Jagtar Singh Aytan & Ors v Theo Moore & Ors

This is the Tribunal’s decision in two appeals from rent repayments orders made by the First-tier Tribunal (“the FTT”). Both raise an issue which has been the subject of a number of recent decisions of this Tribunal, namely the amount of rent to be repaid when such an order is made. One of the appeals also concerns the defence of reasonable excuse to the offence of managing or being in control of a house in multiple occupation which is required to be licensed and is not.

We heard the appeal brought by Mr Aytan and others (LC-2021-389) by remote video platform on 6 January. The appellants were represented by Mr Alex Cunliffe of counsel, and the respondent tenants by Ms Clara Sherratt of Justice for Tenants. The appeal brought by Mr Wilson (LC-2021-187) was determined under the Tribunal’s written representations procedure; written representations were made on Mr Wilson’s behalf by Freemans, solicitors, and the respondents were not represented.

In the paragraphs that follow we set out the legal background, and then determine the appeals in turn.

The legal background to both appeals is the requirement for certain houses in multiple occupation (“HMOs”) to be licensed. It is a criminal offence to manage or be in control of an HMO that is required to be licensed and is not so licensed. Among the possible consequences of committing that offence is that a landlord may be ordered to repay up to twelve months’ rent to the tenants.

In more detail: section 254 of the Housing Act 2004 (“the 2004 Act”) defines HMOs using a number of tests, including the “standard test” in subsection (2) which states that a building or part of a building is an HMO if:

Not all HMOs satisfying the test set out above need to be licensed. Section 61 of the 2004 Act requires every HMO to which Part 2 of the 2004 Act applies to be licensed, subject to certain exemptions that are not relevant here. Part 2 of the 2004 Act applies, according to section 55(2), to

Regulations made under section 61 prescribe descriptions of HMO for the purposes of section 55(2)(a), including a building occupied by five or more persons living in two or more separate households. But a designation under section 56 may require, for example, the licensing of HMOs occupied by three or more persons in two or more separate households.

Section 72 of the 2004 Act provides, insofar as relevant, as follows:

Commission of that offence may lead to a criminal prosecution and conviction, or to the imposition by the local housing authority of a financial penalty pursuant to section 249A of the Housing and Planning Act 2016 (“the 2016 Act”). Furthermore, the tenants or the local housing authority may apply to the FTT for a rent repayment order.

Section 43 of the 2016 Act provides:

Section 44 of the 2016 Act provides:

The table referred to in s.44(2) states that in the case of the offence of controlling or managing an unlicensed HMO, the amount:

Section 46 of the 2016 Act provides that in certain cases where the FTT decides to make a rent repayment order, the amount is to be the maximum that the FTT has power to order (being 12 months’ rent), disregarding the matters which it would otherwise have to take particularly into account under section 44(4) (and 45(4) which is in identical terms). Rent repayment orders made in response to an offence under section 72 of the 2004 Act fall into this category only where the applicant is the local housing authority and where either the landlord has been convicted of the offence or has received a financial penalty. Subsection (5) adds the following proviso:

Provisions relating to rent repayment orders were first enacted in the 2004 Act. It became the practice of the First-tier Tribunal when making orders under those provisions, following the Tribunal’s decision in Parker v Waller [2012] UKUT 301 (LC) , to order landlords to repay only the profit element of the rent, deducting for example the cost of repairs and expenditure that the landlord was obliged under the terms of the tenancy to incur and which enhanced his own property and enabled him to charge rent for it.

In Vadamalayan v Stewart and others [2020] UKUT 183 the Tribunal held that that was not a correct response to the provisions of the 2016 Act and that the practice should cease. A rent repayment order is about the repayment of rent, not the repayment of profit, although it is appropriate to deduct from the amount to be repaid sums that were included in the rent for the tenants’ benefit, such as utilities which they consumed. At paragraph 12 the Tribunal (Judge Cooke) referred to

That reference to a starting point has given rise to some difficulties, and has led the FTT in some cases to take the view that it should order a landlord to repay the whole of the rent unless it is possible to make deductions in light only of good conduct by the landlord or bad conduct by the tenants, or of financial difficulties on the landlord’s part. That approach leaves no room for the FTT to reflect, in its award, the seriousness of the offence committed by the landlord, nor to make any allowance for the absence of convictions in accordance with section 44(4)(c).

In Ficcara and others v James [2021] UKUT 38 (LC) the Deputy President, Martin Rodger QC, said:

Similarly in Awad v Hooley [2021] UKUT 55 (LC) the Tribunal (Judge Cooke) said at paragraph 40:

The future appeal to which the Tribunal looked forward in Ficcara and in Awad turned out to be Williams v Parmar [2021] UKUT 244 (LC), where the Tribunal (The Hon. Sir Timothy Fancourt, President) said at paragraph 23:

In Williams v Parmar the President set aside the decision of the FTT to order the landlord to repay the whole of the rent for the relevant period, because the FTT had erred in taking the view that it had no discretion to award a lesser sum. At paragraph 39 the President said:

At paragraph 43 the President referred to:

At paragraph 51 the President added:

In substituting the Tribunal’s own decision the President noted that the landlord was a first offender, with no relevant convictions, but that she was a professional landlord who must be taken to have known the licensing requirement for licensing an HMO. Her failure to apply for one was unexplained and it seemed that she had overlooked it. There was nothing in her financial circumstances or her conduct to justify reducing the amount of the RROs. She applied for a licence only after an environmental health officer had visited and pointed out some serious deficiencies in the property, which would not have been eligible for a licence without substantial work; in particular, one of the bedrooms was too small. The Landlord was ordered to repay 80% of the rent for the relevant period to four of the five tenants, and to the fifth, who had the under-sized room, 90%. At paragraph 53 of his decision the President said:

Accordingly the approach described in paragraph 16 above, and which the President at paragraph 39 of his decision in Williams v Parmar identified as incorrect, should no longer be taken.

We now consider in turn the two appeals before us.

The factual background to this appeal is not in dispute and can be summarised briefly. The appellants purchased 1, Richard Street in 1997 and re-developed it, converting the upper floors into nine residential flats which were described by the first respondent in his witness statement as a completely new-built development. Flat 7 has three bedrooms, and on 15 March 2019 it was let to the respondents on an assured shorthold tenancy. A year later the tenants wanted to renew their tenancy and a fresh agreement was made on 4 March 2020 for a letting for 12 months from 15 March 2020. The tenants left on 14 March 2021.

Clause 7.11.1 of each of the assured shorthold tenancy agreements requires the tenant to use the flat only as “a strictly private residence in single occupation”. However, it is not in dispute that the landlords were aware that there were three tenants who did not form a single household .

The letting was arranged for the landlords, and the property managed, by Net Lettings Ltd, of 36-40 Copperfield Road, London. The landlords have not produced an agreement between themselves and Net Lettings, but their bundle in the FTT included the registration of Net Lettings at Companies House, and some advertising material including a pamphlet headed “Why choose us?” and a “Landlords’ Guide”, details of Net Lettings’ accreditation by the UK Association of Letting Agents and the National Landlords Association. They also produced the Property Ombudsman’s “Code of Practice for Residential Letting Agents”.

When the property was first let to the respondents it did not need an HMO licence. It was an HMO with only three residents and therefore fell outside the requirements that apply nationally to HMOs with five or more tenants in two or more households (paragraph 7 above). However, on 31 October 2018 the local housing authority made an additional licensing designation, whose effect was that the property required a licence from 1 April 2019 when the designation came into force, shortly after the respondents’ tenancy commenced.

After leaving the property in March 2021 the tenants applied to the FTT for a rent repayment order. The landlords did not dispute that the property should have had a licence but pleaded the defence of reasonable excuse under section 72(5) of the 2004 Act. They argued that they had been unaware of the additional licensing designation; that they were not consulted before the designation was made, although at the hearing they conceded that there was no evidence that the local housing authority had failed to comply with its obligations to publicise the scheme; that the letting was organised and managed by Net Lettings which was, so far as they were aware, a reputable agency; that the designation came into force after the start of the tenancy; that the tenancy agreement required the property to be used as a single household; that they applied for a licence on 14 October 2020, soon after receipt of a letter from Flat Justice on behalf of the tenants which alerted them to the problem.

The FTT was unimpressed by these arguments. It said:

The FTT went on to say that the landlords, as professional landlords, would be expected to be aware of their obligations. They had not produced their agreement with Net Lettings and so could not show that the agents were required to be responsible for licensing the property or for alerting the landlord to the need for licensing, but in any event:

Accordingly the FTT found that the landlords had committed the offence in section 72(1). It went on to consider the level of rent repayment order that should be made. It quoted at some length from the Tribunal’s decision in Vadamalayan, and drew from that decision the conclusion that the amount to be repaid:

The FTT went on to find that there was nothing in the evidence about the conduct of the landlords or the tenant to justify a lower award. It noted the tenants’ complaints that there were some problems with the lift, cleaning, paintwork, and an issue about rubbish collection, but took the view that these points were “not sufficiently significant to impact on the calculation of the RRO”. As to the landlords’ financial circumstances the FTT was aware that the landlords own the rest of the building, and referred to the various directorships they hold in property companies which indicated, the FTT found, that the rent from this property was not their only or main income. They were ordered to repay the whole of the rent for the relevant 12 month period.

The landlords have permission to appeal, on the grounds that the FTT erred in law and failed to take into account relevant considerations first in finding that they did not have the defence of reasonable excuse, and second in law in ordering the landlords to repay the whole of the rent. Permission to appeal was granted before Tribunal’s decision in Williams v Parmar had been handed down.

The appellants say that the FTT misdirected itself in relying upon R (Mohamed & Lahrie); that the landlords had a reasonable belief that the agent would inform them of any licensing requirements which justified their failure to catch up with the additional licensing designation and to obtain a licence; and that the FTT was wrong to find that they were professional landlords.

We are as unimpressed with these arguments as was the FTT.

The appellants say that the FTT made a false distinction (in its paragraphs 8 and 9, quoted above at paragraph 31) between ignorance of the existence of an HMO and ignorance of the additional licensing designation, and that the FTT was wrong to make its decision about their claimed defence in “principal reliance” upon that case. We agree with the appellant that ignorance about an additional licensing scheme is as likely to be relevant to the defence as is ignorance about the fact that the property is an HMO – although neither will in itself provide a defence. But the FTT clearly did not make its decision in “principal reliance” upon that distinction. As Ms Sherratt argued, it went through the landlords’ arguments carefully and made it clear that it did not think that they amounted to the defence of reasonable excuse. We agree and we find it difficult to see how the FTT could have found otherwise.

So far as the landlords’ relationship with the Net Lettings is concerned, the appellants did not provide any evidence about their contractual arrangements. We note that although Net Lettings’ publicity materials does make general reference to keeping the landlord up to date with legal requirements, there is no reference in those materials either to the 2004 Act or to the 2016 Act, and we think that that in itself would make a prospective client wonder whether the agents were aware of licensing requirements and whether they expected to be responsible for making sure landlords knew about them. There is nothing in the materials that we have seen that would give a reasonable landlord any confidence that he was safe to rely upon silence from Net Lettings to reassure him that he had not failed to comply with any licensing requirements.

We would add that a landlord’s reliance upon an agent will rarely give rise to a defence of reasonable excuse. At the very least the landlord would need to show that there was a contractual obligation on the part of the agent to keep the landlord informed of licensing requirements; there would need to be evidence that the landlord had good reason to rely on the competence and experience of the agent; and in addition there would generally be a need to show that there was a reason why the landlord could not inform themself of the licensing requirements without relying upon an agent, for example because the landlord lived abroad.

As to the finding that the landlords were professional landlords who could be expected to be aware of legal requirements, the appellants argue that they were not professional landlords. True, they own the building and let out nine flats. But they do so in their own name. They have not chosen to do so through limited companies, which is how they manage their commercial property portfolio and which is why they hold numerous directorships in property companies.

This is a specious argument. The landlords are the owners, in their own names or through limited companies, of multiple properties. The FTT was correct to find that they obviously do not derive their only or main income from this one flat. Whether that makes them “professional landlords” or simply the landlords of multiple properties, they are clearly investors in property who can be expected to take responsibility for the legal responsibilities that go with their receipt of rent from tenants.

The FTT did not misdirect itself and did not fail to take any relevant consideration into account. The appeal relating to the defence of reasonable excuse fails.

The appellants say that the FTT’s order that they repay the whole of the rent for the relevant 12-month period was wrong in law.

They make a preliminary point that before determining the amount of the order, the FTT should have considered whether to make a rent repayment order at all. There is no substance in that point. The FTT did not articulate that first step but it clearly took the view that an order should be made; and in the circumstances we do not think that there could have been any plausible argument that an order should not have been made.

However, the appellants go on to say that the FTT was wrong to rely on Vadamalayan as authority for the award of the maximum amount in the absence of any factors that might reduce it, and thereby limited the circumstances that it was able to take into account. It is argued that whereas the Deputy President in Ficcara said that it remained to be decided in a later appeal whether the full rent should be used as a starting point from which only deductions could be made, the FTT treated that point as having been decided by Vadamalayan.

That is undoubtedly what the FTT did, and indeed it explained why it did so; we have quoted at length from the decision in the FTT (paragraph 33 above) so that its view is set out clearly. It followed the approach that the President criticised at paragraph 39 of Williams v Parmar. Ms Sherratt for the respondents argued that the FTT had been correct in its interpretation of Vadamalayan, Ficcara, and Awad v Hooley; but the decision in Williams v Parmar has now been made – since the grounds of appeal were drafted - and the position is clear. The FTT in assessing the level of the order that should be made is not to take the full rent as the starting point from which only deductions can be made; that would be to ignore the effect of section 46. Williams v Parmer decides that, in cases to which section 46 does not apply, there can be no presumption that the amount under the order is to be the maximum amount that the tribunal could order under s.44 or s.45. In such cases, section 44(4) requires the FTT to have regard in particular to the conduct of the landlord or the tenant, the financial circumstances of the landlord and whether the landlord has any relevant previous convictions. Other factors may be taken into account, including the purposes intended to be served by the jurisdiction to make an RRO.

We make no criticism of the FTT which based its reasoning on the decisions in Vadamalayan and Ficcara. But it is clear from Williams v Parmar that it adopted the wrong approach and thereby limited the scope of its discretion. The decision must be set aside.

As we have all the relevant information we can substitute the Tribunal’s own decision. In doing so we wish to make it clear that it is not appropriate for a tribunal to indulge in a fine-grained examination of every aspect of the parties’ conduct, which would be disproportionate, nor in a detailed comparison of one landlord with another, which is unlikely to be accurate. The FTT must weigh the evidence and make a balanced decision. However, that exercise need not be a detailed forensic exercise as long as all relevant circumstances are taken into account and the outcome falls within the reasonable range of responses available to the Tribunal.

We are required to look in particular at the factors identified in section 44(4):

As to (a), there is no evidence about the conduct of the tenants and no suggestion that they have been anything other than satisfactory. The FTT found as a fact that although the tenants had some complaints about the lift, rubbish collection and so on, there was nothing in those complaints that could make any difference to the amount of the order. So the only conduct we can consider is the appellants’ failure to get a licence despite being landlords of multiple properties; as well as owning the nine flats in this building, they have extensive commercial property interests and company directorships. They are serious investors in property, and with that investment come responsibilities. There were no practical difficulties standing in the way of their getting hold of the relevant information about licensing. Turning to (c), the appellants have not suggested that they have any financial difficulties There is no suggestion that the landlords have any relevant convictions.

Ms Sherratt argues that the landlords’ conduct was so serious that it justifies an award in the full amount of the rent. She says that these are professional landlords, that they had no system in place for keeping up to date about licensing requirements, and she points to the fact that the length of time for which the property was left unlicensed. She says that the landlords were interested only in taking the rent and otherwise washed their hands of the property. We accept all those points, but we do not think that taken together they justify an order in the maximum amount in the circumstances of this case where there is no specific, evidenced harm to the tenants. Whilst it will never be right to make a point by point comparison between different landlords, it will always be realistic to consider whether there is evidence for example that the property was dangerous or that the tenants suffered physical or economic hardship as a result of the absence of a licence, none of which happened in this case.

We take a serious view of the landlords’ conduct in this case. They own and let out nine residential flats in this particular building, which by themselves must yield a substantial income; in addition, their roles in a number of commercial property companies indicate that they are also major investors in property. On the other hand, the condition of the property was good. We asked Mr Cunliffe what level of award he thought would be appropriate if we were not persuaded that the landlords had a defence, and he suggested 50% of the rent. We take the view that that would be a disproportionate deduction, and that a modest deduction of 15% from the maximum rent is appropriate.

The appeal succeeds on the quantum point and the FTT’s order that the appellants repay the whole of the rent for the 12-month period, being £31,200, divided equally between the respondents is set aside. The Tribunal substitutes its own decision that the appellants are to repay 85% of that sum, being £26,520 , divided equally between the respondents.