Kowalek v Hassanein Ltd (HOUSING – RENT REPAYMENT ORDER) (2021) UKUT 143 (LC)

An Upper Tribunal appeal decision on a Rent Repayment Order decision that raised three issue. t”he treatment of payments made by a tenant after the landlord has stopped committing the relevant housing offence, but in respect of rent arrears which fell due while the offence was being committed; secondly, the treatment of rent deposits; and thirdly, whether the failure of the tenant to pay rent and the existence of substantial arrears are matters of conduct which can properly be taken into account when considering the amount to be repaid.”

The application was in respect of a tenancy granted to the Kowaleks by Hassanein Ltd of a four bedroom flat in February 2019 at a rent of £3553.33 per month. The flat was subject to a selective licensing scheme since June 2018. No licence was obtained by the landlord or agents.

The tenants stoped paying rent regularly in August 2019. In the following 9 months only £2500 was paid. The landlord brought possession proceedings, which cam on for hearing on 28 January 2020. Meanwhile the tenants had applied to the FTT for a rent repayment order on 10 January 2020. The application was for £23,819.98, which was the amount of rent paid between February 2019 and the date of the application. The landlord applied for a licence on 27 January 2020, after being served with the application.

The tenants then sought to amend the application to include i) £2000 which they had paid on 28 January, the date of the possession hearing, and ii) the deposit of £4920 (which was protected in a deposit scheme).

The tenants left the flat on 24 March 2020, with no further payments having been made. Rent arrears of at least £20,373.31 had accrued.  The possession proceedings, now on the issue of rent arrears and deposit only, continue.

The FTT held:

i) the payment of £2000 after the application was issued could not be the subject of an RRO, as it was outwith the scope of the Act.

ii) The deposit, subject to separate proceedings, could in any event not be the subject of an RRO as i was not paid as rent.

iii) on the amount to be repaid, he tenants’ conduct in allowing arrears to accrue could be and should be taken into account, as a breach of duty under the tenancy. A 50% deduction was appropriate.

An RRO was made for £11909.99.

The tenants appealed. On the three issues, the UT held:

i) payments made after the date of the application. While the tenants argued that this was payment of arrears of rent that had fallen due during the period of the offence, the UT was not persuaded. The landlord ceased to commit the offence when the licence application was made. Section 44(2) Housing and Planning Act 2016 firstly limits the amount of rent that can be claimed for to rent paid during the period of the offence (on licensing offences).

The second limitation, on which Ms Lyne’s submissions concentrated, is additional to the first and different from it.  To be capable of being the subject of a rent repayment order, a sum must also “relate to rent paid by the tenant in respect of” the period, not exceeding 12 months, during which the landlord was committing the offence”.  It is implicit in this formulation that an instalment of rent may need to be apportioned between periods before and after the landlord was committing the offence.  If a tenant pays three months’ rent at the start of a tenancy to a landlord who fails to apply for a necessary licence until the end of the first month, so as to have committed an offence contrary to section 95(1), Housing Act 2004 throughout the first month but not thereafter, only the first month’s rent could be the subject of a rent repayment order.  The remaining two months’ rent would not be eligible as they would not have been paid in respect of the period during which the landlord was committing the offence.

The FTT decision was right.

ii) the relevance of rent arrears.

Ms Lyne (for the tenants) submitted that the existence of rent arrears was legally irrelevant and could not be taken into consideration, for two reasons.  First, because it was no part of the policy underlying rent repayment orders that they should punish the conduct of tenants; the only relevant policy was to deter the commission of housing offences and to discourage the activities of “rogue landlords”.   And secondly, because to reduce a rent repayment order because of the existence of substantial arrears would be “double counting”, as Ms Lyne put it.  The FTT could only order the repayment of rent which had actually been paid, so a tenant in arrears could not benefit from an order to the same extent as a tenant who was fully paid up.  The amount paid, and therefore the amount of any arrears, was already taken into account when assessing the maximum amount which could be ordered to be repaid; it should not then be taken into account for a second time when considering by how much that maximum should be reduced to reflect the tenant’s conduct.

I do not accept Ms Lyne’s submissions.  No question of double counting or punishment arises.  A tenant in whose favour a rent repayment order is made cannot be regarded as being punished by a reduction in the amount of the order below the maximum permissible.  From the point of view of the tenant, any repayment is a windfall.  It is of course the case that some tenants in whose favour orders are made have been the victims of serious housing offences (harassment or unlawful eviction) or will have lived in hazardous or unpleasant conditions because of breaches of their landlords’ obligations.  But that will often not be the case.  As the Tribunal said in Rakusen v Jepsen (2020) UKUT 298 (LC) at (64), unlicensed accommodation may provide a perfectly satisfactory place to live, despite its irregular status, and the main object of rent repayment orders is deterrence rather than compensation.

Section 44(4)(a) requires the FTT to take into account the conduct of the tenant when determining the amount of an order.  No limit is imposed on the type of conduct that may be considered, and no more detailed guidance is given about the significance or weight to be attributed to different types of conduct in the determination.  Those questions have been left to the FTT to resolve.  I can think of no reason why relevant conduct should not include the conduct of a tenant in relation to the obligations of the tenancy.  Failing to pay rent without explanation (and none was offered to the FTT or on the appeal) is a serious breach of a tenant’s obligations.  Parliament intended that the behaviour of the parties to the tenancy towards each other should be one factor to be taken into account.

Appeal on this issue dismissed.

iii) Treatment of the deposit

The FTT was right. “The deposit was not “an amount of rent paid by a tenant”, as section 40(2) requires, because it had not been paid as rent, but as security for the performance of the tenants’ obligations.”

However, in circumstances where a deposit was released from protection and used by the landlord against rent arrears, it would be possible to take it into account as a sum in the RRO. S.52(2) Housing and Planning Act 2016 provides as the extended definition of rent “an amount that a tenant does not pay as rent but which is offset against rent is to be treated as having been paid as rent.”. The payment would still have to meet the s.44(2) criteria as above.

Appeal dismissed.

By the way, the Court of Appeal is hearing the landlord’s appeal in Rakusen v Jepson this week, on 22 July.