Property owners beware: new law could hold you liable for your tenants’ failures
From 1 May 2026, the Renters' Rights Act 2025 (the "Act") fundamentally changes the landscape of residential property licensing for superior landlords. In short, liability for the non-licensing of licensable residential property will no longer rest solely with the person operating the property or the person who receives the rent.
For the first time, superior landlords, including freeholders and head lessees, face direct criminal liability where a property in their chain is required to be licensed but is not.
Background
Rent repayment orders ("RROs") are a sanction against landlords who committed certain housing offences, including operating an unlicensed HMO or a property requiring a selective licence. Critically, RROs can only be made against the immediate landlord – that is, the person directly entitled to receive rent from the occupier.
In Rakusen v Jepsen [2023] UKSC 9, a case concerning an owner who had granted a tenancy to a company, which in turn sub-let rooms in the property to an individual without obtaining the required HMO licence, the Supreme Court held that RROs could not be made against any superior landlord.
In arriving at its decision, the Court acknowledged that this interpretation rendered RROs less effective than they might otherwise be, particularly where a rogue landlord could shield itself behind an insubstantial intermediary company with few assets. However, the Court was clear that any reform to extend RROs to superior landlords "would be a matter for Parliament and cannot be achieved through a distorted interpretation of the relevant provisions".
Parliament has now acted.
The Act is a direct and comprehensive legislative response to Rakusen, although its reach goes considerably further than simply plugging the gap identified by the Supreme Court.
What is changing?
Under the 2004 Act as it currently stands, the criminal offence of operating an unlicensed HMO or Part 3 property is committed by the person having control of or managing the property.
From 1 May 2026, the Act extends that offence to any person who, as landlord under a tenancy or lease, holds an estate or interest in the property that is superior to that of the operator or immediate landlord. This captures every person with an interest in the land above the operator, regardless of the number of intermediate landlords in the chain.
The offence is one of strict liability. It does not matter whether the superior landlord is personally culpable for the property being operated without a licence; the offence is committed by virtue only of holding the superior interest.
Who should be concerned?
These changes are relevant to a wide range of property owners, including:
- Freeholders who have granted long leases to lessees who subsequently sublet properties to residential occupiers, whether or not the freeholder consented to or was aware of such subletting.
- Institutional investors and corporate groups who structure investments with a number of intermediate leases.
- Mixed-use portfolio holders who retain a superior interest in blocks principally for the commercial or retail element but have granted leases over the residential element to third parties. For example, a freeholder of a high street parade with flats above, or an investor holding a “blocker lease” over a mixed-use development.
- Any person holding a superior leasehold interest where residential property is, or may be, occupied in a manner that triggers HMO or selective licensing requirements – even where there is no direct relationship with the residential occupiers.
Directors of corporate landlords should also be aware that, where an offence is committed by a body corporate with the consent or connivance of, or attributable to the neglect of, a director, that director may also be personally liable.
What are the consequences of non-compliance?
The potential consequences are significant. Non-compliance can result in unlimited fines on prosecution, civil penalties of up to £40,000, and rent repayment orders of up to two years' rent.
Local housing authorities are expected to embrace these new enforcement powers and are likely to proceed against all parties in the chain, or whichever party is most able to pay – which is often the superior landlord rather than the immediate residential landlord.
Statutory defences are available
The Act does introduce statutory defences for superior landlords, significantly including a defence where the superior landlord has taken all reasonably practicable steps to ensure the property was licensed.
Importantly, however, it will not be sufficient simply to point to terms in a tenancy agreement that purport to restrict occupation since the Act expressly excludes any defence on this basis.
Superior landlords who take proactive and reasonable steps now to understand and address their obligations can significantly strengthen their position.
What should you do now?
If you have any residential property in your portfolio – including mixed-use buildings with even a small residential element – we would strongly encourage you to take advice on the steps you can take before 1 May 2026 to understand and manage your exposure.
There are practical measures available, and what is appropriate will vary depending on the nature of your portfolio – but doing nothing at all is very unlikely to be sufficient.
In addition to the above, the Act is bringing more extensive changes to those involved directly with residential property. Please see our Key Points for Landlords: Renters’ Rights Act 2025 Summary for further information.
