Rent Repayment Orders Will Require More Repayment

22nd June 2020 Commercial Litigation

The Upper Tribunal has made a key decision on Rent Repayment Orders (RROs) which really alters their geography. To date the leading cases were the Upper Tribunal decisions in Parker v Waller and Fallon v Wilson. These had laid out a position that required the First Tier Tribunal (FTT) to consider, where they had a discretion on the level of a RRO, they should deduct the landlord’s expenses including mortgage payments and expenses incurred on the property. In this case the FTT had followed the previous UT decisions and duly done so.

However, since Parker and Fallon the law has changed a bit. The Housing and Planning Act 2016 introduced a slightly different RRO regime in England, expanding their remit to many more offences. In a lot of cases the 2016 changes specifically dictate that the FTT must impose the maximum penalty available to it. However, in the case of failure to licence a House of Multiple Occupation the RRO is not stated to be the maximum possible and the exact sum remains within the discretion of the FTT. But there has also been a change in the application of the FTT’s discretion. Under the old regime the legislation required that the FTT make a RRO which was “reasonable in the circumstances”. No such restriction applies under the 2016 changes.

The UT rules in this case that it was not bound by Parker or Fallon and that as the law had changed they no longer applied. The UT took the view that if it was making the decision entirely itself that it would have ordered the landlord to pay the maximum sum available. However, the tenants had not appealed against the FTT decision and it was in fact the landlord who was seeking to have the sum ordered by the FTT reduced. So, the UT made no reduction to the FTT award and made clear that if the tenants had asked it to it would have ordered much more.

This is another of a range of recent Upper Tribunal decisions that I have some difficulty with.

It is undoubtedly the case that Parker and Fallon had problems. First they created a very unsatisfactory tension between the Magistrates and tenants in that the higher the Magistrates set the fine they imposed the less would be the RRO awarded to a tenant. Second, the decision created a bizarre situation whereby a landlord could effectively pick their penalty level by tuning their expenses. So, a highly geared landlord with a large mortgage would be subject to a lesser penalty.

However, this new decision brings its own problems. A Tribunal is a public decision maker and must always act reasonably, it is not necessary for that to be spelled out in a statute. So, for the UT to hold that it was freed of a requirement to be reasonable is plainly wrong. Further, the statute clearly still has a distinction between cases where the Tribunal has no discretion and must award the maximum available and cases where it has a discretion. Thirdly, as was made clear in Parker (and this must still be correct) there is a discretion as to the penalty to be awarded. This does not operate by starting at one end of the available sum to award (100% of rent) or the other (0% of rent) and finding reasons to adjust. The fact that the phrasing of part of the legislation has changed does not alter these basic points of law. So, it seems to me that the UT is entirely wrong here to suggest that it might start at the full rent payable and then tweak it from there.

Arguably, the comments of the UT about how it might have calculated the penalty are irrelevant to the decision it made and so they do not bind the FTT. In practice, it is likely that most FTTs will absorb these instructions and will refuse to make deductions for landlord costs, thereby substantially increasing the level of penalty they impose.

All in all, this decision rather changes the position on RRO’s making them far more onerous on landlords. In many ways this is perfectly correct. They are supposed to be a penalty. However, the legislation must be balance and the level of penalty must be commensurate with the offence. In many cases a Magistrate will already have considered this and, following the new sentencing guidance, will already have penalised in such a way as to eliminate the profit element. So, an RRO represents a considerable additional penalty. While it is right that Parker required reconsideration I am not sure that the answer in this case is much of an improvement.

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David Smith is a Partner located in Londonin our Commercial Litigation department

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