Robert Winspear discusses the recent Upper Tribunal decision in Hallett v Parker [2022] UKUT 165: Landlord’s 100% RRO reduced, as FTT had failed to consider landlord’s circumstances

Introduction

A significant number of rent repayment order (“RRO”) cases are reaching the Upper Tribunal currently, as Tribunals grapple with how to apply the less-than-clear provisions of Chapter 4 of Part 2 of the Housing and Planning Act 2016 (the “Act”).

In this case, the UT overturned the FTT’s decision to make a 100% RRO against the landlord for being in control of an unlicensed HMO, reducing the amount to roughly 25% of the rent that the tenants paid in the relevant period. The mistake that the FTT had made, according to the UT, was to only consider whether the mitigation put forward by the landlord amounted to a ‘reasonable excuse’ (and a complete defence) to the offence under s.72(5) of the Housing Act 2004, without going on to consider that same mitigation under s.44(4) of the Act, in deciding whether to reduce the RRO from the maximum.

Background

Under the Act, where a landlord is found to be in control of an unlicensed HMO, the FTT has a power to make a RRO against that landlord. This is an order requiring the landlord to repay money back to the affected tenants. The RRO must relate to rent paid during the relevant period where the offence is committed (s.44(2)). Although the relevant period cannot be longer than 12 months, the regime can nevertheless operate very harshly against a landlord, who may end up losing out on an entire year’s rent.

Whether a 100% RRO seems harsh, or not, often depends on the condition of the property. The general intention behind this regime (as pointed out in Rakusen v Jepsen [2020] UKUT 298) was to deter the activities of ‘rogue landlords’ who provide poor quality and unsafe accommodation to their tenants. However, as has been recognised in other RRO cases, this regime also catches well-intentioned landlords, who may provide perfectly good accommodation, but have unwittingly failed to obtain the appropriate HMO licence and thereby commit the offence.

The case in the FTT

The situation that Mr Hallett found himself in was the latter: he had unwittingly breached the rules on HMO licensing. Mr Hallett owned a ground floor flat in London. It was originally his home, but his job required him to travel extensively, and for 15 years he had employed a letting agency to place tenants into the flat. It was described by the FTT as in "fairly good condition". Until the letting with which this case was concerned, he had always let the flat to families, where an HMO licence was not necessary. However, the relevant tenants were not a family and therefore an HMO licence was needed.

A few months into the tenancy, the tenants complained to the local authority that a shower in the flat needed fixing and that Mr Hallett was not doing anything about it. The local authority then informed them that the flat needed an HMO licence. The local authority informed Mr Hallett of that view, and two days later, Mr Hallett applied for a licence. Rather unsurprisingly, once the tenants obtained this information, they applied to the FTT for a RRO.

At trial, Mr Hallett argued that he was entitled to rely on the defence under 72(5) of the Housing Act 2004, in that he had a “reasonable excuse” because he said he entrusted the letting of the property to a reputable letting agent who had failed to inform him that he needed to obtain the relevant licence. The FTT rejected that argument as they found that although the agent found the tenants, once they were in, Mr Hallett was responsible for the day-to-day management of the premises.

Having found that Mr Hallett did not have a reasonable excuse, the FTT went on to make the following findings: that Mr Hallett provided no financial information, that the property was in fairly good condition, and that there was no adverse conduct on behalf of either party. The FTT said there was therefore nothing before it that mitigated the failure to licence the property and so went on to order a 100% RRO amounting to £11,712.75 to be repaid to the tenants. 

The case in the UT

Mr Hallett obtained permission to appeal on the ground that by failing to give any weight to the matters relied on in mitigation, the FTT failed in its obligations under s.44(4)(a) to take into account the conduct of the landlord.

Mr Hallett pointed out that s.46 of the Act obliged the FTT to make a 100% RRO where a landlord has been convicted of certain prescribed offences (e.g. using violence to enter the property, unlawful eviction, harassment of the occupiers), but that Parliament had left licensing offences out of that list, indicating that they should not necessarily attract the harshest penalties.

Mr Hallett also argued that being a non-professional landlord of a single property, who relied on advice of an agent who failed to warn him about licensing, was at the lower end of the scale of seriousness.  He argued that the FTT had erred in imposing a penalty at the top of the range.

The UT agreed. The purpose of the regime, being against “rogue landlords”, suggested that the power to make RROs should be exercised with the objective of deterring those who exploit their tenants by renting out sub-standard, overcrowded or dangerous accommodation. The UT criticised the FTT for eliding the ‘reasonable excuse’ defence with the question of mitigation once the offence has been made out (so, for example, although reliance on the managing agent was not a reasonable excuse, the FTT should still have considered whether it amounted to mitigation, as an aspect of the landlord’s conduct).

The UT added that Mr Hallett – being a small landlord letting out a single property – might be thought to deserve some leeway, when considering his failure to obtain a licence. The property’s “fairly good condition” was also capable of providing mitigation.

The UT said that the FTT was wrong to assume that a RRO should require the full amount of the rent to be repaid, unless there is some good reason to discount it.  The UT was clear that “this was clearly not a case justifying the most stringent penalty available to the FTT”.

The UT decided that because neither party seriously challenged the FTT’s findings of fact, it was open to the UT to make a redetermination of the amount, rather than remit the case back to the FTT.

The UT decided, taking into account all of the relevant factors, that the appropriate order was a RRO of £1,000 to each tenant, being £3,000 in total: a near 75% reduction from the FTT’s order.

Comment 

This is a welcome decision for the ‘well-intentioned-but-ignorant’ type of landlord. This case provides fairly strong guidance that a 100% RRO is unlikely to be appropriate where the flat is in a decent condition, the breach is unintentional, and it is the landlord’s first offence.

Robert Winspear

Call 2019