Rent Repayment Order: Assessing the rent to be repaid to tenants by the landlord of an unlicensed HMO (Simpson House 3 Ltd v Osserman and others – 2022)

Where tenants occupied an unlicensed HMO property, which was in a state of disrepair, and having raised complaints about the conduct of the landlord, how should rent repayment be calculated?

The background

In Simpson House 3 Ltd v Osserman and others [2022], tenancy of a flat within a building in East London was granted by the appellant landlord. Shortly afterwards, new regulations were introduced locally requiring HMO operators to obtain further licences for their properties under Part 2 of the Housing Act 2004. Tower Quay Limited was appointed by the landlord as letting and managing agent for the building, with responsibility for ensuring statutory compliance.

Involving the local press, the respondents engaged in disputes with the landlord relating to its refusal to provide financial help during the pandemic and with allegations made by one respondent that he was under surveillance. Further, the local housing authority visited the subject flat and found a loose smoke detector in the kitchen.

The landlord served a number of s.21 notices requiring the respondents to leave the flat. The first was invalid because the minimum notice period was extended by emergency pandemic legislation. The second was also withdrawn following service of a gas safety certificate and EPC on the tenants. Following this, the local housing authority advised that the flat was an unlicensed HMO.

The tenants applied to the First-tier Tribunal (“FTT”) for a Rent Repayment Order and subsequently vacated the flat following service of a third s.21 notice. Finding that the landlord had committed an offence, the FTT ordered the repayment of 65% of the rent received by the landlord from the respondent tenants.

The landlord argued that its appointed managing agents had failed to advise that the property was subject to the additional licensing requirements of the housing authority, which the managing agent acknowledged. Nevertheless, the FTT dismissed the landlord’s defence.

The tenants cross-appealed the 65% award as they felt the landlord’s conduct justified a larger sum.

The decision

The Upper Tribunal (“UT”) considered whether the FTT should have taken into account the landlord’s conduct in making its rent repayment order, increasing the sum from 65% to around 80%.

The tenants argued that the FTT had not taken into account evidence showing the landlord’s non-compliance with fire safety regulations, the allegation that the landlord had engaged in harassment and threats, and stated that the FTT had considered only ‘good conduct’ when justifying its rent repayment order figure. The tenants argued that ‘bad conduct’ should also be a considered factor.

The UT found that the conduct of the landlord was relevant, and should have been a consideration of the FTT. Where examples were referenced by the tenants, the FTT needed to deal with these submissions in its decision. The UT also found that the FTT had not applied the law correctly, referencing s.44(2) of the Housing and Planning Act 2016 which stated that the FTT must have regard to the conduct of the parties, the landlord’s financial circumstances and whether the landlord had been convicted of an offence.

The starting point approach adopted by the FTT had also been incorrect by reference to another decision by the Upper Tribunal in Williams v Parmar [2021], which had not yet published at the time of the FTT’s decision. The UT found that adopting 100% of the rent paid by the tenants as the starting point was wrong, leading to a rent repayment order which was incorrect.

The UT made a number of comments in its judgment:

1. HMO licensing was needed to ensure compliance with standards by landlords, the system aiming to improve quality of housing by the local housing authority.
2. The landlord had sufficient resources to comply with its legal obligations and responsibilities. The appointment of managing agents did not absolve itself of responsibility to ensure compliance with regulations; the landlord was obliged to ensure the property was licensed and that gas safety and EPC certification was supplied.
3. Maintaining good standards of housing was at the root of the relevant regulations and legislation. The tenants in this case had not reported the smoke detector defect, and the FTT found that the landlord was generally responsive to reports of disrepair. The UT did not apply weight to this aspect.
4. The landlord’s notices to terminate the tenancy, served following complaints and reports of disrepairs, were given considerable weight. Although the tenant was entitled to raise reports of disrepair and complaints, and the landlord was entitled to serve notice, the UT referenced the purpose of the rent repayment order and the importance of compliance with HMO regulations to ensure quality of housing standards.

The landlord’s response in this case to reports of disrepair was to serve the termination notice, which may have had the further effect of putting other tenants off making requests for works to be done.

The rent repayment order was reviewed to a figure of around 80% of the rent paid for the relevant period.

Advice and action for landlords

Landlords and managing agents are advised to note this decision and review procedures, ensuring that they are are aware of the need to engage with tenants when reports of disrepair or other complaints are made.

The appointment of managing agents does not absolve landlords of their duties and responsibilities under regulations or statute, and landlords must ensure that accountability is held for ensuring licenses are in place, properties are compliant and tenant reports are responded to in a timely fashion.

We recommend that landlords and agents bear in mind the purpose of the HMO and RRO legislation as the UT did here, in order to drive up quality standards in housing rather than serving termination notices which may impact on the landlord’s relationships with future tenants and its reputation as a housing provider.