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11/10/2021

Rent Repayment Orders – not ALL the rent.

Williams v Parmar & Ors (HOUSING – RENT REPAYMENT ORDER) (2021) UKUT 244 (LC)

We knew that the Upper Tribunal has been itching to get an appeal on the approach to the assessment of the amount of a rent repayment order, ever since Ficcara v James, apparently being keen to make the point that ‘the full rent’ was not a starting point in the criminal sentencing sense, as it could not go up beyond that according to landlord conduct. This, it appears, was that case (although it nearly wasn’t, as we’ll see).

The RRO application was by the six former tenants of an unlicensed HMO. Conditions at the property had also meant they asked the local authority EHO to inspect, which resulted in a) the tenants being informed the property was not licensed, b) a ‘Preliminary Improvement Notice’ listing a number of defect to be remedied, including two category 1 HHSRS hazards (fire safety and excessive cold), and c) a finding that one of the bedrooms was too small for the licensing scheme. (The landlord, self described as a ‘professional landlord’ with a ‘modest portfolio’ of properties, did apply for a licence in February 2020, shortly before the tenants left in March 2020, but the application was rejected on the room size and the lack of remedial works).

The FTT had awarded the tenants 100% of rent, minus an amount for utilities costs, based on the UT decision in VadamalayanThe landlord had appealed, but the grounds on which permission was given were:

a. the correct rental period was not applied by the FTT in calculating the amount of the RROs, and so the amount should be reduced (Ground A);

b. the amounts of the interest-only mortgage monthly payments paid by the landlord should have been deducted from the amount of the RROs, since an RRO should only reflect the profit made by the landlord from the commission of the relevant offence (Ground B);

c. the FTT had insufficient regard to the landlord’s financial circumstances and state of health in determining the amount of the RRO (Ground C).

Ground C was abandoned, but Ground B – doomed to fail as originally stated – turned instead into an argument “that the FTT had erred in its approach to quantifying the amount of the RROs by rejecting as irrelevant all factors other than those specified in s. 44(4).”

The UT was prepared to entertain that argument and found that

the tenants, with some assistance from the Tribunal, were able to participate fully in arguing the point, to the extent that, as non-lawyers, they were able to do so. They were fully able to make observations about whether the FTT had gone wrong in awarding them too high a figure. Their skeleton argument also ranged more widely than the narrow question of the interest-only mortgage repayments. I do not consider that they were disadvantaged by the fact that a ground of appeal had not spelt out the argument that the landlord advanced at the hearing. In those circumstances, I consider that it is just to allow the landlord to raise the point without notice and I grant permission for an amended Ground B to include the argument that I have summarised.

Ground A did not last long – the landlord had presented no evidence as to when the licence application was submitted in February 2020 (or any evidence of it at all), and it was therefore not an error for the FTT to decide that the March 2020 date was the end date. The Landlord had not raised this point before the FTT, and the tenants had not had the opportunity to address it.

The revised ground B, however, succeeded. The President of the Upper Tribunal made a number of findings on the correct approach to assessing the amount of an RRO.

39. I am not clear what the FTT meant in (20) when it said that the decision in Vadamalayan deprived it of discretion to increase the amount of the orders. The 2016 Act does not permit orders to be made in amounts greater than the amount of rent paid by a tenant during the relevant period. The FTT then appeared to look for meritorious conduct on the part of the landlord that might justify reducing the adjusting starting point.

40. It seems to me that the FTT took too narrow a view of its powers under s. 44 to fix the amount of the RROs. For reasons already given, there is no presumption in favour of the maximum amount of rent paid during the period, and the factors that may be taken into account are not limited to those mentioned in s. 44(4), though the factors in that subsection are the main factors that may be expected to be relevant in the majority of cases.

41. In my judgment, the FTT also interpreted s. 44(4)(a) too narrowly if it concluded that only meritorious conduct of the landlord, if proved, could reduce the starting point of the (adjusted) maximum rent. The circumstances and seriousness of the offending conduct of the landlord are comprised in the “conduct of the landlord”, so the FTT may, in an appropriate case, order a lower than maximum amount of rent repayment, if what a landlord did or failed to do in committing the offence is relatively low in the scale of seriousness, by reason of mitigating circumstances or otherwise. In determining how much lower the RRO should be, the FTT should take into account the purposes intended to be served by the jurisdiction to make an RRO: see (43) below.

The approach to be taken was not, as the landlord argued, ‘what amount was reasonable in any given case’. The approach should be:

50. (…) A tribunal should address specifically what proportion of the maximum amount of rent paid in the relevant period, or reduction from that amount, or a combination of both, is appropriate in all the circumstances, bearing in mind the purpose of the legislative provisions. A tribunal must have particular regard to the conduct of both parties (which includes the seriousness of the offence committed), the financial circumstances of the landlord and whether the landlord has at any time been convicted of a relevant offence. The tribunal should also take into account any other factors that appear to be relevant.

51. It seems to me to be implicit in the structure of Chapter 4 of Part 2 of the 2016 Act, and in sections 44 and 46 in particular, that if a landlord has not previously been convicted of a relevant offence, and if their conduct, though serious, is less serious than many other offences of that type, or if the conduct of the tenant is reprehensible in some way, the amount of the RRO may appropriately be less than the maximum amount for an order. Whether that is so and the amount of any reduction will depend on the particular facts of each case. On the other hand, the factors identified in para 3.2 of the guidance for local housing authorities are the reasons why the broader regime of RROs was introduced in the 2016 Act and will generally justify an order for repayment of at least a substantial part of the rent. This is what Judge Cooke meant when she said in Vadamalayan that the provisions of the 2016 Act are rather more hard-edged than those of the 2004 Act, which included expressly a criterion of reasonableness. If Parliament had intended reasonableness to be the criterion under Chapter 4 of Part 2 of the 2016 Act it would have said so.

In this case, there was no relevant bad conduct by the tenants. The landlord did not have any relevant previous convictions but

She was, however, a professional landlord who must be taken to have known the requirements for licensing an HMO. The failure to apply for a licence is unexplained in evidence, save that the landlord said that she overlooked it. There is nothing in her financial circumstances or her conduct to justify reducing the amount of the RROs. The landlord only applied for a licence after an environmental health officer had visited and itemised deficiencies of the Property and the absence of a licence. The Property would not have obtained a licence without further substantial works, had the landlord applied for one, and her February 2020 application was in due course refused because the works had not been done. The inference to be drawn is that the landlord wanted to be able to derive rental income from the Property before she was in a position to do the further works that were necessary to enable her to obtain an HMO licence. There were serious deficiencies in the condition of the Property, which affected the comfort of all the tenants, and the undersized bedroom affected Ms Susans particularly.

These factors, the UT held were illustrative of ‘the kind of evaluative exercise that the tribunal needs to conduct when making an RRO in a case where the maximum amount provisions do not apply, indicate that this was a reasonably serious offence of its kind, though not the most serious case that could be imagined.’

The UT made an award of 80% of rent (less the utilities figures) for each tenant, except the tenant of the undersize room who had been particularly affected, who received an award of 90% of rent.

“Where the unlicensed house has serious deficiencies and the landlord is a professional landlord, more substantial reductions would be inappropriate, even for a first-time offender.”

Comment

Well there we are. We knew it was coming, but this presents a whole fresh set of issues for Rent Repayment Order applications.

The FTT will have to assess the appropriate amount of an RRO with a view to the s.44(4) factors

(4) In determining the amount, the tribunal must, in particular, take into account –

(a) the conduct of the landlord and the tenant;
(b) the financial circumstances of the landlord; and
(c) whether the landlord has at any time been convicted of an offence to which this Chapter applies.

And ‘any other factors that appear to be relevant’.

This in the context of the purpose underlying Part 4 Housing and Planning Act 2016, which the UT summarised from the Govt “Rent Repayment Orders under the Housing and Planning Act 2016: Guidance for Local Authorities”, as it

identifies the factors that a local authority should take into account in deciding whether to seek an RRO as being the need to: punish offending landlords; deter the particular landlord from further offences; dissuade other landlords from breaching the law; and remove from landlords the financial benefit of offending. Although those are identified in connection with the question whether a local authority should take proceedings, they are factors that clearly underlie Chapter 4 of Part 2 of the 2016 Act generally.

The FTT will therefore have to look at what it considers to be the degree of ‘badness’ of the landlord’s conduct (and any relevant previous convictions), and set against that any bad conduct by the tenants (and depending on how bad that is). Then come up with its reasons for where on the scale of badness it places the landlord’s conduct.

As this case is, at least for now, the only peg for where on a scale of badness an award might fall, so everyone will be working on what we must call ‘the Williams Scale’. Is the landlord’s conduct better or worse than Williams?

There will be a lot of variation in FTT decisions, and doubtless a lot of appeals – by landlords trying to argue that although their behaviour was quite bad, it wasn’t all that bad, and tenants arguing that their landlord’s behaviour should properly be regarded as atrocious.

 

 

Giles Peaker is a solicitor and partner in the Housing and Public Law team at Anthony Gold Solicitors in South London. You can find him on Linkedin and on Twitter. Known as NL round these parts.

7 Comments

  1. Ben Reeve-Lewis

    So, a self identifying “Professional landlord” with a portfolio among which several other properties were licensed, renting out undersized rooms, 2 cat 1 hazards. including excessive cold, one of the biggest killers, gets a discount for not being that bad. The relative surety of Vadamalayan kicked into touch, leaving claimants and their helpers having to make assessments whether a tribunal will adjudge a landlord not that bad before embarking on the mammoth task of making a claim, not to mention the knock on effect to out of court settlements, where respondents might choose to take a chance rather than settle, relying on the tried and trusted trick of wearing an old shabby cardigan to the hearing, bending over a little bit, coughing and generally proclaiming poor health to win the judge’s sympathy, something I’ve seen employed successfully on many occasions.

    First Rakusen now this. Are the tribunal determined to unravel RROs at every opportunity?

    Reply
    • Giles Peaker

      We knew this was coming – (and landlord’s financial circumstances still not really a factor) – but yes, until it settles down, a lot of uncertainty. Not sure what you’d have to do to get 100% awarded against you, probably illegally evict children from an unlicensed and unheated HMO…

      Reply
      • Sam

        Isn’t the point that the maximum is always reserved for landlords who have been convicted or received civil penalties in respect of what Parliament views as the worst offences (i.e. illegal eviction, failure to comply with improvement or prohibition notices and breach of banning orders or the rent was paid by the taxpayer): see s.46(3).

        In other cases, in the absence of a conviction / civil penalty / rent paid by UC, the Tribunal is given a discretion but the maximum should be reserved for the worst offenders (which isn’t that surprising given its quasi-criminal nature). That seems a pretty principled and fair way to apply what Parliament has clearly intended (or else it would have just said maximum in all cases).

        The UT’s general direction of travel on cases like this was also advertised recently in Ekweozoh (albeit in the context of civil penalties). Martin Rodger QC said

        “The objective of the financial penalty regime, as explained in the MHCLG Guidance, to support good landlords who provide decent well-maintained homes and crack down on a small number of rogue or criminal landlords knowingly letting out unsafe and substandard accommodation, is not advanced by the imposition of a financial penalty in this case. On the contrary, it seems to me to be consistent with both the policy and the Guidance to encourage more landlords, especially those who live abroad, to engage professional agents to act on their behalf. The appellant’s case was not presented to the FTT on the basis that, having appointed an agent to manage her property and that agent having failed to alert her to the need for a licence, she had a reasonable excuse for the property having been unlicensed which provided her with a statutory defence under section 95(4), 2004 Act. Nevertheless, the fact that she engaged the services of an agent, as a responsible landlord in her circumstances would have done, is a highly relevant consideration. The FTT accepted that she had “delegated the obtaining of a licence to her agents” but said that that did not “divest her of her statutory liability”. Whether it did or not is not an issue in this appeal, (because the appellant did not rely on the defence of reasonable excuse), but the appellant having delegated management to an agent is a strong reason, in my judgment, for concluding that this is a case in which an informal resolution is sufficient and no financial penalty ought to be imposed.”

        Hard to see how that does not also apply to RROs. In the context of a strict liability offence, I also find it quite hard to argue with.

        Reply
        • Giles Peaker

          One difference being that in the civil penalty regime, the Tribunal expects the council to have a policy on penalty levels, and will broadly defer to that policy if clearly implemented (and rational). The other difference being that the maximum penalty is set in statute, rather than the ‘happenstance’ of the rent level (and rent paid). That said, as per the post, I agree the UT’s direction of travel has been clear for a while.

  2. Ben Reeve-Lewis

    And lets not forget the numerous arguments on “Reasonable excuse” that result in further deductions. In Rhiannon Lawrence, Joshua Griffin, Emma Tracey, Cedron Sion and Finn Paul v. Asaf Cohen the FTT made a massive 55% deduction for the following reasons “We consider that the overall circumstances of the Respondent’s failure to licence the Property (including that it was not licensable when the tenancy began, that he was an amateur landlord living abroad and that he was in practice reasonably reliant on a professional agent) entitle the Respondent to a 40% reduction. On top of this, the Respondent’s overall general good conduct (including dealing or trying to deal with problems when notified to him, taking the initiative to offer rent reductions and allowing the Applicants to vacate early with no penalty) entitle him to a further 15% reduction”.

    Makes my blood boil frankly

    Reply
  3. nicolbarrister

    An alternative approach (Eagleton v Merricks LON/00BG/HMF/2021/0023):
    22. In Awad v Hooley [2021] UKUT 0055 (LC) Judge Cooke also expressed concerns (at paragraph 40) that using the total rent as the starting point means it cannot go up, however badly a landlord behaves, thereby limiting the effect of section 44(3). However, with all due respect, this stretches too far the analogy between RROs on the one hand and criminal penalties or fines on the other.
    23. Levels of fines in each case are set relative to statutory maxima which define the limit of the due sanction and the fine for each offender is modulated on a spectrum of which that limit defines one end – effectively the maximum fine is reserved for the most serious cases. However, an RRO is penal but not a fine. The maximum RRO is set by the rent the tenant happened to pay, not by the gravity of the offence. It is possible for a landlord who has conducted themselves appallingly to pay less than a landlord who has conducted themselves perfectly (other than failing to obtain a licence) due to the levels of rent each happened to charge for their respective properties.
    24. There is nothing wrong with or inconsistent in the statutory regime for RROs if a particular RRO can’t be increased due to a landlord’s bad conduct. It is the result which inevitably follows from using the repayment of rent as the penalty rather than a fine. The maximum RRO, set by the amount of the rent, is a cap, not the maximum or other measure of the gravity of the parties’ conduct. A landlord’s good conduct or a tenant’s bad conduct may lower the amount of the RRO, as happened in Awad v Hooley when the tenant withheld their rent, and that is how section 44(3) finds expression.

    Reply
    • Giles Peaker

      The comments in Awad v Hooley were, of course, obiter. This is a full UT decision on the issue, by the President. While I acknowledge the argument has merit, I don’t see how an FTT decision can now go against Williams (subject to any Court of Appeal decision on the issue).

      Reply

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