Rakusen v Jepson and Ors: Latest News

As part of this article, we will cover the latest developments regarding the case of Rakusen v Jepson & Ors, a case that will likely have far-reaching implications for landlords throughout the UK in the years to come. 

Rent-to-rent arrangements are often referred to as subleasing arrangements, in which a person or business rents a property in order to sublet it to another party.

The agreement is transparent, and the person subletting takes on much of the management responsibility, agreeing to pay the property owner (also known as the superior landlord) a regular sum of money each month and keeping the difference as profit from the amount they change subtenants.

There are many benefits to these arrangements for landlords who prefer a ‘hands-off’ approach to property investment, as well as those who wish to pursue a career in the property industry, but lack the initial capital needed to get started.

According to the case of Rakusen v Jepson and Ors, both parties acknowledged that by November 2018 the flat was occupied by more than three people forming more than two households, which required a licence under the Housing Act 2004. In spite of this, neither the respondent nor Kensington Property Investment Group applied for a licence in violation of this Act.

The Housing and Planning Act 2016, s 40(1) (“the 2016 Act”) gives the First-tier Tribunal the power to make a rent repayment order (“RRO”) where a landlord commits specific housing offences, including “control or management of unlicensed HMOs”. Nevertheless, the 2016 Act does not define ‘landlord’, which leaves some ambiguity regarding whether a tenant may apply for an RRO only against its immediate landlord or, alternatively, against a superior landlord who may be a more financially viable target.

In the initial case, the Upper Tribunal ruled that the superior landlord could be ordered to repay the rent, but the Court of Appeal overturned the Upper Tribunal’s decision.

In a subsequent appeal, the Supreme Court is now considering whether licensing a property should be the responsibility of the superior landlord or the rent-to-rent company that is named on the tenancy agreement and who also has the responsibility of collecting rent on the property. Currently, this topic is subject to interpretation based on the current law in place in this area.

Ben Beadle, chief executive of the National Residential Landlords Association (NRLA), has submitted evidence to the Supreme Court in the high-profile appeal concerning rent-to-rent.

Ben explained to the court that there are some ambiguities about who licenses properties in rent-to-rent arrangements, some of which relate to financial arrangements between intermediate and superior landlords. Taking steps to ensure licensing obligations are met is advisable for superior landlords, he said.

Moreover, he added: “Wise landlords in rent-to-rent arrangements will either acquire the necessary license themselves or enter into an agreement with tenants to obtain it on their behalf.

There is however a possibility that the landlord may have difficulty in verifying these facts due to the fact that there is no database containing licence applications, unlike Northern Ireland. In most cases, as a consequence of the fact that the offense has already been committed at this point, it will be very difficult to resolve the issue later on.

As a final point, Ben drew attention to the fact that landlords need to be cautious about illegal subletting since this can result in them violating licensing responsibilities without even knowing it. In legal matters, he cautioned that ignorance is not a defense.

In the meantime, the case will continue, and a decision should be made by the end of this year. The outcome could impact other superior landlords in similar arrangements and set a precedent for the future. It will therefore be eagerly awaited by tenants, as well as perhaps with some trepidation in the case of landlords, to receive clarification on this matter. Whatever the outcome of this decision may be, it is likely to have wide-ranging and significant consequences for landlords and tenants throughout the country.

If you have any questions about this news may affect you as a landlord or your upcoming taxes please contact UK Landlord Tax on 01902 711370 or email enquiries@uklandlordtax.co.uk

If you found this article to be informative then you might wish to consider learning more about what to do in the event of a death of a sole director or a short guide on property allowance next.

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