Cottam & Ors v Lowe Management Ltd (HOUSING – RENT REPAYMENT ORDER – statutory definitions of “person managing” and “person in control of” an HMO) (2023) UKUT 306 (LC)

This is a quite significant Upper Tribunal decision on a rent repayment order application appeal on the statutory meaning of ‘person managing’ and ‘person in control’ of an HMO, with an interesting other issue on the effect of the owner of the property being a ‘health service body’ for the purposes of Schedule 14 Housing Act 2004.

The background is that NHS South East London Clinical Commissioning Group owned a large property that was formerly a residential home. The CCG was a ‘health service body’. In 2020, the CCG appointed NHS Greenwich Charitable Trust as its agent on a sale of the property. The charitable trust was not a ‘health service body’. As agents for the CCG, the Charitable Trust entered an agreement with Lowe for the purposes of putting in property guardians, for no rent. Lowe put in guardians, sufficient to make the property technically a licensable HMO, but did not initially obtain a licence (a Temporary Exemption Notice was sought shortly after occupation began, which was later granted, and a licence applied for at expiry of the TEN). Some of the guardians sought an RRO in the FTT.

The FTT found that

i) Lowe had a lease, and as the Charitable Trust was agent for the CCG, the lease was with the CCG. There was no rent, but a return of services.

ii) The CCG was a person having control of or managing the property. As such the Schedule 14 exclusion applied and no licence was required.

The guardians appealed.

The UT found:

i) that the guardians’ argument that where there was more than one person having control, the schedule 14 exclusion had to apply to all of them was wrong. It was sufficient that one person having control fell under the exclusions for a licence not to be required. However…

ii) it became apparent to the UT during argument that the FTT had erred in finding the CCG was a person in control. Despite this not having been a ground of appeal, the UT granted the appellants permission to appeal on this ground that the UT had raised.

Section 72(1) of Housing Act 2004 provides

“(1) In this Act “person having control”, in relation to premises, means (unless the context otherwise requires) the person who receives the rack-rent of the premises (whether on his own account or as agent or trustee of another person), or who would so receive it if the premises were let at a rack-rent.

(2) In subsection (1) “rack-rent” means a rent which is not less than two-thirds of the full net annual value of the premises.

(3) In this Act “person managing” means, in relation to premises, the person who, being an owner or lessee of the premises–

(a) receives (whether directly or through an agent or trustee) rents or other payments from–

(i) in the case of a house in multiple occupation, persons who are in occupation as tenants or licensees of parts of the premises; and

(ii) in the case of a house to which Part 3 applies (see section 79(2)), persons who are in occupation as tenants or licensees of parts of the premises, or of the whole of the premises; or

(b) would so receive those rents or other payments but for having 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;

and includes, where those rents or other payments are received through another person as agent or trustee, that other person.”

While, per Cabo v Dezotti (2022) UKUT 240 (LC)  (our note), this could encompass an agent who received the rack rent as agent for another, that did not matter here.

The FTT had misconstrued the definition of s.72(1)(3)(b) in finding that the CCG was a person who would receive the rack rent but for entering an arrangement with another person who was not an owner or lessee.

Two propositions are therefore clear from the authorities. One is that if the premises are currently let at a rack-rent then the person in control is the person who receives that rack-rent. The second is that the person “who would so receive it if the premises were let at a rack-rent” is not a person who might have let at a rack-rent but has in fact let the property (or part of it) for less than a rack-rent; it is the person who as things stand at present, with all the current lettings in place, could if they chose grant a lease at a rack-rent. It is therefore not the freeholder if the freeholder has already let the property, or parts of it, at less than a rack-rent, even if the freeholder retains common parts. The FTT’s construction of section 263(1), and its reading of the explanatory notes, was incorrect on this point.

Therefore in the present case CCG cannot be the “person in control” for the purposes of section 263(1) of the Housing Act 2004. If the appellants were in fact paying a rack-rent, CCG was not receiving it; if the appellants were not paying a rack-rent then because CCG had granted a lease of the property to Lowe it was not in a position to grant a lease of the property at a rack-rent, and so was not the person “who would so receive it if the premises were let at a rack-rent.”

And as the FTT found, CCG was not the person managing the property because it had let the building to Lowe, so that the condition in section 263(3)(b) failed; Lowe is a lessee so it is not the case that CCG “would have received the rents or other payments (from the guardians) but for having entered into an arrangement … 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”.

Lowe were a lessee, so the CCG was not a person in control. Accordingly, there was no Schedule 14 paragraph 1 or 2  exclusion, as the CCG were neither in control or managing the property. Whether the guardians were in fact paying a rack rent (which Lowe denied), was irrelevant.

Appeal allowed and amount of RRO remitted to the FTT.

Comment

The finding on what constitutes the ‘person who would receive the rack rent’ are important for a lot of future RROs. If the freeholder has already granted a lease of the property at less than a rack rent (or at no rent, as here), it cannot be them (at least during the term of the lease).

However, as the Renters (Reform) Bill so far effectively reverses the Supreme Court decision in Rakusen v Jepsen (our note) as to liability of superior landlords, the passage of the Bill may make this position more complicated…