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A “rent to rent” arrangement is where a landlord grants a lease (generally of less than 7 years so as to avoid land registration duties) of a property to a third party, and that third party then lets individual rooms on assured shorthold tenancies (often creating a House in Multiple Occupation in the process). The arrangement has something of a bad press because it tends to be associated with poor quality housing (cramming as many people as possible into ever smaller rooms) and the third party is often a company of straw, which means that it can frustrate both local authority housing standards enforcement and tenant-led claims simply by going bust (see generally, Journeys in the Shadow Private Rented Sector).
In addition, the Supreme Court decision in Rakusen v Jepsen [2023] UKSC 9 means that a rent to rent arrangement presents an almost insurmountable practical hurdle against a rent repayment order. The Supreme Court (accepting the arguments of Tom Morris) held that an RRO can only be made against the immediate landlord of the tenants. If that entity is a company worth only £1, then there is no practical purpose served by seeking such an order.
It seems likely that the Renters’ Rights Bill will (at least in part) reverse Rakusen. But, in the meantime, the recent decision of the Court of Appeal in Cabo v Dezotti [2024] EWCA Civ 1348 may help with RRO claims by tenants or housing enforcement proceedings by local authorities.
Ms Cabo owned a property. She appointed a company (controlled by her husband) to deal with the property on her behalf. Despite holding no proprietary interest in the property, it granted what purported to be holiday licences of rooms. It was apparently entitled to retain all the rental income whilst Ms Cabo paid most of the outgoings.
Ms Dezotti took one of these “holiday licences” of a room. Following complaints about the condition of the property, she discovered that the property was an unlicensed HMO (contrary to s.72, Housing Act 2004) and sought a rent repayment order against Ms Cabo, who she contended was her true landlord. Ms Cabo contended that the company was the landlord and that, applying Rakusen, no RRO could therefore be made against her.
The FTT and Upper Tribunal both found for Ms Dezotti. Neither the agreement with the company nor the “holiday licence” accurately reflected the reality of the situation. The true position was that the company was acting as agent for Ms Cabo and she was indeed the landlord, so that an RRO was properly made against her.
The Court of Appeal dismissed a second appeal, finding that the company was indeed the agent of Ms Cabo and that she was therefore the proper target for an RRO application. Ms Dezotti had been ordered to pay the full amount of the RRO into court as security for the appeal and it was accordingly ordered to be paid out to Ms Cabo.
The decision in Rakusen has significantly weakened the RRO regime and this decision offers a useful tool for advisors and local authority enforcement officers who seek to get at the men and women of substance behind these rent to rent arrangements.
Justin Bates KC appeared for Ms Dezotti, leading George Penny of 187 Chambers, instructed by Hammersmith & Fulham Law Centre.
Tom Morris, Justin Bates KC and Charles Bishop all acted for various parties in the Rakusen proceedings.
Landmark Chambers barristers have appeared in all five of the Rent Repayment Order cases to reach the Court of Appeal / Supreme Court.
