Posted by Michael Field, Partner/Barrister
Many landlords are attracted to the business of letting residential property as a money-making endeavour. The stamp duty holiday that finished earlier this year, combined with very low-interest rates, have attracted more first-time entrants into the sector.
The following scenario is, on the face of it, attractive and not uncommon. A landlord – let’s call him John Groves – buys a property that will yield a rent covering both mortgage payments and anticipated maintenance /agents cost, with some profit left over. He will also have an asset that is increasing in value. An estate agent, let’s call them Smoothlets Ltd, further reassures John that it will be a hassle-free endeavour. Simply pay them a fixed percentage and let Smooth find tenants, take up references, collect rent and deal with all the management issues, including repairs, along the way. So, what could possibly go wrong? John can just sit back and watch his bank balance swell and the value of his asset increase, right? Mmm, not necessarily………….
I have represented an increasing number of landlords that have received an email from the First Tier Tribunal (Property Chamber), informing them that proceedings have been issued against them for what is known as a Rent Repayment Order. These were first introduced under Housing Act 2004 to enable tenants to recover rent if they lived in an unlicensed House in Multiple Occupation (‘HMO’). The range of offences that can attract an application has since been extended. However, it is unlicensed HMOs that still underpin most of these applications.
Focusing on HMOs, what do the tenants (or the local authority on their behalf) need to do? They need to satisfy the Tribunal, to a criminal standard, that the property is an HMO; it required a license and did not have one. This sounds straightforward, but the law in this area is very complicated and rapidly moving. There is no substitute for expert advice to determine whether the property needed an HMO licence.
Let’s assume the property was an HMO and was rented unlicensed. In that case, the landlord may have committed an offence and may be liable to pay up to 12 months’ rent back to the tenants via a Rent Repayment Order. They can, however, seek to avoid liability by relying upon the statutory defence of ‘reasonable excuse’. The fact that the property was an HMO, that it required a license and indeed was unlicensed, are all matters that the tenants would need to satisfy a tribunal of to a high criminal standard of proof. If the landlord is to advance the ‘reasonable excuse’ defence, the settled law now is that they must prove that reasonable excuse. They, however, only need to do that to the lower civil standard to rely upon the defence and thus avoid liability successfully.
So, what in law is a ‘reasonable excuse’. The Act is silent, and this, therefore, permits a range of factual scenarios. In R (Mohamed) v Waltham Forest LBC  EWHC 1083 (Dingemans LJ stated that “if a Defendant did not know that there was an HMO which was required to be licenced, for example, because it was let through a reputable letting agency to a respectable tenant with proper references who had then created the HMO behind the Defendant’s back, that would be relevant to the defence…….. ‘’
One can perhaps fully understand the frustration of a non-professional landlord, who has relied upon a reputable, respected agent, who has then failed to inform them that the tenancy arrangement proposed by them requires an HMO licence. The First-Tier Tribunal look closely at each factual scenario, where ‘the agent made me do it ‘ is advanced as a reasonable excuse. If they view the landlord’s approach as an abdication of responsibility, they can be unsympathetic and remind landlords that with their role comes several responsibilities, including ensuring that they have up-to-date knowledge of national and local licensing requirements. In cases like this, a Rent Repayment Order will often follow, although there may still be a legal argument about the value of that order.
There are circumstances, though, where the Tribunal may be sympathetic. I represented a landlord couple that were renting a property in London via an agent, but they now lived abroad and had busy professional and family lives. They relied heavily upon the local agent. The Tribunal concluded that the agent had not only failed to inform the landlords of their responsibilities but had given them incorrect advice that had served to mislead them.
In a carefully reasoned judgement, the Tribunal concluded that they were satisfied that a reasonable excuse defence was made out. Therefore, the Rent Repayment Order claimed was not payable at all. They did this for the following reasons that were advanced on their behalf: –
(a) Neither ….. is a professional landlord. They took the responsible course of appointing professional agents to guide them through the now sometimes complex labyrinth of licencing regulation. …….. they were badly let down and indeed misled by those agents.
(b) At the time of the letting, they were resident in a different jurisdiction on the other side of the world, in a different time zone, and were all the more reliant on the agents, in whom they had every reason to place their trust and confidence. They themselves were living busy professional and family lives, making it all the more appropriate that they take professional advice – which they did.
(c) On the face of it, they were expressly misled as to the family relationship between the (tenants )`(as to which there was none), and implicitly, as to the adequacy of even the misrepresented relationship in avoiding the need for licencing.
(d) (One of the Landlords) himself, in an (uninformed and inaccurate) effort to ensure statutory compliance, suggested the inclusion of a clause in the tenancy agreement, which the agents readily acceded to and the (tenants) unwittingly signed
(e) The (landlords’) desire to stay within the law and their general effort to be good landlords was endorsed by the (tenants) to the extent that they were swiftly and efficiently responsive to such maintenance requests as occurred – all of which is consistent with their account that they throughout understood that they were acting appropriately, both in respect of the (tenants) and their legal obligations.
(f) … This was a respectable letting agency letting to respectable tenants with proper references. The(y) were responsible landlords, doing their very best to stay within the law, and had they not been misled by their agents, would never have let to these (tenants) because of the need for an HMO licence. Indeed, this is yet further confirmed by the fact that they declined the tenancy extension, at possible cost to themselves, when requested by the (tenants), and elected to let thereafter only to a single-family unit.
While only a first instance decision, this judgment’s reasoning helps expose the type of factual background matters that a Tribunal may wish to consider in these cases. It is usually not enough to simply say, ‘my agent made me do it.’. It is essential to provide the best chance of defeating an application for a Rent Repayment Order that the complete factual background is examined and, where appropriate advanced. This can serve, on occasion, to reduce liability, and sometimes, as in this case, to avoid liability altogether.
How can we help?
If you need specialist advice on an HMO matter , including rent repayment orders, please contact Michael Field, Karol Hart or Julian Hunt in our Crime Team on 020 7935 3522 or firstname.lastname@example.org or in an emergency please call our 24/7 number 07973 259382 and let us help. We can advise on investigations , diversion from prosecution, prosecutions of HMO Offences and ancillary matters such a Rent Repayment Orders.
Whatever your personal circumstances the above is only a guide and we would advise you to contact us to obtain definitive advice as you will appreciate that each person’s circumstances are unique to them.