Rent-to-Rent: NRLA CEO gives evidence to Supreme Court
NRLA Chief Executive Ben Beadle has submitted evidence to the Supreme Court in a high-profile appeal centring on a rent-to-rent arrangement.
The association applied to intervene in the Rakusen v Jepsen Supreme Court appeal, on the basis the outcome could have far-reaching implications for landlords entering into such arrangements.
The background
Legitimate rent-to-rent arrangements see a person or business rent a property in order to sub-let it.
The agreement is transparent, and that person sub-letting 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 from the amount they change sub-tenants as profit for themselves.
Such arrangements suit landlords who want a ‘hands-off’ relationship with their property investment, and those who want to carve out a career in the property business, but don’t have the initial capital to invest themselves.
What is being argued?
The case is complex, but centres on a property which was subject to a rent-to-rent arrangement and needed a licence. No license was obtained, and the former tenants sought a rent repayment order (RRO) against the superior landlord, Mr Rakusen, not the rent-to-rent company.
Initially The Upper Tribunal held that a rent repayment order could be applied for against the superior landlord, however the Court of Appeal found in the superior landlord’s favour.
A subsequent appeal is now being heard at the Supreme Court, with argument centring around whether licensing the property would be the responsibility of the superior landlord or the rent-to-rent company – which is named on the tenancy agreement and responsible for collecting rent.
Legislation around this is open to interpretation.
How is the NRLA involved?
The NRLA is not directly supporting either litigant and is not party to the case. It became involved because the outcome could affect other superior landlords in similar arrangements, and could set a precedent for future cases.
In his written evidence statement Ben told the court the are some ambiguities around who has responsibility for licensing properties in rent -to-rent arrangements, some of which are concerned with the financial arrangements between the intermediate and superior landlords.
He said it is advisable, to ensure they are compliant, that superior landlords protect themselves by taking steps to ensure licensing obligations are met.
He said: “Wise landlords in agreed rent-to-rent arrangements will take steps to ensure that licensing requirements are met by either procuring the licence for themselves or by entering into an agreement for the tenant to do so.
“However, it can be difficult for landlords to check that this has been done as, unlike in Northern Ireland, there is no database of filed licence applications. Resolving the problem later can be almost impossible as the offence will already have been committed.”
He also said landlords need to be wary of illegal subletting, which could also leave them contravening licensing responsibilities without their knowledge, warning that ignorance of the situation is no protection legally.
Rent repayment orders
On the issue of rent repayment orders (RROs) – penalties which require landlords to pay back their tenants’ rent if they commit an offence – Ben said current rules are unfair, with superior landlords liable to pay back the total amount of rent paid by the subtenants. This is despite the figure they would have received being significantly lower than that, after the intermediate landlord had taken their ‘cut’.
Ben said: “It seems unconscionable that a landlord should be subject to a financial penalty to a sub-tenant, whose existence he might not even be aware of, as a result of the dishonesty or failures of the tenant. While landlords may be subject to prosecution or civil penalties in these situations, the additional penalty of a rent repayment order is an excessive punishment.”
The case continues, with a judgement expected later in the year.
