Cussinel v Guerin: Rent repayment orders and rent-to-rent arrangements
Earlier this year, the Supreme Court found in the case of Rakusen v Jepsen that a rent repayment order can only be made against an immediate landlord and not a superior landlord. The Court acknowledged, however, that this would make rent repayment orders less effective against property owners who let the property to a company which then sublets the property to occupiers under a “rent-to-rent” arrangement.
In Cussinel v Guerin, the Upper Tribunal (UT) was faced with an appeal where the First-tier Tribunal (FTT), prior to Rakusen, had made a rent repayment order against a superior landlord. The superior landlord appealed against the rent repayment order and their appeal was ‘stayed’ (i.e. paused) until the Supreme Court gave its decision in Rakusen.
Mr and Mrs Cussinel (the appellants) had let their property, 69 Coopersdale Road, to De Beauvoir & Company Ltd (the Company) under a rent-to-rent arrangement for a term of 5 years and a rent of £3,050 per month. The Company then let it to various tenants including the 9 respondents in the case (the tenants). As a result of their occupation, the property became a house in multiple occupation and required to be licensed under Part 2 of Housing Act 2004.
The FTT’s decision:
The FTT found that the appellants were the persons having control under section 263 Housing Act 2004 as they were in receipt of rack rent from the Company. The FTT rejected the tenants’ argument that the Company was acting as an agent on behalf of the appellants. It also found that the appellants were not as ignorant as they claimed to be and therefore, could not rely on the defence of reasonable excuse. Importantly, the FTT found the appellants as landlords for the purposes of section 40(2) of the 2016 Act and granted the rent repayment order in favour of the tenants.
The appeal before the UT:
The UT noted that following the decision in Rakusen, the appeal would have to be allowed and the rent repayment order set aside as the appellants were not the landlords for the purposes of section 40(2) of the Housing And Planning Act 2016.
However, the tenants argued that a direct relationship existed between them and the appellants such that a rent repayment could still be made against them despite the decision in Rakusen. As summarised in Martin Roger KC’s judgment, the tenants’ primary position before the UT was that:
- The agreement between the appellants and the Company was not a real lease as a company cannot be a tenant and therefore the tenancy had no meaning. Therefore, as the Company could not be a tenant, it must have been acting as an agent.
- The FTT’s findings about the level of control exercised by the appellants in their dealings with the tenants supported the argument of them being immediate landlords.
- The Company ceased to exist on 31 January 2017 and could not have been the landlord.
- On the dissolution of the Company, and pursuant to section 18(1) HA 1988, they became direct tenants of the appellants.
The UT’s decision:
The UT found that:
- There was an agreement between the appellants and the Company and it did create a tenancy, but not an assured shorthold tenancy as the Company was not an individual and could not be assured tenant. The UT upheld the FTT’s finding that the Company was not acting as an agent on behalf of the appellants either.
- On the level of control, the UT found that the occasional involvement in the maintenance of the property was not inconsistent with the appellants being the superior landlords and nor was it suggestive of any direct relationship with the tenants.
- On the third point the UT noted that section 18 of the 1988 Act is headed “provisions as to reversions on assured tenancies” and states that
“If at any time –
(a) a dwelling-house is for the time being lawfully let on an assured tenancy, and
(b) the landlord under the assured tenancy is himself a tenant under a superior tenancy; and
(c) the superior tenancy comes to an end, then, subject to subsection (2) below, the assured tenancy shall continue in existence as a tenancy held of the person whose interest would, apart from the continuance of the assured tenancy, entitle him to actual possession of the dwelling-house at that time.”
The UT found that section 18(1) only has effect where the tenancy of the intermediate landlord comes to an end. However, the point of difference in this is case that the intermediate landlord is a company which has dissolved. The UT said the answer is clear. When a company dissolves it becomes bona vacantia and belongs to the Crown pursuant to section 1012 Companies Act 2006. Therefore, the Company tenancy, did not cease to exist when the Company was dissolved and therefore, the superior tenancy did not come to an end.
The UT concluded that the fourth and most important step in the tenants’ argument cannot be substantiated and allowed the appeal.
The UT’s decision is quite helpful as it clarifies the position where in a rent-to-rent arrangement, the intermediate landlord, as a company, is dissolved and the impact it has on the tenant’s tenancy by rejecting the tenant’s argument that it results in a direct tenancy with the superior landlords, the property owners.
This case provides another example to support the concerns of those who argue that rogue landlords use limited companies and rent-to-rent arrangements to protect themselves from prosecution. The tenants presumably believed that Mr and Mrs Cussinel were their landlords, and if they had done a check with the Land Registry when agreeing the tenancy, the result would only have backed that up.
The Upper Tribunal did not have to decide who the tenants could have obtained a rent repayment order against in this case. That might have been the individual who had been running the Company prior to its dissolution but proving that would not be entirely straightforward.* Disclaimer: The information on the Anthony Gold website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties, express or implied.*