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Rent-to-rent agreement: Liability for property compliance
What is a rent-to-rent agreement?
A rent-to-rent agreement is when a company, local council, or an individual rents a property from a property owner, also known as the ‘superior property owner.’ The superior property owner can be certain that their rental payments will be guaranteed for an agreed period, regardless of whether the property has a tenant. The immediate property owner will take a cut from the tenants payments, before paying the superior property owner.
What is a rent repayment order?
A rent repayment order is an order made by the First-tier Tribunal which requires a property owner to repay a specified amount of rent if they have failed to comply with section 40 of the Housing and Planning Act 2016. The rent is either paid to the tenant or the local housing authority.
What is the Rakusen v Jepsen case?
The Rakusen v Jepsen Supreme Court appeal questions whether a rent repayment order should only be made against an immediate property owner or whether the superior property owner in a rent-to-rent agreement should also be liable. In the Rakusen v Jepsen case, a House in Multiple Occupation (HMO) license was required from the local council for a property under a rent-to-rent agreement, but the HMO license was not obtained. As a result, the tenant decided to take the superior property owner ‘Mr. Rakusen’ to court for a rent repayment order as Mr. Rakusen failed to obtain the license.
What was the outcome of the Rakusen v Jepsen case?
Initially, the outcome of the case was in the tenant’s favour in which the court decided to apply the rent repayment order against the superior property owner. However, Mr Rakusen then appealed the court decision based on the following: that the rent repayment order can “only be made against the immediate property owner of the person making the application” therefore, the court overturned their decision to be in favour of the property owner. The tenant responded by raising an appeal against the second ruling and a final decision is yet to be made.
What should rent-to-rent ‘superior property owners’ consider, to avoid confusion over liability?
The superior property owner should ensure that they check whether a license has been obtained before making a rent-to-rent agreement. They should avoid getting into an agreement if the immediate property owner is still in the process of obtaining a license as this can still lead to some confusion later. A clear agreement which outlines the responsibilities of each property owner will help avoid liability issues in the future.
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