Rent Repayment Order Week: Can landlord facing a rent repayment order recover their losses from their agent?

This is the last in our series of blog post for ‘Rent repayment order week’. In this final instalment I will discuss some of the legal issues involved when a landlord faces an RRO and wishes to make a claim against their agent for negligence or breach of contract.

At first glance, this might not appear to be fruitful ground for a claim by a landlord. The First-tier Tribunal (FTT) will only make a rent repayment order (RRO) if satisfied beyond reasonable doubt that the landlord has committed one of a number of criminal offences. If the landlord has committed a criminal offence, can someone else be required to compensate the landlord for losses arising out of that?

This is not a straightforward question to answer. It will often be the case that both a landlord and their agent have both broken the law, but only a landlord can be the subject of an RRO. This can mean that the landlord is punished much more severely than the agent. If a rented property is an unlicensed HMO, the landlord might blame the agent for failing to advise them to obtain a licence – and this can be a breach of the contract between landlord and agent, or negligence or breach of another duty owed by the agent to the landlord.

Often landlords will attempt to defend themselves by arguing that they have a reasonable excuse and that it was their agent who is responsible for any breach of the law. This can work, but the Tribunal is slow to accept such arguments, generally considering that landlords cannot simply rely on another person to perform their legal obligations for them. This means there will often be cases where the Tribunal decides to make an RRO against the landlord, even though the agent is more culpable than the landlord.

As a matter of principle and public policy, the courts do not wish to allow people to benefit from wrongful conduct, and part of this wide principle is a rule that compensation is not recoverable for loss suffered as a consequence of one’s own criminal acts. This would after all lead to a conflict between the criminal and civil courts if a person who has been convicted and fined as punishment can then recover the fine from another person.

It might be thought that this stands in way of landlord recovering sums paid under rent repayment orders from their letting agents; an RRO functions more like a fine than traditional damages as tenants do not need to prove they have suffered any loss, only that the landlord is guilty of a criminal offence. However, it cannot be quite right to describe RROs are merely a punishment. In Parker v Waller [2012] UKUT 301 the Upper Tribunal consider there were several purposes for RROs under their old statutory regime (the Housing Act 2004). These were:

1. To provide an additional punishment (on top of any criminal fine);
2. To help prevent landlords from making profits from illegally renting properties; and
3. To resolve some of the tensions which arise out of tenants not having any legal right to withhold rent when occupying an unlicensed property.

The Housing and Planning Act 2016 enabled tenants to bring claims without landlords first being prosecuted, so perhaps an additional purpose of ‘incentivising tenants to assist in the regulation of landlords in the private rented sector’ should now be added to that list.

It is clear that an RRO is not quite analogous to a criminal fine, meaning that there is a good argument that the general rule preventing recovery of such fines does not apply at all. Further, the law does already allow a defendant convicted of a strict liability offence to bring claims against another to recover their fines and legal costs. As was confirmed in R (Mohamed) v LB Waltham Forest [2020] EWHC 1083 (Admin) managing an unlicensed HMO is a strict liability offence – this means that there is no need for the prosecution to prove that the landlord knew they were breaking the law. However, a defence of ‘reasonable excuse’ is available to a landlord, and it might be argued that a landlord who fails to establish that they have a reasonable excuse because of neglectful or careless conduct should not benefit from that ‘strict liability’ exception.

Recent cases examining ‘illegality’ as a defence in civil claims have suggested that rather than seek to apply legal principles in an inflexible way, the courts should consider whether as a matter of public policy claimants should be prevented from bringing claims arising out of their own wrongful conduct. Opinions may vary on this question, but I do not see any compelling public policy reason why landlords should not be able to recover RROs and associated costs from an agent.

There are a number of difficult legal issues arising out of these questions, but landlords should be mindful that where they have a claim against an agent, they will in reality be dealing with their agent’s insurers rather than the agent themselves. Insurers will recognise that fighting such claims to trial bring substantial costs and the risk of the courts giving rulings which expand the scope of liability more generally. Much attention is being paid by insurers to the recoverability of fines for breaches of GDPR and a decision on the recoverability of RROs could have important consequences in other areas regulatory law.

* 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.*