Ultimate guide to rent repayment orders for landlords - Total Landlord Insurance

May 1, 2024
Ultimate guide to rent repayment orders for landlords - Total Landlord Insurance

Rent repayment orders (RROs) are on the rise, as tenants are realising that they can recoup up to 12 months’ rent if their landlord hasn’t followed private rented sector laws. Landlords are understandably increasingly worried about RROs. The most viewed story in 2023 on  LandlordZONE, which is also powered by Total Property, was Landlord to pay tenants £12,500 because ‘innocence of law is no defence’. This is indicative of interest in this topic, but also highlights the wider issue of the risks that landlords who fail to follow the law expose themselves to.

You can watch this short video with Nigel Lewis, Head of Content at LandlordZONE, explaining more about this story and what landlords can do to protect themselves from rent repayment orders.

Renters (Reform) Bill - how are rent repayment orders changing?

Following the third reading of the Renters (Reform) Bill, the Government voted through amendments which would see RRO laws further strengthened. The Government is proposing to increase the maximum RRO from 12 to 24 months' rent. And, in a major shift in policy, it's also proposing to expand the range of offences for which landlords can be held accountable to include:

  • If a landlord breaches the ombudsman rules
  • If a landlord deliberately provides false or misleading information on the Property portal

An amendment concerning the ‘rent-to-rent’ sector also made it through. MPs agreed that the Housing Act 2004 would be altered so that ‘superior’ landlords as well as rent-to-rent companies (the ‘immediate’ landlord) are both covered when served with improvement notices and could be liable for rent repayment orders (RROs). This would overturn the landmark Rakusen v Jepsen case in March 2023, when the Supreme Court ruled that superior landlords are not liable for RROs.

But what are rent repayment orders? And what can landlords do to make sure they don’t fall foul of the law and risk a fine? In this guide we’ll explain all you need to know.

What is a rent repayment order?

RROs are used by tenants or local authorities in England and Wales to reclaim rent or housing benefit where a landlord breaches certain rules when renting out a property. They are commonly obtained when a landlord has operated a property without the appropriate statutory licence, and can require the repayment by the landlord of up to 12 months’ rent.

When were RROs introduced?

RROs were first introduced in 2004 as an additional measure used by local authorities to penalise landlords for HMO licensing offences, but these powers were subsequently extended in 2016 so that tenants are able to make claims – see this guide to rent repayment orders.

RROs, when made out, require repayment of rent, housing benefit or the housing costs element of Universal Credit. This is in respect of a tenancy or licence by a landlord or letting / managing agent who has committed a particular offence – see below.

To obtain an RRO it is not necessary for the landlord or agent to have been convicted of an offence in the courts, but in order to grant an RRO, The Residential Property Tribunal (RPT) must be satisfied beyond reasonable doubt (the criminal standard of proof) that one of the qualifying offences has been committed. The decision to prosecute is a matter for separate consideration but a finding against by the RPT is likely to be persuasive.

What offences can result in a rent repayment order?

For an RRO to be made out by the Tribunal, the landlord must have committed one of the following offences – these are set out in Section 40(3) of the Housing and Planning Act 2016.

The offences and the relevant legislation:

Who receives the repaid rent when there is an RRO?

The RRO proceeds are paid either to the tenant directly, or to the local housing authority if rent was originally paid through housing benefit, or through the housing element of Universal Credit. If the rent was paid partially by the tenant with the remainder paid through housing benefit/Universal Credit, then the rent will be repaid on an equivalent basis.

Rent repayment orders and HMO licences

The Housing Act 2004 introduced RROs to cover situations where the landlord of a property had failed to obtain a licence for a property that was a House in Multiple Occupation (HMO) - one that was required to be licensed. Since the Housing and Planning Act 2016 the scope of the RRO has been widened to cover the additional offences listed above.

The failure of a landlord / agent to license a licensable property is a common reason for awards of RROs. HMO licences, other types of property licences and RROs apply to specific individuals or companies:

Not to transfer
- landlords apply to their local authority for an HMO licence or other types of property licences. These licences cannot be transferred to another person or entity, they are specific to the landlord, so when a new owner / landlord acquires a property that requires and already has a licence, they cannot rely on the existing licence. They must apply to the local authority for their own licence. They commit an offence if they do not.

Superior landlord
- an RRO can currently only be made against the tenant's immediate landlord and not the superior landlord. Where the tenant's immediate landlord is an intermediate landlord, an RRO can only be made against that landlord. This was determined in the important Supreme Court ruling mentioned previously, in an appeal in the case of Rakusen v Jepsen. The decision was that “An RRO cannot be made against a superior landlord”.

Watch our exclusive interview with David Smith, Head of Property Litigation at JMW Solicitors, who was asked to intervene in this case for the NRLA. David elaborates on the detail of the case and its implications for rent to rent. As noted above, this case may be overturned if the Government's amendments to the Renters (Reform) Bill make it through to law.

Limited company licensees - company landlord directors cannot be held personally liable to repay rent to tenants or licensees under RROs as confirmed in the 2022 case of Kaszowska v White, confirming again that tenants or licensees can only obtain an RRO against the immediate landlord, in this case, the company.

Note: The licence holder (individual or company) must have an interest (ownership) in the property for the period of the licence. If the licence holder is a company, it must provide the address of the UK registered office and the names of the company secretary and directors.

Rent to rent arrangements and rent repayment orders

These cases cited above bring important decisions for landlords / property owners and agents who enter into sublet or rent to rent arrangements and for landlords who operate through limited companies.

Great care needs to be taken on how rent to rent arrangements are set up, as an owner of a property can be a tenant's immediate landlord if the person or company named on the agreement is acting solely as an agent. Always seek advice from a property specialist lawyer when setting up these tenancies.

In cases where there is some ambiguity as to who is the immediate landlord and who is the agent, an RRO can be made against either or both of them jointly. This ambiguity is often the case with rent to rent arrangements where the agreements are not properly structured.

You can read more on rent to rent in the ‘Ultimate landlord guide to rent to rent’. from mydeposits, also powered by Total Property.

Residential Property Tribunal

Rent repayment orders are not obtained through the court's system but through a Residential Property Tribunal. The Housing and Planning Act 2016 introduced changes to widen the scope of the original rules, which  gave individual tenants the right to apply directly to the Tribunal for an RRO for the various offences listed above.

Local authorities also have been given greater powers following the 2016 Act. They have the power to impose unlimited fines or bring criminal charges for the above offences. They are able to keep the proceeds of these fines to fund greater enforcement efforts in their local areas.

Rent recovery through a rent repayment order

Tenants can apply for an RRO on the payment of a fee (recoverable if successful) to recover rent (capped at 12 months’ rent) they have paid to the landlord or agent, providing they were occupying the property at the time the offence was committed and this was within the last 12 months.

Legal costs in the first-tier and upper tribunal will be awarded at the discretion of the tribunal and the tribunal does not normally award legal costs against the tenant applicant/s, unless the claim is frivolous and unfounded or an applicant behaves unreasonably.

A local authority can apply for an RRO to recover housing benefit or the housing costs element of Universal Credit, providing the offence relates to housing in the authority's area, and a notice of intended proceedings has been served.

This notice will set out the reasons for making the claim and the amount of money being claimed. The landlord or agent respondent will be invited to make representations within a specified period of not less than 28 days, relating to a period of a maximum 12 months of the landlord or agent committing an offence.

The amount being sought cannot exceed the amount of housing benefit or Universal Credit paid (directly or indirectly) to the landlord or agent over the relevant period. The local authority will be in a position to apply to the tribunal for an RRO after the expiry of its notice of intended proceedings and the process of its conceding any representations.

What happens if there is a rent repayment order and there are joint tenants?

Where the claim is made by one joint tenant and the other tenant/s have settled with the landlord, the tribunal will start with the claimant's share of the rent when determining the RRO amount. Otherwise, awards will be made proportionately between multiple tenants.

What does the RRO award take into account?

The amount of the RRO award made by the tribunal will usually take into account other payments made by the landlord, such as utilities charges, which will be deducted from the award.

Also, the amount of the award will take into account the seriousness of the offence and a comparison to other awards made. The tribunal will also take into account the conduct of the landlord, whether they have been convicted of an offence or had a financial penalty applied, and their overall financial circumstances.

In the case of Leibel v Baird case [2021], by trying to hoodwink the tribunal and defend the indefensible landlord, 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.

Why were rent repayment orders introduced?

According to government statistics, the quality of privately rented housing in England has improved markedly over the past decade. There were 82% of private renters reporting they are satisfied with their accommodation at the time of the last government housing survey.

However, the private rented sector in England accommodates around 19% of all households (around 4.5 million homes) with tenants staying in those homes for an average of four years. Of the estimated 2.7 million private landlords, undoubtedly some of them fall into the rogue landlord category.

The Government says it wants to support good landlords who provide decent well maintained homes, and avoid imposing further regulation on them, but it also wants to root-out the rogue landlords by applying meaningful penalties for bad behaviour.

There are a relatively small number of rogue or criminal landlords who knowingly rent out unsafe and substandard accommodation, who the Government says it is determined to crack down on. One way to do that without having local authorities take landlords through long drawn-out court cases, is to have an effective financial penalty system of landlord fines and using rent repayment orders.

However, since the scope of the RROs was widened in 2016 and there has been increasing awareness of them, claims against landlords have been on the rise.

How can landlords avoid an RRO?

Heavy civil penalties and up to 12 months’ rent repayment orders made out in favour of individual tenants, company landlords or local authorities are an effective deterrent to those landlords who deliberately or carelessly commit civil and criminal offences. Landlords should be mindful of this and make sure they are compliant with the necessary rules when letting a property. The Leibel v Baird case is an ominous warning against trying to game the system.

Remember, innocence of law is no defence - landlords might make the simplest mistake but the fact they didn’t know the law simply isn’t enough. If you’re renting out your property, the first thing you need to know is whether you need a licence. You can’t serve a Section 21 without one. There are different types of licences and there can be several even within the same local authority, but the general rule of thumb is that  if you have a property to rent in a town or a city in the UK, there will be a licensing scheme of some sort - HMO, selective or discretionary.

- Paul Shamplina, Founder of Landlord Action and Chief Commercial Officer of Total Landlord

To find out more about licensing for landlords, read our guide,  ‘What is licensing and do I need a landlord licence to let my property?’  And to find out more about being an HMO landlord read our ‘Ultimate guide to letting an HMO property’.

To hear more about the top property stories of 2023, including the year’s top story on rent repayment orders, with LandlordZONE’s Head of Content, Nigel Lewis, listen to The Property Cast,  ‘Unpacking the year’s top property stories’.

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