Nearly Legal: Housing Law News and Comment

Rent Repayment Orders in the Upper Tribunal again.

A couple of appeals on rent repayment orders. The first confirming the UT’s approach to assessing what proportion of rent an RRO should be made for. The second on whether someone could be said to be in control or managing an unlicensed HMO where it was not clear or evidenced that the person received a rack rent.

Acheampong v Roman (HOUSING – RENT REPAYMENT ORDER – the amount to be awarded) (2022) UKUT 239 (LC)

Two joined appeals. In both, the FTT had made RROs for a failure to licence the property. In both, the FTT had taken the approach of starting with the full rent, minus deductions for utilities, then some consideration of the conduct of the landlord. In neither case, despite being after Williams v Parmar (our note), had the FTT addressed itself to the seriousness of the defence.

The UT allowed both appeals. It set out some practical points for consideration of an RRO award generally:

The following approach will ensure consistency with the authorities:

a.       Ascertain the whole of the rent for the relevant period;

b.      Subtract any element of that sum that represents payment for utilities that only benefited the tenant, for example gas, electricity and internet access.  It is for the landlord to supply evidence of these, but if precise figures are not available an experienced tribunal will be able to make an informed estimate.

c.       Consider how serious this offence was, both compared to other types of offence in respect of which a rent repayment order may be made (and whose relative seriousness can be seen from the relevant maximum sentences on conviction) and compared to other examples of the same type of offence. What proportion of the rent (after deduction as above) is a fair reflection of the seriousness of this offence? That figure is then the starting point (in the sense that that term is used in criminal sentencing); it is the default penalty in the absence of any other factors but it may be higher or lower in light of the final step:

d.      Consider whether any deduction from, or addition to, that figure should be made in the light of the other factors set out in section 44(4).

In these cases:

Choudhury.

There were deductions for utilities being paid by the landlord. The property was not in satisfactory condition due to damp and mould, there were fire safety equipment failings, no gas or fire safety certificates and the deposits had not been protected. But it was not the most serious offence of its kind. There were no other issues of landlord or tenant conduct to be considered. RRO of 75% of rent after utilities made (reduced from 100% of rent after utilities).

Acheampong.

The FTT made findings of fact about a large body of evidence about the conduct of Mr Acheampong and of the tenants; it found that one of the tenants (“A4”) had caused a serious disruption in what had otherwise been a harmonious landlord and tenant relationship and had sent a racially abusive message to Mr Acheampong. As to the other tenants the FTT found that there was no question about their conduct, and that until that disruption Mr Acheampong’s conduct “appeared to the Tribunal to have previously been good.” The FTT said that it had no evidence about Mr Acheampong’s financial circumstances other than that he co-owned two properties with another person. The FTT said that on the basis of Mr Acheampong’s good conduct it “made a 10% deduction from any award of an RRO.”

There was also a deduction for utilities. But again the FTT has started with 100% award and made a deduction for ‘good behaviour’, without considering the seriousness of the offence.

The UT declined to substitute its own decision as the FTT’s decision as to £4 for gas and water charges did not stand up on the face of the documents, which indicated a higher figure, and also did not mention internet and water costs. Matter remitted to the FTT for determination on this and the RRO award overall.

Comment

The UT’s determination to ensure that the FTT does not consider 100% of rent to be a starting point for calculating RRO awards continues. The ‘guidance’ given in this decision suggests that any FTT decision that does not address itself to the seriousness of the offence as a factor is likely to be open to appeal. Also of note is the 75% award in Choudhury, despite the defects to the property and the failure to protect the deposit.

Cabo v Dezotti (HOUSING – HOUSE IN MULTIPLE OCCUPATION – RENT REPAYMENT ORDER – order requiring freeholder to repay rent…) (2022) UKUT 240 (LC)

This was an appeal of the making of an RRO against the owner of 6 Bellamy Close, London W14, a Margaret Cabo. We noted the FTT decision making an RRO here, including as it did fake ‘holiday let’ licenses, and the property owner, Ms Cabo, claiming she had granted her ‘estranged’ husband’s company (Top Holdings Ltd) the right to manage the property and take ALL the £5000 per month income from it, while she paid the £2000 mortgage and council tax. This evidence was given by video, while sitting next to her ‘estranged’ husband at home in lockdown.

The FTT had found a) these were tenancies, b) the property was an unlicensed HMO, c) Ms Cabo’s account was so implausible that the FTT concluded she was receiving a rack rent and so was a person in control of the HMO, and d) she was a person managing the HMO because but for her husband’s company she would be entitled to receive the rents. Along the way, the FTT held that the husband’s company had no legal interest in the property and so could not be the landlord.

Ms Cabo appealed. She was given permission to appeal on three grounds:

(1)   Could the owner of a property be a person in control when someone else was collecting the rack rent and it is said not passing it on to Ms Cabo?

(2)   Did the FTT correctly interpret and apply section 263(3)(b), Housing Act 2004 in making its alternative finding that Ms Cabo was a person managing the property?

(3)   Could a company with no proprietary interest in the property be a landlord?

The Upper Tribunal noted the difficulties in Margaret Cabo’s account of being estranged from her husband, with separate finances, since 2006.

Yet the FTT had evidence of social media posts by Ms Cabo announcing that the couple had recently celebrated their 22nd wedding anniversary “in style at home”.  The couple’s pre-covid anniversary seems to have been even more delightful: “21 years ago today I walked down the aisle & there he was waiting for me (heart) (heart) & here we are today still blah blah ing around. #truelove #marriage #partnership”.  Mr Grasso’s recent birthday celebration were marked by more public declarations of affection: “My Francesco another day another birthday (heart)(kiss)(kiss) #love #husband #lovedoeslast”.  In their evidence the couple implied that they were estranged, but the FTT found that difficult to believe.     

The FTT decision had been made before the Court of Appeal judgment in Rakusen v Jepson (our note) on the liability of a superior landlord to sub-tenants for an RRO, but that judgment was not of direct application here on the facts.

On issue 1) – person having control – the FTT had erred in finding MS Cabo had control. That required receipt of a rack rent.

The FTT was entitled to reject Ms Cabo’s and Mr Grasso’s evidence that she received nothing from the renting of the Property.  It concluded that it was “unrealistic to accept” that Ms Cabo would incur expenses of around £2,000 a month while allowing Mr Grasso “to receive and retain the totality of the rent, which could be in the region of £60,000 per annum, without her having some benefit.”  What it did not do, however, was to make any finding about how much Ms Cabo received; in particular it did not find that she received a rack-rent.  The Property was let at a rack rent, so for Ms Cabo to be the person in control it had to be established that she was in receipt of that rack-rent.  But there was no evidence about how much money was going to Ms Cabo from the arrangements with Top Holdings and Mr Grasso, and therefore no basis on which the FTT could find that she received two-thirds of the full net annual value of the Property (which would presumably have been at least £40,000).   Without such a finding Ms Cabo could not be found to be a person having control.

On issue 2) – person managing. Section 263(3)(b) provides that an owner is a person managing where they have entered into “an arrangement (whether in pursuance of a court order or otherwise) with another person who is not an owner or lessee of the premises by virtue of which that other person receives the rents or other payments”. This is so whether or not they receive any payment themselves.

Ms Cabo asserted she did not receive any rents. The management agreement entered into with her ‘estranged’ husband’s company was that the company would receive the rents.

The company, as the husband insisted, did not itself have a lease or tenancy of the property. This was stated in the management agreement.

The company, Top Holdings Ltd, received the rent by virtue of the management agreement, and this was Ms Cabo;s case and her husband’s evidence.

Therefore s.263(3)(b) applied and Ms Cabo was a person managing the Property, and an RRO could be made against her.

On issue 3) – the FTT had erred in finding that the Company could not be a landlord because it did not have an interest in the property. The FTT had not been referred to Bruton v London & Quadrant (2000) 1 AC 406, which established that point. Top Holdings Ltd had indeed granted the tenancies “although it tried to disguise the effect of the agreement by increasingly elaborate denials that a tenancy was being created.”

However, that did not necessarily avail Ms Cabo. Ms Cabo argued that if Top Holdings Ltd was the landlord, an RRO could not be made against her as property owner, as per Rakusen v Jepson, because she was not the direct landlord.

The UT demurred, The question was whether the FTT was entitled to make an RRO against Ms Cabo, not whether it should have made one against Top Holdings Ltd. The FTT had found that Ms Cabo was the landlord because Top Holdings Ltd had a contract for the management of the property for her.

The UT considered this relationship.

72. The relationship between Top Holdings and Ms Cabo was that of agent and principal. An agent is a person engaged to do any act for another or to represent another in dealings with third parties. The person for whom such acts are done is known as the principal. The essence of the relationship is that the agent is given power, within prescribed limits, to affect the principal’s legal relations with third parties. The relationship of agent and principal is usually created by a written contract and the responsibilities of the agent are defined by the contract. But the relationship may be defined partly in writing and partly by oral agreement or by conduct.

73. In this case, the Management Agreement specifically ruled out the existence of a relationship of landlord and tenant between Ms Cabo and Top Holdings (clause 2). Instead it required the company to manage the property “exclusively for the benefit of the First Party [Ms Cabo]” (clause 3). The company was specifically permitted to let the Property (clause 7). Although the Management Agreement also stated that the income from letting the Property was to be retained by the company “with no recourse or accountability” to Ms Cabo, the FTT rejected her case about the financial arrangements between them as “not credible” and found that she was the person entitled to receive the rent of the Property. It did not describe the Management Agreement as a sham and its findings would not rule out the possibility that the parties agreed to change the arrangement at some point after they entered into it, but the effect of the FTT’s finding was that the true financial relationship between Ms Cabo and the company was not reflected in the Management Agreement. The company had express authority to manage the Property exclusively for Ms Cabo’s benefit, and to let it, and it dealt with the income from the lettings as it and Ms Cabo agreed or as she directed; whichever was the case, the result was that Ms Cabo had the benefit of at least part of the rent and was, as the FTT put it, “entitled to receive a rack rent”.

74. Ms Cabo was what is known as an “undisclosed principal”. Usually, when someone is acting as an agent that fact is made clear to the person with whom they are dealing, in which case the principal is said to be “disclosed”; examples can be seen in the documents in this case when Mr Grasso signed the so-called holiday letting agreements on behalf of Top Holdings. In such cases it is obvious that the agreement is being made between the principal (Top Holdings) and the third party (the occupant). Sometimes, however, the existence of the principal is not disclosed to the third party. The agent contracts with the third party as they would if they were contracting on their own behalf, without informing the third party that they are in fact doing so on behalf of someone else.

The FTT’s rejection of Ms Cabo’s evidence that she received nothing from the arrangement was significant, as it meant that it could not be said that Top Holdings was acting wholly on its own behalf.

An agent with sufficient authority can bind its principal. That was the case here and that included suing the undisclosed principal on a tenancy agreement – Epps v Rothnie (1945) KB 562

81. The position in this case is the same. The evidence shows that although the company let the Property in its own name, it did so on behalf of Ms Cabo as her agent; it thereby created the relationship of landlord and tenant between Ms Cabo and Ms Dezotti. Unlike Top Holdings, which had no proprietary interest, Ms Cabo was the owner of the freehold legal estate and a tenancy granted by an agent acting on her behalf would be good against the world.

82. When the true relationship between the company and Ms Cabo was revealed, Ms Dezotti was therefore entitled to make her claim for a rent repayment order against Ms Cabo, as her landlord. I think it likely that she could additionally have made a claim against the company itself, because the contractual relationship of landlord and tenant also existed between them, but in this case she chose not to do so and it is not necessary to decide that point.

The challenge to the RRO therefore failed.

Comment

This is a cunning approach by the UT to hoist Ms Cabo and ‘estranged’ husband on the twin petards of a) their own evidence (as to the company being nothing but an an agent) and b) the implausibility of their own evidence (Ms Cabo voluntarily not receiving any income for a property that was costing her £2000 per month).

But it does highlight the problem that Rakusen v Jepson created in the Court of Appeal – it is easy (albeit beyond the imagination of Ms Cabo and her #truelove Franceso Grasso) to create a structure where the property owner can profit from an unlicensed HMO (and that may be the least of the offences) while escaping any RRO liability by having an intermediate fly by night company involved.

The degree of deceit in this case, from fake holiday let ‘licences’, to attempting to obscure where the money went while being doubtfully ‘estranged’ shows the kind of things people will do to avoid regulatory requirements (and other things). Let us hope the forthcoming Supreme Court hearing in Rakusen v Jepson has an eye to this.

I understand Margaret Cabo was subsequently convicted in the Magistrates Court on 16 September 2022 of three counts of running an HMO without a licence, on a prosecution brought by the council. There were also fire safety issues.

I also understand Ms Cabo is seeking to appeal the UT decision.

 

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