The simple answer is the correct answer – The Supreme Court confirms the scope of Rent Repayment Orders in Rakusen v Jepsen

The Supreme Court was recently asked to determine whether Rent Repayment Orders (“RROs”) could be made not merely against a tenant’s immediate landlord but, also, against the superior landlord who might have little to no involvement in the day-to-day running of that tenancy. Such an outcome would give tenants far greater power to retaliate against rogue landlords while, perhaps, adversely affecting the growing rent-to-rent market.

Background

The purpose of RROs is to protect tenants by penalising landlords who commit one of a number of housing related offences. The most common offence relates to landlords failing to properly licence a property but also include incidences of violence or harassment. If such an offence takes place, the tenant is able to apply to the First-tier Tribunal (Property Chamber) for an order that the landlord repays rent to the tenant up to a sum equivalent to 12 months’ rent.

While the existence of RROs is a powerful tool available to tenants, the situation is made more complicated when there is an intermediate landlord between the tenants and the owner of the property. It is becoming more and more common for a property owner to grant a tenancy of its property to a company and for that company to then grant further sub-tenancies with individuals. In that case, the company will be the tenant’s immediate landlord and the property owner will be the superior landlord, the so called ‘rent-to-rent’ model. The problem arises however where the company becomes insolvent or wound-up and the tenants’ ability to seek a RRO against it becomes worthless.

The question therefore is whether a tenant should be entitled to go beyond its immediate landlord and seek a RRO against its superior landlord who, as the owner of the property itself, is usually a more financially viable target.

Rakusen v Jepsen and others

It was this issue which was considered in Rakusen v Jepsen and others. Mr Rakusen was the long leasehold owner of a property which he let to a third party company, Kensington Property Investment Group LTD (“KPIG”). KPIG then entered into sub-tenancies with Mr Jepsen, Mr Murphy and Mr McArthur. Mr Rakusen was therefore the tenants’ superior landlord and KPIG was their immediate landlord, which managed  the property and to whom they actually paid rent.

KPIG did not properly licence the property which constituted a housing offence for which the tenants could seek a RRO against it. However, the tenants instead applied for a RRO against Mr Rakusen rather than KPIG and, in a preliminary decision in the First-tier Tribunal, it was held that an RRO could be made against a superior landlord. This position was then upheld by the Upper Tribunal before being overturned by the Court of Appeal, who sided with Mr Rakusen.

The tenants therefore appealed to the Supreme Court, which heard the appeal on 26 January 2023.

The Judgment

In a short but certain Judgment, the Supreme Court took the view that it should apply a straightforward interpretation of the statutory provisions. It found it would be “artificial and unnatural” to extend the definition of a landlord to anyone other than the immediate landlord and that it would be “forced language” to find a superior landlord must “repay” rent which it has never actually received.

The clear conclusion therefore was that “the simple answer to the question posed is also the correct answer”  with the Supreme Court dismissing the appeal and finding that an RRO cannot be made against a superior landlord.

While accepting this decision renders RROs less effective, the Supreme Court was clear that the alternative interpretation would undermine the clear statutory definition of an RRO and that any reform is a matter for Parliament rather than through a “distorted interpretation” of the statute. It went on to recognise the difficulties of rogue landlords intentionally setting up a rent-to-rent scheme for the purpose of avoiding such penalties but considered the existing sanctions sufficient and such evasive techniques to be “a little far-fetched”.

We expect this outcome will come as a huge sense of relief for superior landlords across the country who have entered into such tenancy arrangements. Furthermore, the common sense and straightforward statutory interpretation will no doubt be welcomed by practitioners as giving some certainty in an ever more complicated area of law.