[2024] UKUT 40 (LC)

It is clear from the examples of FTT decisions quoted in the application for permission to cross-appeal and from others which the Tribunal has seen that the quantification of rent repayment orders is a subject on which views still differ; most panels appear to follow guidance given by this Tribunal, but a rump energetically espouses an alternative approach. In the assessment of penalties, fairness and the maintenance of respect for the law both require that tribunals adopt a consistent approach, even if, within a settled framework, one panel may be more influenced than another by a particular factor or one may be disposed to be more lenient or more punitive than another.

In England, rent repayment orders are part of the suite of measures provided for by Part 2, Housing and Planning Act 2016 to punish and deter the activities of “rogue landlords and property agents” (as they are designated in the title to Part 2). The circumstances in which an order may be made are explained in section 43 and the amount of order to be made in favour of tenants (as opposed to local housing authorities to which different considerations apply) are explained in section 44.

Section 44 of the 2016 Act provides:

“(1)

Where the First-tier Tribunal decides to make a rent repayment order under section 43 in favour of a tenant, the amount is to be determined in accordance with this section.

(2)

The amount must relate to rent paid during the period mentioned in the table …….

(3)

The amount that the landlord may be required to repay in respect of a period must not exceed –

  (a) the rent paid in respect of that period, less

(b)

any relevant award of universal credit paid (to any person) in respect of rent under the tenancy during that period.

(4)

In determining the amount, the tribunal must, in particular, take into account –

  (a) the conduct of the landlord and the tenant;

The table referred to in section 44(2) specifies that in the case of a licensing offence contrary to section 72(1), Housing Act 2004, the amount “must relate to rent paid by the tenant in respect of … a period, not exceeding 12 months, during which the landlord was committing the offence”.

The modern meaning of “rent” is straightforward and does not require reference to antique legal concepts. It is simply “a payment which a tenant is bound by his contract to make to his landlord for the use of the land” (Woodfall: Landlord and Tenant, 7.001). For the purpose of Chapter 4 of Part 2 of the 2016 Act (i.e. the rent repayment order provisions) “rent” is defined in section 52(1) as including any payment which could be taken into account under section 11 of the Welfare Reform Act 2012 in the calculation of an award of universal credit. Such payments include “any liability of a claimant to make payments in respect of the accommodation they occupy as their home” (section 11(1).

In Acheampong v Roman [2022] UKUT 239 (LC) the Tribunal reviewed some of its decisions under section 44 and suggested an approach to the quantification of rent repayment orders which would be consistent with them. That approach was as follows:

“20.

The following approach will ensure consistency with the authorities:

a.

Ascertain the whole of the rent for the relevant period;

b.

Subtract any element of that sum that represents payment for utilities that only benefited the tenant, for example gas, electricity and internet access. It is for the landlord to supply evidence of these, but if precise figures are not available an experienced tribunal will be able to make an informed estimate.

c.

Consider how serious this offence was, both compared to other types of offence in respect of which a rent repayment order may be made (and whose relative seriousness can be seen from the relevant maximum sentences on conviction) and compared to other examples of the same type of offence. What proportion of the rent (after deduction as above) is a fair reflection of the seriousness of this offence? That figure is then the starting point (in the sense that that term is used in criminal sentencing); it is the default penalty in the absence of any other factors but it may be higher or lower in light of the final step;

d.

Consider whether any deduction from, or addition to, that figure should be made in the light of the other factors set out in section 44(4).

21.

I would add that step (c) above is part of what is required under section 44(4)(a). It is an assessment of the conduct of the landlord specifically in the context of the offence itself; how badly has this landlord behaved in committing the offence? I have set it out as a separate step because it is the matter that has most frequently been overlooked.”

In this case, the FTT directed itself by reference to the guidance in Acheampong and adjusted the amount of the rent repayment downwards at step (b) to reflect the fact that the appellant met the cost of heating, lighting, electricity and broadband utilised by its tenants.

Mr Penny submitted that this adjustment was wrong in principle, and that step (b) suggested by the Tribunal in Acheampong was impermissible. His contention was that section 44(2) directs that the amount of a rent repayment order “must relate to rent paid” during the relevant period. By making a deduction from the rent paid and basing the amount to be repaid on what Mr Penny called a “net rent”, tribunals were not complying with that direction. Nor were they entitled to take the fact that the landlord had paid for the cost of utilities into account under section 44(4)(a) or (b), because such payments were not “conduct” on the part of the landlord, nor were they the “financial circumstances of the landlord”.

The earliest example of a deduction being made by this Tribunal from the amount of rent to be repaid to reflect the cost of utilities supplied at the landlord’s expense predates section 44 of the 2016 Act. Parker v Waller [2012] UKUT 301 (LC) was an appeal against a rent repayment order made under section 73, Housing Act 2004. Section 73 was concerned solely with HMO licensing offences and originally applied to both England and Wales, but it ceased to apply to England with effect from the commencement of Part 2 of the 2016 Act on 6 April 2017. Under section 74(2), 2004 Act, the amount of a rent repayment order was to be “such amount as the tribunal considers reasonable in the circumstances” taking into account a number of matters listed in section 74(6), including the conduct and financial circumstances of the landlord.

In Parker v Waller the landlord of an HMO had failed to obtain the necessary licence and had been convicted and fined £525 by the magistrates. Subsequently, the residential property tribunal (RPT) ordered that he repay the full amount of the rent he had received from his six tenants in the 12 months before their application under section 73, 2004 Act, a sum of more than £15,400. In reaching that decision the RPT refused to take into account that the landlord had had to pay utility costs out of the rent he received from the tenants, because those did not relate either to the landlord’s conduct or his financial circumstances and because “the Act does not differentiate between rent payments which are purely rent and rent payments which may include utilities costs.” The landlord appealed.

The Tribunal (George Bartlett QC, President) considered that what might be “reasonable in the circumstances” depended on the objective which a rent repayment order was intended to achieve. That objective was obscure, and the Tribunal therefore felt entitled to consult Hansard for assistance. There it found reference in a speech by the promoter of what became sections 73 and 74, 2004 Act to the purpose of the provisions being to “prevent a landlord from profiting from renting properties illegally”. That was the basis of the proposition, at [42], that “it would not be appropriate to impose upon [the landlord] an RRO amount that exceeded his profit in the relevant period.”

Consistent with that general approach, amongst the points which the Tribunal said should be borne in mind (at [26]) was that:

“(vi)

Payments made as part of the rent for utility services count as part of the periodical payments in respect of which an RRO may be made. But since the landlord will not himself have benefited from these, it would only be in the most serious case that they should be included in the RRO.”

At [33] the Tribunal addressed the RPT’s conclusion that because the landlord’s payment of utility costs was not a matter of his conduct or his financial circumstances, it was not a material consideration. That was an error because “the matters set out in section 74(6) are not the only potentially material considerations”.

The earliest case in which the Tribunal considered the quantification of rent repayment orders under the new regime introduced by the 2016 Act was Vadamalayan v Stewart [2020] UKUT 183 (LC). A rent repayment order was set aside because inadequate reasons had been given by the FTT. The Tribunal then redetermined the application. It explained that the direction in section 74(2), 2004 Act, that the amount of a rent repayment order was to be “such amount as the tribunal considers reasonable in the circumstances” no longer applied. Its replacement, section 44, 2016 Act provided no support for limiting the rent repayment order to the landlord’s profits.

In Vadamalayan the landlord invited the Tribunal to deduct from the rent which was to be repaid costs which he had incurred on furnishings, fittings, repairs and improvements to the property, as well as running costs such as insurance and agent’s fees. None of the costs were for utilities provided at the landlord’s expense and consumed by the tenant, but in explaining its decision the Tribunal recognised, at [16], that:

“In cases where the landlord pays for utilities, as he did in Parker v Waller, there is a case for deduction, because electricity for example is provided to the tenant by third parties and consumed at a rate the tenant chooses; in paying for utilities the landlord is not maintaining or enhancing his own property. So it would be unfair for a tenant paying a rent that included utilities to get more by way of rent repayment than a tenant whose rent did not include utilities. But aside from that, the practice of deducting all the landlord’s costs in calculating the amount of the rent repayment order should cease.”

The decision in Vadamalayan was interpreted by some as requiring that the full amount of the rent paid by the tenants should be repaid unless something in the tenant’s conduct or the landlord’s financial circumstances justified a reduction. As the passage quoted above makes clear, that was always a misreading of Vadamalayan as far as the cost of utilities supplied at the landlord’s expense was concerned.

In Williams v Parmar [2021] UKUT 244 (LC) the Tribunal (Sir Timothy Fancourt, President) confirmed that section 44 did not create a presumption in favour of maximum recovery and the factors which a tribunal could take into account were not limited to those identified expressly in section 44(4). As the President explained, at [25]:

“[…], the amount of the RRO must always “relate to” the amount of the rent paid during the period in question.  It cannot be based on extraneous considerations or tariffs, or on what seems reasonable in any given case.  The amount of the rent paid during the relevant period is therefore, in one sense, a necessary “starting point” for determining the amount of the RRO, because the calculation of the amount of the order must relate to that maximum amount in some way. Thus, the amount of the RRO may be a proportion of the rent paid, or the rent paid less certain sums, or a combination of both.  But the amount of the rent paid during the period is not a starting point in the sense that there is a presumption that that amount is the amount of the order in any given case, or even the amount of the order subject only to the factors specified in s.44(4).”

In fixing the amount to be repaid tribunals should take account of the purposes intended to be served by the jurisdiction, identified by the President at [43] as:

“[…] the need to: punish offending landlords; deter the particular landlord from further offences; dissuade other landlords from breaching the law; and remove from landlords the financial benefit of offending.”

The order made by the Tribunal in Williams v Parmar took as its starting point the rent paid by the tenants, after deducting the agreed cost of the utilities provided by the landlord for which no additional charge was made, before making a further deduction to reflect the seriousness of the offence and the particular circumstances of the case (see [52] and [55]). The President obviously considered that these deductions were consistent with what he had said at [25] and with the direction in section 44(4) that the amount to be repaid must “relate to” the rent paid during the relevant period.

It is therefore surprising to find the view being expressed, both in argument in this appeal, and in decisions of particular constitutions of the FTT, that the approach explained in Acheampong, and in particular, the deduction of costs of utilities or services paid for by the landlord but consumed by the tenant, is inconsistent with section 44 and impermissible.

A number of propositions about the suggested illogicality of the authorities were advanced in the tenants’ application for permission to cross-appeal (not settled by Mr Penny, but supported by him in his oral presentation), including:

None of these points provides a good reason why the cost of utilities cannot properly be taken into account by way of an allowance when determining the quantum of a rent repayment order. Dealing first with the points made in the grounds of cross-appeal:

Mr Penny highlighted the suggestion in Vadamalayan, at [16] (see [64] above), that electricity, for example, is consumed at a rate determined by the tenant and that it “would be unfair for a tenant paying a rent that included utilities to get more by way of rent repayment than a tenant whose rent did not include utilities”. Neither of these considerations, he submitted, could provide a principled basis on which the cost of utilities could be deducted from the amount of an award.

To my mind fairness to individual tenants is not a relevant consideration in the quantification of rent repayment orders. The regime introduced by the 2016 Act is not intended to compensate tenants for a wrong they have suffered; it is intended to deter and punish landlords who fail to comply with their obligations, whether or not their tenants have suffered any disadvantage as a result, and to encourage compliance in future. In Kowalek v Hassanein Ltd [2022] EWCA Civ 1041, Newey LJ explained the policy underlying the legislation as follows:

“Consistently with the heading to part 2, chapter 4 of part 2 of the 2016 Act, in which section 44 is found, has in mind "rogue landlords" and, as was recognised in Jepsen v Rakusen [2021] EWCA Civ 1150, [2022] 1 WLR 324, "is intended to deter landlords from committing the specified offences" and reflects a "policy of requiring landlords to comply with their obligations or leave the sector": see paragraphs 36, 39 and 40. "[T]he main object of the provisions", as the Deputy President had observed in the UT (Rakusen v Jepsen [2020] UKUT 298 (LC), [2021] HLR 18, at paragraph 64; reversed on other grounds), "is deterrence rather than compensation". In fact, the offence for which a rent repayment order is made need not have occasioned the tenant any loss or even inconvenience (as the Deputy President said in Rakusen v Jepsen, at paragraph 64, "an unlicensed HMO may be a perfectly satisfactory place to live") and, supposing damage to have been caused in some way (for example, as a result of a failure to repair), the tenant may be able to recover compensation for it in other proceedings. Parliament's principal concern was thus not to ensure that a tenant could recoup any particular amount of rent by way of recompense, but to incentivise landlords. 

In the context of a scheme of penalties which must “relate to rent paid” there will never be equivalence between the sums to be repaid to individual tenants in different circumstances. The tenant of an expensive flat let in good condition but without a licence may recover more than the tenant of a much less desirable property in poor condition. That is the consequence of the statutory scheme and the priority given by Parliament to the objective of deterrence. From the perspective of a tenant, a rent repayment order will always be a windfall, enjoyed in addition to statutory or common law rights to be compensated for any wrongs they may have suffered. For those reasons it does not seem to me that considerations of fairness as between individual tenants have any part to play in the quantification of orders.

That does not mean that the other factors mentioned in Vadamalayan are unimportant. The fact that utilities are provided to the tenant by third parties and consumed at a rate the tenant chooses reflects the true justification for treating these costs differently from the cost of repairs, maintenance, insurance, mortgage repayments and the like. That justification remains as it has always been: “in paying for utilities the landlord is not maintaining or enhancing his own property” (Vadamalayan, at [16]); and “the landlord will not himself have benefitted from these” (Parker v Waller, at [26]).

In his oral submissions Mr Penny put his main argument on a rather different basis. He suggested that an allowance to reflect costs incurred by a landlord in the provision of services consumed by a tenant was simply not permitted by section 44(4), which requires that the amount of the order must “relate to rent paid”. To allow a deduction of any costs incurred by a landlord would be to cause the amount to relate to “net rent” rather than to rent paid.

I do not accept this argument. In Williams v Parmar the President explained, at [25], that the calculation of the amount of the order must relate to the total amount of the rent paid “in some way”. Thus, the amount “may be a proportion of the rent paid, or the rent paid less certain sums, or a combination of both”. There is nothing inconsistent with section 44(4) in any of those approaches since each assessment takes as its starting point the amount of rent paid by the tenant during the relevant period as the section requires.

It is, of course, for individual tribunals, guided by appellate decisions which bind them, to determine the appropriate relationship between rent paid and rent to be repaid in the cases which come before them. But in making that determination one of the relevant circumstances which the Tribunal should have regard to, where it arises on the facts, is that the landlord has made payments for utilities consumed by the tenant.

Finally, in their written grounds of application for permission to cross-appeal, the respondents’ representatives made the striking claim that they are “not alone in our rejection of the UT guidance on deducting utilities from rent” and suggested that “a number of FTT judges have made strong objections in their judgments to the guidance given in Vadamalayan in this respect”. The decisions of FTT panels cited in support of these claims do not live up to the fanfare with which they were trailed. One panel has repeatedly made the point relied on in this appeal that the decision to offer a property at an inclusive rent is a marketing judgment made by a landlord for its own commercial reasons, and in that respect is no different from a decision to let premises furnished rather than unfurnished. That may well be true, and it is undoubtedly the case that all aspects of the bargain will influence the amount of the rent paid by the tenant, but it does not seem to me to detract from the point that payments made for utilities are different from payments made on furnishing or property maintenance because the latter equip or preserve the landlord’s property while the former do not.

The other concern expressed by the same panel is that the rent payable under a tenancy is a single undivided sum which cannot be apportioned between an amount paid for utilities and a part which relates exclusively to the use of the property. That may be true, but again it does not seem to me to be a point of any consequence. The statutory direction is that the amount of a rent repayment order must relate to the rent paid; that means it must relate to the whole of the rent. But the statutory direction also necessarily requires that the assessment take account of other relevant circumstances, one of which will often be that the landlord has paid the cost of utilities consumed by the tenant. The decision maker is entitled to take account of that expenditure when determining the amount to be repaid and is encouraged by this Tribunal’s guidance to do so. That has now become the settled approach amongst FTT panels. Mischaracterising it as “disregarding part of the rent” and suggesting that there is no basis in law or practice for it is a misinterpretation of section 44 and is inconsistent with Williams v Parmar and the subsequent Upper Tribunal cases.