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Where a landlord has sub-let property to another landlord, he or she is not liable for rent repayment orders made as the consequence of the actions of his tenant landlord.
This was the ruling of the Court of Appeal when ruling last month on the case of Rakusen versus Jepsen, Murphy and McArthur.
It was a complicated case dating back to 2016 and concerned whether or not a claim for a RRO could be made against landlord Martin Rakusen. Two lower courts had ruled the claim could be made, but these decisions were reversed by the Court of Appeal.
In 2006 Rakusen bought a 999 year lease on a flat in Mandeville Court, Finchley Road, London. In May 2016 he granted a tenancy of the flat to Kensington Property Investment Group Ltd, a company to which he had been introduced by his letting agents, Hamptons.
The tenancy was for a term of 36 months, less one day, at a rent of £2,643.33 a month. A clause in the letting agreement allowed KPIG to sublet part or all of the flat.
Subsequently Rakusen was granted a ‘licence’ to occupy one room in the flat. By 2018 there were four people from more than two households living in the flat, making it an HMO. Hamptons informed Rakusen that KPIG wished to apply to the local housing authority for an HMO licence but no licence was ever granted.
Rakusen did not renew KPIG’s tenancy at the end of the fixed term in May 2019.
In September of that year 2019 Jepsen, Murphy and McArthur applied for a RRO against Rakusen for £26,140 on the basis that he had had ‘control or management of an unlicensed HMO’.
Rakusen said he only became aware of the licence agreements between KPIG and the claimants after they applied for a RRO. He was not a person having control of the HMO or a person managing it, and the claim should be struck out.
The First-tier Tribunal did not agree. And neither did the Upper Tribunal. But the Court of Appeal did.
It said RRO’s could only be made against an immediate landlord and not a ‘superior’. The effect of the claimants interpretation of the law would be that superior landlords can be ordered to pay tenants sums of money which had been paid to somebody else. And the legislation refers to ‘repayment’, not payment.
A local authority can only obtain an RRO against a direct landlord, held the court.