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Landlord of unlicensed HMO ordered repay rent to tenants

Posted: 7th September 2020   In: Commercial Property

A landlord has been ordered to repay a large proportion of rent to the tenants of his house in multiple occupation (HMO) because he did not have the appropriate licence as required by the Housing and Planning Act 2016.

The tenants had paid approximately £28,600 rent and sought a rent repayment order.

The First-tier Tribunal (FTT) made some deductions from the annual rent in respect of sums spent by the landlord on the property and ordered him to repay £17,420 to the tenants.

The landlord appealed saying that the FTT had said that it would deduct some items but then failed to do so. He also argued that an £8,000 financial penalty, imposed by the local authority for the licence offence, should also be deducted.

The Upper Tribunal clarified the correct approach to the calculation of a rent repayment order where a landlord did not hold a licence to manage an HMO.

The following items should not be deducted:

  1. sums spent on the property by the landlord during the tenancy
  2. a fine paid by the landlord in respect of the licensing offence.

That meant that it was not appropriate to calculate a rent repayment order by deducting from the rent everything the landlord had spent on the property during the relevant period. 

That expenditure would have enhanced the landlord's own property and enabled him to charge rent for it. Much of the expenditure would have been incurred in meeting the landlord's obligations under the lease; there was no reason why the landlord's costs in meeting his obligations should be set off against the cost of complying with a rent repayment order.

There might be cases where the landlord's good conduct or financial hardship justified an order of less than the maximum. In addition, there might be a case for deduction where the landlord paid for utilities, as those services were provided to the tenant by third parties and consumed at a rate chosen by the tenant. In paying for utilities the landlord was not maintaining or enhancing his own property.

Fines or financial penalties should not be deducted, given Parliament's obvious intention that the landlord should be liable both to pay a fine or civil penalty and to make a repayment of rent.

It was not possible to understand the FTT's figures. Its decision was irrational because its reasoning could not be understood, and it therefore had to be set aside.

However, the tenants had agreed that some items should be deducted. It would therefore be unjust if the outcome of the landlord's appeal was that he had to pay a great deal more than he was ordered to pay by the FTT.

Accordingly, a rent repayment order was made in the same sum as the FTT had ordered, namely £17,420.

Please contact Janice Young or Simeon Clipstone if you would like more information about the issues raised in this article or any aspect of commercial property law.

Landlord of unlicensed HMO ordered repay rent to tenants
[2020] UKUT 183 (LC)
UT (Lands) (Judge Elizabeth Cooke) 11/06/2020
Posted by: Janice Young
Dispute Resolution
Luton Office