Rent Repayment Orders in respect of superior landlords for unlicensed houses in multiple occupation

The First Tier Tribunal and the Upper Tribunal considered, in the case of Kumar v Kolev & Others [2024], a question which had apparently been put to bed by the Supreme Court in the 2023 case of Rakusen v Jepson. 

That decision relates to houses in multiple occupation (HMOs). In brief terms, an HMO is a building in which two or more households share a basic amenity such as a bathroom, toilet or cooking facilities. The landlord requires a licence, from the local council, for HMOs which house five people or more.   

Breach of the licensing requirements can result in a landlord being required to repay some or all of the rent received from its tenant, pursuant to a Rent Repayment Order (RRO). 

Background

Mr Kumar let (the Headlease) a two-storey house with three bedrooms and shared kitchen and bathroom facilities, to a commercial tenant – Like Minded Living Ltd (LML).

The letting was for a term from 31 March 2018 to 30 September 2019, at a monthly rent of £2,600 and subject to a requirement that LML would not permit more than four occupants to reside in the property at any one time (so as to prohibit the creation of an HMO which required licensing). 

LML proceeded to grant sub-tenancies of individual rooms (as envisaged by the Headlease) though allowed the property to become occupied by five individuals, thereby breaching the above-mentioned requirement and creating an HMO for which there was a licensing requirement (no licence was obtained). 

In contrast to previous matters where this point had been considered, the sub-tenancies which were granted by LML were for a period which exceeded, by several months, the term of the Headlease.

After the Headlease expired on 30 September 2019, all of the parties carried on as if nothing had changed (the sub-tenants paying rent pursuant to their sub-tenancies to LML, and LML continuing to pay to Mr Kumar rent at the rate that had previously been reserved under the Headlease).

In February 2021 three of the five sub-tenants applied for RROs against Mr Kumar, alleging that he had committed the offence of having control of, or managing, an unlicensed HMO.

The First Tier Tribunal decided in 2024 that Mr Kumar was indeed required to “repay” rent to each of the three sub-tenants in respect of the period after expiry of the Headlease (30 September 2019) up to expiry of the sub-tenancies (1 April 2020), regardless of the fact that the sub-tenants’ rent had not been paid to him in the first place.

Mr Kumar appealed.

Previous relevant case law

This issue had been apparently put to bed by the Supreme Court last year in the case of Rakusen. The Supreme Court decided that “It is forced language to say that a superior landlord would be repaying rent to a tenant from whom it had never received any rent” and simplified the situation by stating that a landlord could only be required to repay “…the rent received directly from the tenant”.

However, the Court of Appeal case of Milmo v Carreras [1946] sets out a principle that applies where a head-tenant grants a sub-tenancy equal to or longer than the remaining term of their own tenancy. In those circumstances “…the purported grant takes effect as an assignment of the tenancy by operation of law; no relationship of landlord and tenant is thereby created between the tenant and the sub-tenant and the sub-tenant instead becomes the direct tenant of the head landlord, whether the parties know it or want it or understand it”.

The sub-tenants therefore argued that, due to this provision, the position in Rakusen could be distinguished, and a RRO made against Mr Kumar.

Was Mr Kumar the sub-tenants’ landlord?

Both parties agreed that, as a result of the sub-tenancies being granted for a period longer than the Headlease, there had been an assignment by operation of law under the principle in Milmo. The sub-tenants could therefore sue Mr Kumar, or be sued by him, on the covenants in the Headlease, including the covenant to pay rent. The purported sub-tenancies were still valid contracts as between LML and the sub-tenants. 

However, the Upper Tribunal could not get around the fact that the sub-tenants had made no payment to Mr Kumar, and that no repayment could be made in respect of a payment that had not been made to him in the first place.

Mr Kumar’s appeal was allowed as the First Tier Tribunal’s reasoning was inconsistent with that of the Supreme Court. 

The defence of reasonable excuse

Even though the above was sufficient to deal with the appeal, the Upper Tribunal still considered one or two further points. In particular, it considered the fact that the First Tier Tribunal had decided that Mr Kumar had committed a criminal offence and that he was entitled to have the public record corrected, if correction was warranted.

Accordingly, it questioned whether Mr Kumar would have had a reasonable excuse for being in control of an unlicensed HMO, if that were indeed the case. It found that it was the case that Mr Kumar was entitled to rely on the fact that he had let the whole of the property to an apparently reputable tenant, that he had included a provision in the tenancy limiting occupation to four occupiers, that the unlicensed HMO situation arose due to LML’s breach, and that there was no way of Mr Kumar being able to know about and/or resolve the issue. 

In brief “there was no basis for the First Tier Tribunal’s suggestion that Mr Kumar was obliged to “supervise” the letting of the property to the sub-tenants”.

The Upper Tribunal was invited to consider whether Mr Kumar was a person having control of or managing an HMO for the purposes of the legislation. It declined to do so, leaving that point to be considered in the case where it was pertinent (the Upper Tribunal having already decided to allow Mr Kumar’s appeal).

Finally, the Upper Tribunal also declined to consider the question of whether the First Tier Tribunal had been entitled to take into account the conduct of LML in relation to determining the amount to be repaid by Mr Kumar, given that it had already decided that no amount needed to be repaid. 

The Birketts view

The Upper Tribunal reached a simple and logical conclusion, summarised in paragraph 34 of the judgment, which reads “it is therefore a sufficient and complete answer to the application for a rent repayment order that nothing was paid by the Respondents to Mr Kumar so nothing could be ordered to be repaid by him to them”. 

The suggestion that Mr Kumar should somehow have been supervising LML’s letting to the subtenants was also, thankfully for the landlords, kicked into touch. 

Some questions,such as whether there can be more than one party having control of an HMO,still fall to be considered, though there appears no judicial side-stepping of the Supreme Court’s decision in Rakusen.