
The position of sub-tenants is not straightforward. They would be likely to become the direct tenants of the owner if the intermediate landlord is liquidated, assuming the tenancy is disclaimed by the administrator – though often they just disappear, leaving their tenancy ongoing, or – more commonly – purportedly assign the tenancy to another set up before voluntary liquidation. Either way, the owner will have to terminate the intermediate tenancy. The owner should, of course, get licensed as soon as they are aware of the situation (assuming they are also an innocent party), but will also usually seek to terminate the (sub)tenancies of the occupiers as soon as possible. But no, nobody gets to live rent free in those situations.
Supreme Court has granted permission to appeal.
I fully appreciate the problems posed by the Rent-to-Rent sketchiness, and how this ruling causes problems for tenants in gaining accountability, and for that reason am crossing my fingers for the UKSC to rule in favour of extending liability to superior/ultimate landlords, and failing that, for Parliament to give a mitigation for this evasion tactic apparently opened up to landlords by this ruling.
However, at the risk of making myself quite unpopular in the midst of people whom I admire and respect, I must say in the spirit of objectivity and candour that, having watched the first part (more dominated by the tenants’ side) of the arguments before UKSC, I found Rakusen represented by Morris rather more compelling than Mr. Fitzpatrick. On the one hand, I found his elocution much easier to follow, perhaps itself obscuring some intrinsic strengths of Fitzpatrick’s arguments. On the other, the arguments themselves are compelling as he walks us through the contextual structure (and history) of the two acts, and I am left wondering a few points in case the earlier positions of both tiers of tribunals in the case are re-affirmed.
For example, as a superior LL will only have entered into an agreement and negotiated a (presumably lower) rate of rent with the intermediate entity (than what the residential tenants will have negotiated with the mesne LL), is the starting point to the RRO quantum to be an amount greater that that which was ultimately received by the superior LL? Logically, it doesn’t seem to hold that elegantly.
Also, as much as I would personally love it to, the argument that not punishing superior LLs for their intermediaries’ failures deprives tenants of meaningful opportunities for “redress” as such, for wrongdoing by their LLs, unfortunately doesn’t hold that well in my mind due to the well established fact that RROs were intended always as a penal sanction for criminality, not a means of compensation and redress for the tenants (although then one wonders why the tenant’s conduct should be given any consideration in deciding the amount of the penalty), which is usually in fact cited in tenants’ favour. Of course the real issue still remains, which might actually represent a stronger framing of the argument than the form which I’ve seen today, which is that, rather than depriving tenants of redress, it is depriving society of the effect of parliament’s intended penal deterrent where criminal actors are going to lengths to quite successfully evade intended punishments.
I think there were one or two other issues that had came up in my mind, but I’m having difficulty recalling them at the moment, not yet having slept any, but I guess I can perhaps more easily see the factual elements of the offence being more uniformly clarified to apply to mesne and superior landlords alike, ie. should they “reasonably” have been expected to know that there were X people there, X having brought the count over the license-requiring threshold. I suppose various common law provisions that might be said to form a traditional framework for understanding head landlords’ relationships with subtenants (which do apparently under certain circumstances assume a more direct character) also come to mind as potential lines of legal reasoning which may be employed to bridge this unfortunate gap.
(This is tricky, complicated stuff though, and I am quite certain that I have just recently run into some other areas where there were clearly oversights by all sides in ascertaining parliamentary intention (the courts seemingly included), where the 2004-2016 developments I’m nearly certain have resulted in effects that were surely entirely contrary to what was intended to be achieved by the novel additions of 2016 to the regime, which for tactical reasons I unfortunately cannot publicly discuss for the time being. But, while another night’s rest to mull it over couldn’t hurt, it seems clear to me at the moment that it’s easy to trace in this case exactly how parliament itself had overlooked the gaps in the extended provisions.)
I should say as a disclaimer for anyone reading that I haven’t yet thoroughly studied this or the previous decisions in the history of the case (being R v J), apart from (an admittedly probably fairly many) blog posts over the months about it, but I nonetheless hope that I’m not showing total ignorance with my comment, and that someone or other is still able to find it worthwhile.
Of course my observations are on a fully neutral intellectual level, while my actual sympathies lie with tenants and against the open flouting of accountability by the powerful, so I am dearly hoping we see these evasion tactics put an end to in one way or another by UKSC. We saw something very similar to this play out in action in the case involving John Christodoulou’s Simpson House 3 Ltd, where the LL brazenly flouted the Tribunal’s RRO with quite shameless asset stripping tactics involving transferring the property between structures of multiple levels of nested corporate shells:
“Land Registry documents show that in March, a month before the appeal, the apartment block then owned by Simpson House 3 Limited, which is wholly owned by Simpson House 2, which is in turn owned by Simpson House 1, which belongs to Christodoulou himself, was sold for £39 million to a company called Simpson Assets 3 Limited. The company is ultimately owned by John Christodoulou using the same sort of structure, through two other companies named Simpson Assets 2 and 1.”
That was after:
“The lawyers for Christodoulou … told the judge they intended to appeal the decision and asked to postpone the payment on the basis that it would be difficult for them to recover the funds from the renters if they were successful, confirming in writing that the landlord “has no intention of disposing of [the building] at this time”.”
(There is no indication at all or other reason to think that the lawyers themselves were complicit rather than candidly deceived by Christodoulou.)
…
“The judge said in his decision that “the landlord’s business practices involved a systematic or institutional neglect of regulatory requirements” and that his withdrawal from the appeal “at a late stage without any explanation” suggested the appeal itself could have just been a tactic to delay the rent repayment.”
(‘Our billionaire landlord owes us £24,000 in rent repayments’)
That being said, I do wonder what the purpose of the seemingly convoluted triple-layered structure of shells was, and why SH1 Ltd. (and then SA1 Ltd.) couldn’t have just directly owned the block while still serving the man’s sleazy purposes.
Anyway………..