Rent Repayment Order Week: Vadamalayan in focus: Mortgage payments and fines already paid

In my earlier blog, I discussed the Tribunal’s approach in the case of Vadamalayan v Stewart and others (2020) UKUT 0183 (LC) to making deductions from Rent Repayment Orders (RROs) . In that case the Upper Tribunal announced a change in approach to be adopted by the Tribunal and that it was no longer appropriate to calculate a RRO by deducting from the rent all the landlord’s expenses in relation to the property.

In this blog, I discuss the Tribunal’s approach to making deductions in RRO awards for any financial penalties or mortgage payments paid by the landlord in relation to a property.

Background and Tribunal’s Decision

The matter reached the First tier Tribunal (“FtT”) in which it considered making deductions from the rent paid based on the landlord’s expenditure during the relevant period and what would constitute a reasonable amount to pay.

The Correct Approach under Vadamalayan

Judge Elizabeth Cooke, the judge who heard the appeal, did not agree with the FtT’s approach stating that there is no requirement in the legislation for the amount awarded to be reasonable.

The Tribunal therefore concluded that the only basis for making deductions was through the statutory factors set out in section 44(4) of the Housing and Planning Act 2016 which states:

‘In determining the amount, the Tribunal, must in particular, take into account:

1. The conduct of the landlord and the tenant,
2. The financial circumstances of the landlord; and
3. Whether the landlord has at any time been convicted of an offence.’

Judge Cooke suggested that it was Parliament’s intention to have a strict procedure in place to penalise landlords for failing to license properties.

In a recent case, Chan v Bilkhu [2020] UKUT 289 (LC),  Judge Cooke however, confirmed that the FtT was not limited to the statutory provisions and that it therefore did not limit the matters which the FtT can take into consideration when determining a level of RRO.

Mortgage Payments

In Vadamalayan, the Tribunal refused to deduct the landlord’s mortgage payments from the RRO award for various reasons. These included the fact that the mortgage did not fund the landlord’s purchase of the property in 2014 and he was not able to provide evidence of a re-mortgage. Furthermore, the Tribunal took the view that mortgage payments were an investment towards the property and therefore did not justify the tenants to contribute towards the investment through deductions in the award.

It is unlikely that Tribunals will deduct mortgage payments from RRO awards going forward. However, this does not preclude a landlord from submitting evidence of  mortgage payments  or loan payments to evidence their financial circumstances. This may justify a deduction in accordance with section 44(4) of the Act.

Financial penalties

In addition, the landlord had not made the FtT aware of the financial penalty of £8,000 he had already paid to local authority in respect of the failure to license the property. The Tribunal concluded that payments towards the financial penalty would not justify further reductions to the RRO award particularly because the local authority had not taken an unusually severe or lenient view when imposing the penalty.

The Tribunal also confirmed that it was the Parliament’s intention that the landlord should be liable to pay both the financial penalty as well as the RRO award in respect of licensing offences.

What does this mean?

The Tribunal has provided the First-tier Tribunals with a clear change of approach to dealing with landlord expenses and how these should be taken into account when calculating the RRO.

It is unlikely that a Tribunal will make any deductions from the rent paid unless there is an arguable basis for this under the section 44(4) HPA factors. However, in light of the recent decision in Chan -v- Bilkhu, the Tribunal has confirmed that the FtT can take into account other matters outside of the statutory provisions. Therefore, where a landlord seeks to raise points in mitigation, they are encouraged to ensure that their submissions are clearly evidenced.

A landlord could also face double penalisation for the offence through financial penalties and RRO claims. While landlords might regard this as being a harsh decision, it emphasises the importance of ensuring a property is licensed before it is let, and the severity of the Government’s enforcement measures if legal obligations are unfulfilled.

* 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.*