The Supreme Court has recently handed down two judgments with important consequences for residential landlords and managing agents, as set out below.
Aviva Investors Ground Rent GP Ltd and another -v- Williams and others [2023] UKSC 6
This case involved flats in Southsea, which formed part of a mixed-use commercial and residential block. The Leaseholders initially applied to the First Tier Tribunal to determine whether the landlords’ apportionment of service charges was permitted under their leases.
Each lease provided that the leaseholder was to pay a service charge made up of a share of three types of cost of maintaining the building and wider estate- insurance, building services and estate services.
The leaseholders’ share of each type of costs was set at a fixed percentage, or “such part as the Landlord may otherwise reasonable determine.”
Over the years, the Landlord had demanded service charge which differed from the set percentage referred in each individual lease. The landlord argued that the abovementioned provision, allowed it to vary the set apportionment.
The leaseholders argued that the provisions of section 27A(6) of the Landlord and Tenant Act 1985 (‘LTA 1985’) meant that the provision allowing the Landlord to vary the set rate was void.
Section 27A(6) of the LTA 1985 provides that “an agreement by the tenant of a dwelling (other than a post-dispute arbitration agreement) is void in so far as it purports to provide for a determination- (a) in a particular manner or (b) on particular evidence, of any question which may be the subject of an application under subsection (1) or (3).
The provisions at subsections (1) and (3) of Section 27A refer to applications which may be made by leaseholders to the tribunal in respect of whether service charges or costs for services, repairs, maintenance, improvements, insurance or management, are payable and if so; (a) the person by whom it would be payable (b) the person to whom it would be payable (c) the amount which would be payable (d) the date at or by which it is payable, and (e) the manner in which it would be payable.
The First Tier Tribunal decided that the Landlord’s departure from the set rates was reasonable and should be enforced. The Upper Tribunal reversed this decision and held that Section 27A(6) functioned so as to render the relevant provision void unless the leaseholders agreed to depart from the set rates set out in their leases.
The Court of Appeal allowed the landlord’s appeal and stated that the effect of Section 27A(6) was to transfer the power to vary the set rates from the landlord to the First Tier Tribunal. The Leaseholders appealed the decision to the Supreme Court.
The Supreme Court determined that Section 27A(6) was not designed to “deprive that form of managerial decision-making by landlords” (i.e. to prevent the landlord from relying on that clause in the lease if it was determined that certain steps were required to be taken in respect of the Property which would require certain leaseholders to pay a larger percentage towards such costs).
The Supreme Court determined that it would still be open to the leaseholders to challenge whether the rates decided by the landlord, or the costs incurred themselves were reasonable, but not whether the clause itself was reasonable or whether the Landlord was entitled to rely on it as it had done in this case. As the First Tier Tribunal had determined that the rates applied and the costs incurred were both deemed to be reasonable, the Supreme Court restored the First Tier Tribunal’s decision and reasoning.
This case provides important clarification for landlords and managing agents of long leases who have similar provisions in their leases.
Rakusen -v- Jepsen and others [2023] UKSC 9
This case will be of relevance for landlords and managing agents involved with short leases, in particular those who are operating Houses in Multiple Occupation (HMOs) and those with rent-to-rent agreements, intermediate landlords and managing agents.
The Respondent in this case, Mr Rakusen was the leaseholder of a flat on Finchley Road in North London who granted a tenancy to Kensington Property Investment Group Limited. Kensington then entered into agreements with various tenants granting them each possession of one room in the flat.
By November 2018, the flat was a HMO and was required to be licensed- though the flat was never in fact licensed as an HMO.
In September 2019, the tenants of the HMO applied to the First Tier Tribunal for a Rent Repayment Order against Mr Rakusen on the basis that the Property was being run as an unlicensed HMO (section 41 of the Housing and Planning Act 2016). Mr Rakusen denied that he committed an offence and made a strike out application on the basis that a Rent Repayment Order can only be made against the immediate landlord of the applicant.
The First Tier Tribunal did not strike out the application, and held that Mr Rakusen was ‘a’ landlord, albeit not ‘the’ landlord of the tenants. On appeal the Upper Tribunal, held that a Rent Repayment Order can be made against a superior landlord of a tenant but granted permission for Mr Rakusen to appeal to the Court of Appeal.
Differing from the Tribunal, the Court of Appeal allowed Mr Rakusen’s appeal and held that a Rent Repayment Order could not be made against a superior landlord. The tenants appealed to the Supreme Court.
The key provision which was under appeal was Section 40(1) and (2) of the Housing and Planning Act 2016. These sections provide: (1) This Chapter confers power on the First Tier Tribunal to make a rent repayment order where a landlord has committed an offence to which this Chapter applies. (2) A rent repayment order is an order requiring the landlord under a tenancy of housing in England to- (a) repay an amount of rent paid by the tenant, or (b) pay a local housing authority an amount in respect of a relevant award of universal credit paid (to any person) in respect of rent under the tenancy.”
The Supreme Court decided that not only should section 40 be interpreted in a straightforward way- to only apply to the landlord of the particular tenancy – but that to decide that Rent Repayment Orders are available against superior landlords could result in practical difficulties where there is a long chain of various tenancies to different parties.
Further, the Supreme Court found that where there are numerous other sanctions available against rogue landlords and the risk that rogue landlords may attempt to circumvent prosecution by setting out large chains of tenancies / setting up shell companies to function as intermediate landlords was less than the problem which would develop if they departed from the clear definition of a Rent Repayment Order as set out in section 40(2) of the Housing and Planning Act 2016.
Landlords and managing agents who engage in rent-to-rent agreements should therefore ensure that HMO licensing rules are followed.
Additional Info
- News Author:Marissa Lawrence
Marissa Lawrence
Associate Solicitor
