Rent Repayment Orders – Deposits, Arrears, Rent and Conduct

Introduction

The Housing and Planning Act 2016 introduced the remedy of rent repayment orders enabling tenants and local authorities to seek repayment of rent in cases where the landlord committed a relevant offence.

The offences for which a rent repayment order can be sought are set out in section 40(3) of the Housing and Planning Act 2016 (“ the Act”) and cover things like violence for securing entry, unlawful eviction or harassment of occupiers; failure to comply with an improvement notice, failure to comply with prohibition order; the control or management of an unlicensed HMO or unlicensed house and the breach of a banning order. If the landlord, has committed a relevant offence then the tenant can seek to recover a maximum of 12 months of rent providing that an offence was being committed throughout this period.

There are certain factors that the Tribunal is required to consider when determining the amount of a rent repayment order. These factors are set out in section 44(4) of the Act and include:

• The conduct of the landlord and the tenant;
• Financial circumstances of the landlord, and
• Whether the landlord has been convicted of an offence to which rent repayment orders apply.

There is no further guidance in the Housing and Planning Act 2016 on what type of conduct or financial circumstances may be considered by the Tribunal and it is up to the discretion of the Tribunal on what it considers relevant. The Tribunal does have a wide discretion and can take into account a range of factors including the tenant’s conduct. This exact issue among others was recently considered in the case of Kowalek v Hassanein Ltd [2021] UKUT 143 (LC) discussed in more detail below.

It is not necessary that landlord has been convicted of any offence, the Tribunal will merely need to be satisfied beyond reasonable doubt that the landlord has committed a relevant offence under the Act. However, any convictions will count against the Landlord when the Tribunal assesses the size of any rent repayment order.

Kowalek v Hassanein Ltd [2021] UKUT 143 (LC)

In this case, the tenants (Mr and Mrs Kowalek) sought a rent repayment order against their landlord, Hassanein Limited for £23,819.98. The application was made on the basis that the landlord had failed to apply for a selective licence of the Property in which the tenants were residing.

The tenants also had substantial arrears of around £20,373.31. The matter was heard by the First Tier Property Chambers (“FTT”) who considered that a 50% reduction to the rent repayment order was appropriate considering the tenants rent arrears and the landlord’s failure to obtain a licence.

The FTT was particularly unimpressed by the tenants’ conduct allowing substantial rent arrears to accrue and considered that the tenants had breached their duty to pay rent. Accordingly, the Tribunal made a rent repayment order in the sum of £11,909.99. The tenants appealed the order of the FTT.

On appeal the Upper Tribunal was asked to consider three very distinct but interesting issues including:

• “Whether a deposit offset as rent should be treated as having been paid as rent and be part of the sum which a rent repayment order may require a landlord to repay.
• Whether money paid after a landlord has ceased committing a relevant housing offence to discharge the tenant’s liability for rent falling due while the offence was being committed, should be part of the sum which a rent repayment order may require a landlord to repay.
• Whether the existence of rent arrears amounts to relevant “conduct” which may be taken into consideration in determining the amount of a rent repayment order.”

Issue 1

The tenants had paid a deposit of £4920.00 for their tenancy. Both the FTT and the Upper Tribunal considered the issue whether this sum can be considered when making a rent repayment order.

The judge at the FTT held that the deposit was paid as a security and not as rent. Therefore, the deposit could not be considered for the purposes of a rent repayment order because the deposit was not ‘rent’ but merely held as a security. The Upper Tribunal came to a similar conclusion, stating that whilst a landlord can retain some of the deposit in lieu of rent or in breach of some other tenancy obligation, it was premature in this case to treat the deposit as rent.

Accordingly, it concluded that a deposit cannot be considered as part of the rent repayment order while it is still being held as a deposit.

Issue 2

The second issue related to a situation where rent became due whilst the landlord was committing an offence but was paid after the offence had ceased. In this particular case, the tenants had paid a sum of £2000.00 in rent a day after the landlord had ceased committing the offence by way of making an application for a licence. The FTT considered that the payment made after the application for a licence had been made was “outwith the scope of a rent repayment order”. The issue was considered by the Upper Tribunal who agreed with the FTT’s interpretation.

The Upper Tribunal stated that for an amount to be subject to a rent repayment order it must be a sum that “must have been paid during the period, not exceeding 12 months, when the landlord was committing the offence.” Therefore, if a sum of rent was paid before the landlord started committing the offence or after that period, then this could not be considered as part of the rent repayment order.

Issue 3

The final issue that the Tribunal considered in this case was the tenant’s conduct. The relevant factors under section 44(4) require the Tribunal to consider both the tenant’s and the landlord’s conduct. The FTT considered the tenants’ failure to pay rent and considered this to be a relevant factor when determining the amount of the order. At the Upper Tribunal, it was argued by the tenants’ representative that the policy underlying rent repayment orders was to discourage rogue landlords from committing offences and not to punish the conduct of tenants. Furthermore, it was argued that taking the rent arrears into account would result in “double counting” because the amount of rent paid by the tenants and the arrears were already considered when deciding the amount to be repaid.

However, the Upper Tribunal did not agree with this and made it clear that there is no limit on what type of conduct may be considered and that this was  down to the FTT’s discretion. In particular it is worth noting that in this case, the tenants did not provide an explanation on why they did not pay the rent and the Upper Tribunal considered this to be a serious breach of their obligations.

It follows from this decision that the FTT has a wide discretion when considering rent repayment orders and the relevant factors when determining on whether to make a rent repayment order including conduct of the tenants. Therefore, tenants who do not comply with their tenancy obligations may find the Tribunal taking these factors into account.