Understanding Rent Repayment Orders: A Case Study

A landlord has tested a landmark court case ruling who is responsible for settling a £6,000 rent repayment order by claiming his renters in a shared house were lodgers.

Judges at the Supreme Court had ruled in Rakusen v Jepson and others that tenants could only demand a rent repayment order (RRO) from their immediate landlord.

The definition stops tenants from suing property owners when a home is sublet to an investor in a rent-to-rent deal.

In the first RRO case, since Martin Rakusen won in the Supreme Court, landlord Sabour Mansour claimed two tenants living in his home were lodgers without tenancy agreements with him and who paid their rent to letting agent KJSZ Ltd.

A First Tier Property Tribunal heard that Mansour should have applied for a house in multiple occupation (HMO) licence for the property he was renting out in Pott Street, East London, even though he lived there, too.

Decision

As such, he committed an offence which opened the way for his two tenants to apply for an RRO.

The tribunal decided Mansour must have instructed the letting agents to act for him and that no evidence showed the agents owned or leased the property, making him the immediate landlord.

“There was no evidence that KJSZ was an owner or lessee of the property. It followed, therefore, that the respondent was a person managing the property. Mr Mansour wrongly believed that the fact that rent was paid to KJSZ Ltd afforded him a defence to the proceedings.”

The tribunal found in favour of the tenants and granted the RRO.

Mansour tried to establish his tenants were lodgers, which would have meant he did not need to licence his property, removing the tribunal's power to grant an RRO.

Read the full Mansour judgement

Exclusive possession

Depending on how a property is shared, lodgers and tenants have different rights as occupiers.

Lodgers live in a home with the renter or owner and share a kitchen, bathroom or living room with them.

Landlords need only give reasonable notice to ask them to leave, and no application to a court is involved. Reasonable notice is usually the length of the rent payment period. For example, a month’s notice should be given if the rent covers a month.

Where a room is let, and the owner does not share accommodation with them, the occupier will almost always be a tenant and have exclusive possession of the room. In nearly all cases, the tenancy will be assured shorthold (England) or an occupation contract (Wales).

Live-in landlords

Believing HMO rules do not apply to shared houses with live-in landlords is a misconception that can land property investors in hot water.

An owner-occupier can have up to two lodgers before the property becomes an HMO. Any more than two lodgers and the property will be an HMO; a mandatory license will be required if there are five or more persons and it's an HMO.

In some neighbourhoods, every privately rented home needs a licence irrespective of the number of occupiers, known as selective licensing. In some areas, any HMO may require a licence under additional licensing, including where there are fewer than five occupiers. Property owners should check the licensing requirements with their council.

A letting agent’s role is to act on behalf of the landlord with issues like rent collection, administration and reporting repairs. Any legal obligations towards a tenant remain the responsibility of the immediate landlord.

We have more information about HMOs and licensing (links are to England).