Rent Refund Loophole Targeted by New Bill

The government is rushing to close a legal loophole that allows rogue landlords to avoid refunding rent to private tenants.

The forthcoming Renters Rights Bill, currently going through Parliament, is expected to close the loophole when it becomes law.

Meanwhile, hundreds of students who pay rent in advance of the new academic year, starting in September, could be left out of pocket.

The loophole was revealed in a tenant's appeal to the Upper Tribunal (Lands Chamber) by renter Carl Pearton against a First-Tier Property Tribunal (FTT) ruling that his landlord, Betterton Duplex Ltd, was not liable for refunding £48,000 rent he paid in advance with two other tenants.

They were renting the ground floor and basement of a home in Betterton Street, Camden, London, for £8,000 a month.

How the loophole works

The trio signed a six-month tenancy agreement and handed over the rent on July 19, 2022, and moved in on July 22, when the agreement started.

No more rent was paid, and they moved out on January 21, 2023.

While living at the property, the renters discovered that the landlord did not have an additional House in Multiple Occupation (HMO) licence, which is an offence when renting a home to two or more unrelated households.

Mr Pearton took the landlord to the FTT, which ruled that a landlord is only liable for a rent repayment order if rent is paid while a housing offence is being committed.

As the £48,000 advance payment was made before the tenancy agreement started, the FTT ruled that no refund could be made.

The decision was appealed to the Upper Tribunal by the tenants, which confirmed the FTT ruling and dismissed the case.

Students at risk

Making the ruling, Upper Tribunal Judge Elizabeth Cooke said:

"The appellant argues that the tenants were required to pay the rent in advance and that that has allowed the landlord to sidestep justice; the principle in Kowalek opens a loophole for landlords to which students are particularly vulnerable because they generally have to pay in advance. He suggests that the statute should be read in such a way as to adapt it so that lump-sum payments made in advance can be repaid. I cannot accept that that is possible; the wording is clear, and to read it down or disregard it in order to widen the possibility of a rent repayment order would be an impermissible mis-reading of the statute. The appellant may be right that the wording creates a loophole; I note that the Renters' Rights Bill will, if enacted in its current form, make such advance payments impermissible."

Read the judgment