Understanding Rent Repayment orders part 2: Amount to be repaid
Once the tribunal is satisfied that the local authority or tenant is entitled to a RRO it must decide how much money is to be repaid. Again, the rules differ depending on the party making the application.
Where the local authority is seeking an RRO for repayment of housing benefit and the landlord has been convicted of an offence or the FTT is satisfied that an offence has been committed, the tribunal must order that the landlord repays all housing benefit received during the period of the offence unless, by reason of exceptional circumstances, such a sum would be unreasonable. This means the RRO is usually 100% of the housing benefit paid.
Where the application is made by a tenant, the tribunal has more flexibility and the amount of rent to be repaid must be such amount as the tribunal considers reasonable in all the circumstances. The tribunal is required to take account of the following factors:
- The total amount of rent paid during the period that the landlord was committing an offence for failing to have a licence;
- The extent to which the rent was paid by housing benefit and how much was received by the landlord;
- Whether the landlord has been convicted of an offence for failing to have a licence;
- The conduct and financial circumstances of the landlord; and
- The conduct of the occupier.
These factors have been considered in two key Upper Tribunal cases: Parker v Waller [2012] UKUT 301 (LC) and Fallon v Wilson & Ors [2014] UKUT 0300 (LC).
Both cases are binding on the First-Tier Tribunal and therefore provide authoritative guidance on how to determine the level of rent repayment orders.
In Parker, the landlord appealed to the Upper Tribunal following a decision by the First-Tier Tribunal that his tenants should be entitled to 100% of their rent for the maximum 12 months preceding their application. Mr Parker had been convicted in the magistrates’ court for failing to have an HMO licence.
The Upper Tribunal considered the requirement that the amount to be repaid must be a sum that is “reasonable in the circumstances”.
The Upper Tribunal looked at the tribunal’s broad discretion and suggested other factors that should be taken into account when deciding RRO applications.
For example, the tribunal should bear in mind the fact that the landlord is liable for two penalties: a fine on conviction and an RRO. The tribunal should thus have regard to the total amount that the landlord has to pay.
The tribunal should also consider the seriousness of the offence and the culpability of the landlord. A professional landlord deliberately failing to obtain a licence is likely to merit a higher award that the inadvertent oversight of a non-professional landlord.
As the purpose of the RRO is to penalise a landlord profiting from letting an unlicensed property, consideration should be given to the costs of running the property. Where utility bills are incorporated in the rent, these costs should be included in the calculation of the rent received by the landlord but should only be included in the RRO in extreme cases. In Parker, the tribunal also deducted the landlord’s mortgage repayments from the RRO.
Importantly, the Upper Tribunal concluded that conduct on part of landlord unrelated to the offence is irrelevant. This is important because tenants often assert poor conduct on behalf of the landlord to justify a higher RRO. In Parker one of the tenants argued that Mr Parker had intimidated and harassed him and had failed to carry out repairs.
The Upper Tribunal concluded that these issues did not form part of the underlying offence of failing to have an HMO licence and therefore could not be used to increase the RRO. To do so would be to punish the landlord for matters outside the offence for which he had been convicted. The Upper Tribunal reduced Mr Parker’s RRO to 75% of profit less the amount of the criminal fine.
The key point in Parker, which was reiterated in the later case of Fallon v Wilson, is that there is no presumption that the tenants should be awarded a full 100% repayment of their rent for the relevant period unless there are good reasons for not doing so.
It is wrong to take the maximum award as the starting point and then apply relevant factors to depart from the full amount. Instead, the tribunal must take all the relevant factors into consideration and determine overall what is reasonable in the circumstances.
We have recently assisted a landlord in the First Tier Tribunal facing a RRO from her tenants of over £9,000. Following written submissions in which we applied the principles set out in Parkerand Fallon the tribunal made an order of under £1,000.