Rent-to-rent is a form of sub-letting, where the landlord that owns the property lets it to an individual or company, who then lets it to a tenant
The property owner is referred to as the ‘superior landlord’ and the person or company that then directly lets it to a tenant is the ‘immediate landlord’.
This distinction is important when it comes to Rent Repayment Orders (RROs). That’s where a landlord can be ordered to repay anything up to 12 months’ rent to their tenants if they’re found guilty of committing certain offences, including:
- Letting a property (usually an House in Multiple Occupation (HMO)) without a licence
- Failing to comply with an improvement notice – e.g. failing to carry out necessary repairs on the property
- Evicting a tenant illegally
In many cases, it will be the immediate landlord that’s committed the offence, as they’re the ones responsible for letting the property to the tenant occupiers, yet, some may question, 'is it possible for the tenants to apply for an RRO against the superior landlord and pursue them for the money instead?
Supreme Court ruling in Rakusen v Jepsen
In this recent case, a property in London had been let by a superior landlord to a property investment group, who, as an immediate landlord, let it to three tenants. As an HMO, the property required a licence, but the investment group had failed to secure one. The tenants applied to a First-tier Tribunal for an RRO against the superior landlord, rather than the investment group (the immediate landlord), which subsequently led the superior landlord to challenge it.
Although the Upper Tribunal dismissed his appeal, the Supreme Court then ruled that an RRO can only be made against the immediate landlord of a tenancy. In their ruling, the judges stated: “It would strain the language to say that a superior landlord is "repaying" rent to a tenant from whom it had never received any rent.”
Why would tenants want to pursue a superior landlord for rent repayment?
One thing that’s currently an issue with rent-to-rent is that some immediate landlords are setting up ‘front companies’ and using them to let properties, purely to put some legal distance between themselves and their tenants. If an RRO was made against the immediate landlord (the front company), the company could be allowed to go bust and the people behind it could avoid paying the penalty. And in that case, the tenants wouldn’t get their rent back.
So it could be argued that if the immediate landlord couldn’t pay, the tenants should be allowed to pursue the superior landlord instead. However, if that became law (for instance, if it became an amendment in the upcoming Renters Reform Bill) it would punish superior landlords, who have no control over how the immediate landlord is operating the day-to-day rental.
One possible solution would be to change the law to make directors of companies that let residential property personally liable for RROs. In the meantime, there are already a range of other penalties that can be handed down to any landlord who breaks the law, and in many local authority areas there could be tighter enforcement of these.
If you’re thinking about letting your property via a rent-to-rent arrangement with another landlord, we’d recommend you take the following steps:
- If it’s an individual, have a credit check carried out to make sure they don’t have any CCJs or bad credit history
- If it’s a company, check the Companies House register, where you can see a lot of information, including:
- How long the company has been in business
- Details of the company Officers
- All financial accounts that have been filed.
And if you’d like any information about rent-to-rent or you have questions about Rent Repayment Orders, your local Your Move team will be happy to help – just get in touch with your nearest branch.
Landlord tries to use Rakusen v Jepsen decision to avoid paying RRO – and loses
A recent case of an immediate landlord trying to use a ‘front company’ to avoid being liable for financial penalties himself, led a Tribunal to rule against him.
The immediate landlord had failed to license an HMO and an RRO had been made against him. He claimed he was living there himself and the tenants were his lodgers, who paid their rent to a management company, not him. He cited the Rakusen v Jepson case, arguing that the management company was the immediate landlord, as they received the rent.
But because there was no evidence that the management company was the owner or lessee of the property, the First-Tier Tribunal ruled that the landlord was managing the property himself and was clearly the immediate landlord, so was liable to pay the RRO.
The Tribunal added that the landlord must have entered into an agreement with the management company to receive the rent on his behalf and, taking his “poor conduct” into account, increased the amount of the order from 60% of the possible maximum to 70%.
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