Since 2012 and the Upper Tribunal Judgment in Parker v Waller & Ors  UKUT 301 (LC), the approach to Rent Repayment Orders (“RROs”) has been that the Tribunal needs to look at the facts of the case as a whole when deciding on the correct award. The following extract is nearly always cited:
“There is no presumption that the RRO should be for the total amount received by the landlord during the relevant period unless there are good reasons why it should not be. The RPT must take an overall view of the circumstances in determining what amount would be reasonable.”
We discussed how to approach RROs in this article and noted that “It is important to remember that the Tribunal is not obliged to award the full amount of rent, and in our experience will only do so in exceptional and very specific circumstances.” However, the recent UT decision in Vadamalayan v Stewart and others (2020) UKUT 0183 (LC) has now made it clear that those circumstances do not include taking into account a landlords profit or expenditure – this is because sections 44 and 45 of the Housing and Planning Act 2016 are very different to section 74 of the Housing Act 2004 which involves reasonableness.
The First Tier Tribunal (“the FTT”)
The FTT followed the approach in Parker v Waller in that section 74(5) of the 2004 Act provided that a rent repayment order in favour of an occupier had to be “such amount as the tribunal considers reasonable in the circumstances”.
The Upper Tribunal (“the UT”)
The UT looked at the Housing and Planning Act 2016 and found that there was no equivalent provision and therefore it did not have to consider the reasonableness of the award – therefore the starting point is now the maximum amount of the RRO. Thereafter:
“That means that it is not appropriate to calculate a rent repayment order by deducting from the rent everything the landlord has spent on the property during the relevant period.
…the practice of deducting all the landlord’s costs in calculating the amount of the rent repayment order should cease.”
A point to note is that it is only the landlord’s costs that can no longer be deducted. The UT found no reason to deduct mortgage payments as this was categorised as the landlord’s investment in the property and could not justify why the tenant should fund the investment by way of deduction from the RRO. On the other hand, third party costs such as electricity which the landlord pays for can be deducted as it is not expenditure which has been used to enhance the landlord’s property.
The UT also found that any previous penalty (whether civil or criminal) did not need to be considered:
“The President deducted the fine from the rent in determining the amount of the rent repayment order; under the current statute, in the absence of the provision about reasonableness, it is difficult to see a reason for deducting either a fine or a financial penalty, given Parliament’s obvious intention that the landlord should be liable both (1) to pay a fine or civil penalty, and (2) to make a repayment of rent.”
Once the maximum amount has been ascertained, the tribunal must then consider s43(4) of the 2016 Act in deciding whether any deduction should be applied. Those considerations are:
(a) the conduct of the landlord and the tenant,
(b) the financial circumstances of the landlord, and
(c) whether the landlord has at any time been convicted of an offence.
In the past, landlords have often sought to reduce to level of the RROs by deducting expenditure on the property from the RRO. This will no longer be possible as a result of the judgment in Vadamalayan v Stewart. Put simply, the value of RROs are going to increase so landlord’s need to be more careful than ever to comply with licensing requirements.
This article was first published on the Property Litigation Association’s website.