Should tenants be advised to remain in unlicensed HMOs to maximise rent repayment orders?

When a tenant discovers that they are living in an unlicensed HMO it is usually not long before they realise that they can make an application to the First-tier Tribunal for a rent repayment order (RRO) against their landlord. At this point, one of the first questions to consider is when should the tenants make that application?

When should a tenant make an application for a rent repayment order?

There is no need to apply straight away – tenants have until one year from the date of their landlord’s criminal offence to make their application to the Tribunal. Many tenants choose not to apply for an RRO until they have moved out.

Reasons tenants delay making a rent repayment order

There are sensible reasons to do that. Often tenants would prefer not to start legal proceedings against their landlord while they are still living in the Property. That might be out of fear of eviction or mistreatment, or simply to avoid the awkwardness of having to interact with someone you are suing.

But there is another reason for delaying – the tribunal can award tenants up to one year’s rent, but the amount awarded will not exceed the rent paid by the tenant during the period in which the property is unlicensed. If the tenant is alleging that their landlord has committed the offence of managing or being in control of an unlicensed house in multiple occupation, the longer the property is unlicensed, the better the chances that the tenant will recover a whole year’s rent.

This means that there is a completely rational reason for tenants to keep quiet and live in an unlicensed HMO for at least 12 months before complaining to the landlord and applying for a rent repayment order – complain any earlier and the landlord will be ‘tipped off’ about their mistake. A sensible landlord would immediately apply for a licence, and that could reduce the amount of any rent repayment order.

This should make us uncomfortable. Licensing exists in part at least to ensure that rented properties are safe. The conditions of a licence will include requirements to ensure that the landlord has carried out proper safety checks, and tenants who live in an unlicensed property might not have the benefit of fire detection and alarm systems suitable for their property.

What should advisers be telling tenants?

The starting point has to be that any type of legal adviser should tell tenants the truth. That means being honest about the possible benefits of not telling the landlord about their mistake straight away, and being honest about the possible safety risks of living in an unlicensed HMO. After that, it is for tenants to decide for themselves how they want to proceed.

Legal advisers need to be careful about advising about fire safety. Most of us are not experts in fire safety, but experienced housing advisers might know something about the legal framework for fire safety in HMOs and how to interpret fire safety guidance. We might be able to point out ways in which landlords are breaching the law, but for most legal advisers it is well beyond our expertise to conduct a fire risk assessment.

For solicitors, our duty of confidentiality to our clients means that if tenants choose not to notify anyone that they are living in an HMO, we could not go against the wishes of the tenants. Most advisers will be subject to similar confidentiality obligations.

What should local authorities be telling tenants?

For local authorities, the position is very different. If local authority officers decide to write to the landlord and tell them they are managing an unlicensed HMO, they are entitled to do so.

There is a statutory duty on local authorities in section 61(4) of the Housing Act 2004 to “take all reasonable steps to secure those applications for licences are made to them in respect of HMOs in their area which are required to be licensed under this Part but are not”. A council officer knowing that an HMO is unlicensed but choosing to not do anything about that does not sit easily with that duty.

From the point of view of overstretched local authorities, Rent Repayment Orders provide a cost-effective way of ensuring that there are consequences for landlords who do not obtain a licence. This is one reason why local authorities often assist tenants who are applying for an RRO.

There are some reports of council officers agreeing not to notify landlords that they are breaching a licensing requirement. For example, in this article, a tenant describes being told by council officers that “they could apply for a Rent Repayment Order which would allow them to take their landlord to court – only if they continued living in the unfit accommodation for the year.”

It is one thing for an adviser to give this advice, but for an officer of a local housing authority to agree to allow a property to continue to be unlicensed for several months to maximise the tenant’s size of a rent repayment order is troubling to me. Local authorities are meant to enforce the law and encourage landlords to apply for licences.

How should the Tribunal respond to this?

It is the First-tier Tribunal which decides whether to make a rent repayment order and how much should be awarded.

I can think of one example of a case where the Tribunal determined that a tenant knew the property they were living in was unlicensed – in Wilson v Campbell [2019] UKUT 363 (LC) the applicant was apparently employed by Newcastle City Council as a Senior Environmental Health Technician. The landlord argued that the tenant had “made an informed decision to continue residing in a property that she was aware was unlicensed with the sole intention of being able to apply for a rent repayment order.” The First-tier Tribunal was mostly convinced, finding “the Applicant chose to live in premises that fell short of legal requirements, possibly with the intention to apply for a rent repayment order in the future”. Unimpressed by this or by the absence of any details about the tenant’s profession in their evidence, the Tribunal made only a token rent repayment order of £1.

That decision was overturned by the Upper Tribunal on the grounds that there had been a breach of natural justice because she had not been given an opportunity to explain why she did not mention her job in her application. The Upper Tribunal also queried, without making any definitive finding, whether the tenant’s failure to mention her job, her alleged knowledge that the house was unlicensed, and her alleged motivation for staying on in the property were relevant factors which did justify reducing an award.

A commenter on the Nearly Legal blog article about this case gave this update on the result of this case after it was re-heard by the First-tier Tribunal: ‘the Tribunal made an RRO of approximately £3,200 (being the full rent paid less utilities). The allegation that the applicant had moved into the property to secure an RRO was rejected having heard the “convincing” oral evidence and it was held that it would be in any case “inequitable if the Applicant was not entitled to an RRO due to any knowledge of housing law”.’

That result meant there was no need for the Tribunal to tackle head-on the question of whether consciously moving in an unlicensed HMO with the intention of applying for an RRO later is ‘misconduct’ or not. For now, at least, there is no clear indication from the Tribunal that tenants who ‘keep quiet’ to maximise their award would be doing anything wrong.

Concluding thoughts

I do see it as a problem that the rent repayment orders can incentivise tenants to tolerate potentially unsafe conditions to secure a windfall. This is bad public policy, even if it is also just a logical consequence of the way rent repayment orders operate. It would be far better if tenants did not have to make any sort of trade-off between their comfort and safety and their potential return under a rent repayment order.

Robin Stewart specialises in property litigation, especially landlord and tenant disputes, and the regulatory law relating to rented property. Contact him at robin.stewart@anthonygold.co.uk or on 020 7940 4060.