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Kowalek v Hassanien Limited [2021] UKUT 143 (LC)

What to consider (or not) when quantifying Rent Repayment Orders

(All references herein to statutory provisions are to the Housing and Planning Act 2016.)

The three issues

The Upper Tribunal (Lands Chamber) had granted permission to appeal on three grounds as each was said to raise a matter of general importance in the determination of RRO applications.

The issues concerned:

  1. the treatment of payments made by a tenant after the landlord has stopped committing the relevant housing offence, but in respect of rent arrears which fell due while the offence was being committed;
  2. the treatment of rent deposits;
  3. whether the failure of the tenant to pay rent and the existence of substantial arrears are matters of conduct which can properly be taken into account when considering the amount to be repaid.      

Facts

The Respondent landlord had granted the appellants – the tenants -- an assured shorthold tenancy over a modern 4-bed flat on Kilburn Park Road.

A deposit of £4920 was paid by the tenants.

The building fell within an area of selective licensing under the Housing Act 2004. No license was in place, but of relevance to the appeal was the fact that an application for one was made by the landlord the day before a payment of £2000 was made by the tenants. This payment was made during a time when the offence was not being committed, this ceasing on the day when the application for a license was made.

The tenants vacated leaving very substantial arrears of rent. They made an application to the FTT for an RRO, who reduced the maximum amount (the total amount of rent that was paid) by 50%.

The law

Under Part 2 of the Housing and Planning Act 2016 the First-Tier Tribunal (Property Chamber) has jurisdiction to make an RRO against a landlord which has committed “a relevant offence”. In this case, the offence was not having a license pursuant to a selective licensing scheme that was in operation.

When assessing the amount of an RRO, under s.44 (4) the FTT “…must, in particular, taken 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.”

Outcome of the appeal

Each ground was dismissed, although the ground relating to the tenancy deposit was not pursued by the appellants.

As for the payment of rent after the license had been applied for, it was argued that whilst the payment may have been made when an offence was not being committed it was a payment for rent that had fallen due during a period when the offence was being committed. As such, it was argued that it ought to have been treated as paid in respect of rent due during a period when the offence was committed, regardless of when it was paid.

The Upper Tribunal disagreed and said that there were two limitations that applied to payments of rent if they were to be considered for RRO purposes.

First, the payment needs to relate to rent paid during the period of the offence (paragraph 30), and the Upper Tribunal added that it is not surprise that a landlord is not at risk of having to repay rent paid by the tenant at a time when it was not committing any offence (paragraph 32).

Secondly, and in addition to the first limitation, the payment must relate to rent paid by the tenant in respect of the 12-month period during which the offence was being committed. This may require the apportioning of rent between periods before and after the landlord was committing the offence (paragraph 31). Here, the payment was made on a day when the offence was no longer being committed, and accordingly the FTT was right to disregard it when quantifying the RRO.

As for the alleged error in considering the appellants’ arrears of rent, the Upper Tribunal could think of no reason why the direction to the FTT contained in section 44 (4) to consider tenant conduct should not include the conduct of a tenant in relation to the obligations of the tenancy, especially because failing to pay rent is a serious breach of a tenant’s obligations (paragraph 38). The FTT had not been wrong to view the substantial arrears of rent as a relevant factor.

Comment

There have been a number of Upper Tribunal cases recently that have dealt with these provisions relating to RROs (see, in particular, Awad v Hooley [2021] UKUT 55 (LC), and this appeal certainly deals with at least two crucial points likely to arise frequently between landlords and tenants. It provides helpful clarification in this area, and its reasoning is likely to be particularly welcomed by landlords.

Mathew McDermott of 42 Bedford Row was instructed on behalf of the Respondent Landlord.

He specialises in all aspects of the law relevant to landlords and tenants.

View Mathew's profile here.


22.06.2021