Letting agents need to be aware of this legal case

This article is by Robin Stewart of Anthony Gold and was first published on Tessa Shepperson’s Landlord Law Blog. It is reproduced here by her kind permission.

Rent repayment orders are now going be significantly larger – that is the effect the Upper Tribunal Lands Chamber’s recent decision in Vadamalay v Stewart and others [2020] UKUT 0183 (LC).

What is a Rent Repayment Order?

A rent repayment order is a form of ‘civil fine’ imposed on landlords who have broken the law.

Tenants (and sometimes local authorities) can apply for a rent repayment order (“RRO”) if their landlord has committed any one of a number of criminal offences – the most commonly seen one being failing to hold an HMO licence.

The Tribunal has the power to order the landlord to pay back a year’s rent to the tenant. In some situations, the law requires the Tribunal to award the maximum amount, but in most cases, the award is for some proportion of the rent paid during the period when the landlord was committing an offence.

How is it calculated?

In general, the Tribunal has focused on confiscating some or all of the profit made by the landlord during that period, and landlords could reduce their liability by demonstrating that they incurred expenses while letting the property.

After establishing what the landlord’s profit was, and the Tribunal would usually order a landlord to pay either a proportion or all of the ‘net rent’.

All of this is now likely to change.

How does the Vadamalay case change things?

In her decision in Vadamalay, Judge Cooke not only dismissed a landlord’s attempt to secure additional deductions (appealing against the First-tier Tribunal’s decision to make a rent repayment order for £17,420) but questioned the entire basis for making such deductions at all.

New principles for setting the amount of rent repayment order emerge from Judge Cooke’s decision:

  • The starting point is the rent for the ‘relevant period’ (which can be up to twelve months)
  • There is no legal principle that the award must be limited to the landlord’s profits during that period
  • If the landlord paid for the utilities, that cost can be deducted, but otherwise the landlord’s expenses make no difference to the amount of an order
  • Fines and or civil penalties imposed by the courts and local authorities should not be deducted from the amount given to the tenant
  • There is no requirement that the amount payable to the tenant should be ‘reasonable’
  • The full rent will not be awarded in every case – the landlord’s good conduct or financial hardship may justify an order less than the maximum.

It is unusual to see a court or tribunal decision openly reject ‘reasonableness’– most judges are eager to emphasise their own reasonableness, and I doubt judges in the First-tier Tribunal will see this case an invitation to make ‘unreasonable’ orders. New principles will emerge in time to give a framework for tribunal judges.

Where is the starting point now?

One particularly important question to resolve is whether the new ‘starting point’ of the full rent really amounts to a presumption that RROs will usually be for the full rent.

In Vadamalay Judge Cooke indicates that if she had been determining the application as a new case, she would not have made any reduction from the full rent – but it is clear from the decision as a whole that the First-tier Tribunal can make RROs for an amount below the ‘starting point’ as long as it gives permissible reasons.

Vadamalay tells us that the ‘starting point’ is the full rent, but that does not necessarily mean that the full rent will be the usual (or a common) result. The Tribunal will have to consider whether RROs for the full rent should become the norm, or whether this is a punishment reserved for the worst offenders.

At least, that is my interpretation of Vadamalay, and no doubt there will be plenty of other views.

Certainly rent repayment orders are going to be significantly higher now, but how much higher remains to be seen.

You can download the full decision here.

Landlords needing help and advice when faced by claims for rent repayment orders can use a new RRO Hotline Service available via Landlord Law, which gives 30 minutes telephone advice with a specialist solicitor from Anthony Gold solicitors. [Tessa Shepperson says she is sure they would be happy to assist agents as well]

 

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One Comment

  1. Woodentop

    If you commit a crime their is tiered penalty process upheld by the legal system in the country. Based on affordability, social standing and seriousness/mitigating circumstances.

     

    If you are a landlord ….. forget it it, it won’t apply to you.

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