Ignorance is Bliss? Rent Repayment Orders and Selective Licensing – Daff v Gyalui & Aiach-Kohen [2023] UKUT 134 (LC)

A Rent Repayment Order (‘RRO’) is a mechanism by which a landlord can be ordered to repay monies to a current/former tenant, or to a local authority where universal credit has been received.

The sum to be repaid is capped at a maximum amount equivalent to 12 months’ rent. Applications for an RRO are submitted to the First Tier Property Tribunal (‘FTT’), and they can be made by the tenant themselves, or by the relevant local authority.

There are currently seven ‘offences’ which can lead to an RRO being granted, which are set out in section 40 of the Housing and Planning Act 2016. These ‘offences’ include ‘eviction or harassment of occupiers’ and ‘control or management of [an] unlicensed house’.

Under Part 3 of the Housing Act 2004, local authorities may designate either the whole or part of their area as being subject to ‘selective licensing’. Where such a scheme is in force, private landlords operating in the designated area are required to obtain a license from the authority, unless an exemption applies. The license application may be submitted by an agent, and a fee is payable.

Certain local authorities have implemented selective licensing (but not all), and where schemes are in place, they may apply only to certain streets/postcodes.

It is perhaps understandable that this has given rise to some confusion and concern for landlords. The dangers of failing to comply were highlighted in the recent case of Daff v Gyalui & Aiach-Kohen [2023] UKUT 134 (LC), which was heard before the Upper Tribunal on appeal from the FTT.

At first instance, an RRO in the sum of £22,230 had been made by the FTT, due to a landlord’s failure to obtain a selective licence at a time when one was required.

The landlord (Ms Daff) had been unable to work due to illness for a number of years. She had lived at her property herself for certain periods, but in the intervals between she had been residing in Australia and had rented out the flat to tenants.

It was accepted that Ms Daff had been unaware that a selective licence was needed at the relevant time; she had been in Australia when the scheme was implemented and her letting agent did not inform her of it. She could however have become aware of the scheme had she made pro-active enquiries, and the FTT emphasised that Ms Daff had received emails from the National Landlords’ Association regarding changes in the law. On that basis the FTT found that Ms Daff lacked a reasonable excuse for failing to hold a licence.

Ms Daff appealed against the RRO on two grounds; the first being that the FTT had failed to take her financial circumstances into account when the amount of the RRO was calculated.

Under section 44 of the Housing and Planning Act 2016, in determining the amount, the FTT ‘must, in particular, take into account—

(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 to which this Chapter applies’.

This ground of appeal was accepted by the Upper Tribunal; while the financial details given were not comprehensive, there was material in the hearing bundle which the FTT had failed to consider. The FTT had proceeded on the basis that there was no financial disclosure, which was factually incorrect, and no regard was given to circumstances as required by section 44. On that basis ‘[the FTT’s] decision must… be set aside’.

The Upper Tribunal pointed out that Ms Daff had attended the initial hearing, and the FTT could have made more of the opportunity available to it to raise questions and obtain relevant evidence.

The second ground of appeal was based around Ms Daff’s submission that she had been informed by the local authority that her property was ‘exempt’ from the need for a selective licence, because it was her residence from time to time. This statement was made after Gyalui and Aiach-Cohen had moved out, during a period when Ms Daff was living at the property herself. The Upper Tribunal emphasised that an exemption was not retrospective, and this ground failed.

Neither party disputed the FTT’s finding that Ms Daff lacked a reasonable excuse for failing to obtain a license. The Upper Tribunal elected to redetermine the amount of the RRO themselves, rather than remitting the matter back to the FTT.

As part of this exercise, the Upper Tribunal commented that ‘the circumstances in which a landlord lets property and the scale on which they do so, are relevant considerations when determining the amount of an [RRO] but the temptation to classify or caricature a landlord as “professional” or “amateur” should be resisted…..the penalty appropriate to a particular offence must take account of all of the relevant circumstances’. While Ms Daff was at fault for the lack of a license, there were contributory factors (such as her illness) and ‘no evidence that she has deliberately sought to avoid her responsibilities’.

The amount to be repaid was reduced to a total of £2,000 and it was observed by the Upper Tribunal that ‘rent repayment orders are not intended to be compensatory, but are a windfall bestowed in addition to any other remedies to which a tenant may be entitled’.

This case highlights the importance of landlords and their agents being mindful of the existence of selective licensing schemes. If there is any doubt, the relevant local authority can assist in clarifying whether a property falls within the remit of a scheme.

If you are a private landlord in need of assistance, MSB’s private landlord team can be contacted via email at privatelandlords@msbsolicitors.co.uk