The ‘rent-to-rent’ business model has seen a huge increase in recent years, reflecting the trend for businesses to take over utilisation of assets, like Uber and Airbnb. But for landlords, it has given rise to confusion over the extent of their responsibilities.
Now, in a landmark ruling, the Supreme Court has clarified the responsibilities of those involved in such arrangements, saying that where rent-to-rent companies take over the running of a property, they must take responsibility for the legal obligations that arise from their use of the property.
Rent-to-rent arises where an intermediary company takes on the rental of a property with the intention of sub-letting, frequently by increasing the number of tenants.
Unlike a traditional arrangement where the landlord manages a tenancy directly, or uses a managing agent to do so, such agreements can provide a landlord with a hands-off solution combined with greater certainty and fewer void periods, which may be exchanged for a lower rent and longer-term agreement.
The case of Rakusen v Jepsen hinged on whether it was the responsibility of the head landlord or of the rent-to-rent company to obtain a licence from the local authority for a flat to be used as a house in multiple occupation or HMO.
The head landlord had let the flat to Kensington Property Investment Group Ltd, a rent-to-rent company who went on to sub-let the property in such a way that an HMO licence was required, but the company did not apply for one.
A house is in multiple occupation if at least three tenants live there, forming more than one household, and they share toilet, bathroom or kitchen facilities with other tenants. A household is defined as a single person or members of the same family who live together.
Where a property is an HMO it must satisfy special requirements regarding fire and general safety, utility supplies and management of communal areas. If a landlord has been prosecuted for running an unlicensed HMO, tenants may apply to a tribunal to reclaim some of their rent.
When the tenants who lived in the flat tried to obtain a Rent Repayment Order, it was against the head landlord rather than the rent-to-rent company. At first hearing, the court decided the sub-tenants could make the claim against Mr Rakusen, but this was later overturned by the Court of Appeal, with the case finally reaching the Supreme Court.
“This case has delivered us with a landmark ruling that provides much-needed clarification in this area of the law,” said property law expert Stephanie Rushfirth of mfg Solicitors. “This style of arrangement has seen considerable growth in recent years, and the law is playing catch up.
“The ruling makes clear that rent-to-rent companies are acting as a landlord and it is their responsibility to ensure that all legal requirements are met: they cannot step away from those responsibilities, simply taking the income from the property they are running and leaving the head landlord to carry the can.”