Legal case: rent repayment orders – honesty the best policy

A Rent Repayment Order (RRO) is an order that allows a tenant or local authority to reclaim rent or housing benefit where a landlord rents out an unlicensed property such as a house in multiple occupation (HMO).

Rent Repayment Orders are obtained through a residential property tribunal (RPT). Whereas tenants can now apply for a RRO direct to the tribunal, local authorities can only apply for a RRO where tenants pay their rent with the assistance of housing benefit.

In order to avoid evicting all the tenants when a HMO landlord is successfully prosecuted by a local authority for operating without an HMO licence, potentially creating a chaotic situation, the RRO was introduced in the Housing Act 2004 Act. This allows a compromise situation: the Act specifies that tenants’ contracts in an unlicensed HMO must continue to operate, and tenants must continue to pay rent. However, they could then have the right to a rent repayment from their landlord.

In The Housing and Planning Act 2016, the RRO legislation was amended and expanded to include the following situations:

• Breaches of improvement orders and prohibition notices and of licensing requirements under the Housing Act 2004
• Violent entry under the Criminal Law Act 1977
• Unlawful eviction under the Protection from Eviction Act 1977
• Breach of Banning Orders (new in this Act)

The case

In the Leibel v Baird case (May 2021), an application for a RRO was made by one tenant in respect of an unlicensed HMO property, and she included in her application a Rule 13* costs application.

Ms Leibel was one of five tenants in the HMO property, on a tenancy agreement made with Mr Baird, the property owner. The property did not have an HMO license to operate and Ms Leibel realised this was illegal and applied to the Tribunal for an RRO in the sum of £5382. The landlord Mr Baird’s defence was based on his argument that the property did not need a licence as there were only four occupants.

Submitting evidence before the hearing, Mr Baird had sent in a copy of a tenancy agreement which was signed by only four tenants. In response to this Ms Leibel sought and was given permission to submit additional witness statements from two of the other tenants, stating that there were 5 tenants in the property. When the tenancy commenced all the tenants had signed the agreement together and Mr Baird took the document away.

Mr Baird at the hearing gave evidence, insisting that there were only four tenants and he was very unpleasant to Ms Leibel in cross examination. Mr Baird was then asked to produce at a further hearing the original copy of the tenancy agreement, along with his bank statements showing rent payments. He was reminded that he might seek legal assistance given his evidence was being challenged.

The crunch

On day two, around three weeks later, Mr Baird was represented by Mr Des Taylor of “Landlord Defence” who said he had sent in a copy of the tenancy agreement and the relevant bank statements. He said he hadn’t realised that the Tribunal needed the original copy of the agreement, but in fact Mr Baird had destroyed it, which he claimed he did routinely after scanning.

Mr Taylor went on to say that the bank statements showed payments from five people and that his client now realised that he was operating a property which should have been licensed as an HMO.

The Judge asked if Mr Baird now accepted that he had committed the offence alleged of running an HMO without a licence and that he was liable for a RRO? Mr Taylor said his client was no longer relying on the evidence he had originally filed and was withdrawing it, including all his statements and documents filed, save for the bank statements. He stated that his client now accepted that a RRO should be made out in the sum claimed of £5,382.

The Judge asked Mr Taylor to confirm that his client was admitting the criminal offence of operating without an HMO license and that the Tribunal should make out a rent repayment order in the sum of £5382. Mr Taylor confirmed.

Rule 13 costs

The Tribunal then turned to matter of the Rule 13 costs application, made on the basis that Mr Baird had acted unreasonably in defending or conducting the proceedings: lying about the number of tenants in the property, putting forward a false account, forging a tenancy agreement and aggressively cross examining the claimant.

Mr Taylor tried in vain and at length to defend some of Mr Baird’s actions but the Judge reminded Mr Taylor he had on behalf of his client already admitted the offence. Mr Taylor accepted this but questioned the amount of the legal costs (£22,000) being claimed. He suggested it was not reasonable to apply such high costs to the claim of £5832 and that the solicitor’s hourly rate was excessive.

The Tribunal made out the RRO in the sum of £5,832, plus a £300 application fee. In respect of the Rule 13 costs, the Tribunal found that Mr Baird had deliberately obfuscated matters and in signing the statement of truth he had deliberately misled the Tribunal – “It would now appear that there is nothing within Mr Baird’s statement which can be said to be true… and Mr Baird has treated the Tribunal with contempt.”

Costs were awarded on an indemnity basis, the Judge stating that the legal costs were reasonable and costs of £21,512 was ordered.

The Lessons:

By trying to hoodwink the Tribunal and defend the indefensible in this way Mr Baird’s conduct exacerbated matters and brought down the wrath of the Tribunal on his head.

The case shows not only the importance of being honest in these matters, but of following the rule of the law in the first place, and of keeping and producing accurate documentary evidence. Rule 13 costs on RROs are not commonly applied by claimants. This claimant it seems was very well advised.

*Rule 13 permits the Tribunal to make an order for costs if a claimant or defendant has acted unreasonably in bringing, defending or conducting proceedings. The rule was introduced under the new First Tier Tribunal (FTT),lifting the previously capped costs ceiling of £500.