by | Jan 22, 2021 | Safer Renting

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In the PRS there is a legal crisis being playing out for the past 10 years, particularly in rent 2 rent scamming, where not only does having dodgy limited companies help evade detection, they also help avoid payment of fines and civil penalties for the simple reason is that if the council or a luckless tenant does manage to win an award, the limited company just folds without paying a bean.

It’s one of the endlessly frustrating parts of the job for anyone in my line of work, this incessant use of aliases and fake companies by criminals and cowboys.

Safer Renting has a solution but before I get to it, let me give you an illustration of a case that we are currently dealing with that is typical of what you are up against.

Dave and Ed (not real names) rent rooms in a five bed HMO in October 2020 from Liars Ltd, a local letting agent. Listed on their tenancy agreement as agent is Don, a man working for Liars Ltd, where the company boss is Al. No landlord name on the contract but they have been paying their rent to Don since moving in.

One day Dave and Ed are quietly watching TV when a couple turn up saying they are the owners and that they don’t know who Dave or Ed are. None of this is impressing the person they have brought with them to view the property for sale.

The owners also say they have never heard of Liars Ltd and had previously been using an agent called Hucksters and that it was their understanding that the property was empty, precisely because they wanted to sell. Hucksters no longer being involved with the property.

A few days later, the owners visit and throw Dave and Ed out on the street and board up the front windows, which is when the case gets referred to Safer Renting, who immediately call Liars Ltd and speak to Al who professes to know nothing of the arrangement and says that Don no longer works for them.

Al says irritably that he doesn’t get involved in day to day matters, a curious defence that is swiftly undone when Don replies to an email sent to Liars Ltd, making a nonsense of the claim that he has been sacked.

A call is made to the owners who repeat that they do not know Dave or Ed and that they have never instructed Liars Ltd to act for them. A bit of digging into land registry to verify the names of the owners also reveals that the owners run their own letting agency, begging the question “Why would you run a letting agency and yet pay commission to another agency to run your property? Regardless of whether it was Hucksters or Liars Ltd but hey ho.

So, Dave and Ed have a contract with Don, who apparently doesn’t work for Liars Ltd anymore, even though he answers his emails. Their rental liability is similarly with either Don, the named person on the contract and/or Liars Ltd, whose bank account the rent has been paid to..

The owners have carried out a criminal offence in evicting the renters and are in our crosshairs for an injunction at the moment but are trying to blame the responsibility for this mad situation on Liars Ltd, who cant explain how they came to be running the property, let alone how they got copies of the keys, nor where Hucksters might have had a hand in it.

Also there is another party holding the property license who so far doesn’t seem to have any connection to anyone else. We’re still investigating that bit.

As usual everyone is pointing the finger of blame but nobody is coming up with a credible explanation for each other’s involvement. A lot of silence and broken eye contact going on.

The illegal eviction is for once the easy bit, we have phone video footage of the owners actually doing it, see you in court but it’s the various enforcement arms where the problems lie and things like Rent Repayment Orders.

First off, for an RRO you have to identify the correct respondent if you are to have a successful win. While everyone is blaming everyone else that sort of clarity is very difficult to get an evidential handle on and as I said above, if you do get one of these dodgy limited companies bang to rights, they just fold up without paying and start another company, often without even bothering to change their office.

All of which leaves tenants trying to claim RROs having wasted money and around 30 hours stressful work trying to get justice from the tribunal for absolutely nothing and its not even illegal.

This matter was addressed in a fairly recent Upper Tribunal decision known as ‘Goldsbrough v. CA Propperty Management Ltd & Ors’, which clarified that a respondent has to be “A landlord” but it doesn’t have to be the immediate landlord.

Despite grumbling from the landlord community a second case went through the Upper Tribunal on a similar point just a few weeks back, Rakusen v. Jepson, where the concerns over landlords hiding behind shell companies that fold was also considered.

Housing law oracle Nearly Legal commented on the Jepson decision:-

And of course, it simply confirms once again that rent to rent is a recipe for disaster for sub-tenants and often superior landlords, and the area has a large population of incompetents, shysters and greedy ignoramuses”

Indeed, and the upper tribunal themselves commented of this problem:-

if only the immediate landlord may be the subject of an order, the grant of a short-term tenancy to an insubstantial intermediary through which the premises would then be sublet would remain a route for avoidance of the enforcement of rent repayment orders. A company with no assets other than a short-term lease, which may be not much longer than that granted to the occupational sub-tenants, is not likely to be a promising target for enforcement of a substantial rent repayment order.”

So all well and good, sanity prevails, or does it?

Rakusen is now going to be appealed. If it gets overturned then landlords, just as the Upper Tribunal predicts, will be free to either employ or simply create a limited liability company to act as landlord for their property, effectively shielding them from ever having to pay out on RROs or civil penalties.

Landlords are already forming Ltd companies for tax reasons so this will protect many in licensing breaches and RRO claims. Like a magic cloak of invisibility.

I cant stress enough how many of our cases involve this kind of dubious limited company structure involved somewhere in the game, at a guess probably 80%. If the appeal is successful it spells the death knell for so many Rent Repayment Orders for all but Housing and Planning Act breaches, which are already a tiny percentage of RRO claims, given the evidential problems.

To bear down on this “smoke and mirrors” game it is one of Safer Renting’s recommendations to amend statute, to make property owners liable for licensing breaches and fraudulent activities by their agents.

A move to strict liability that this implies would drive an improvement in ‘due diligence’ by landlords in choosing their agents and being assured that neither they nor the tenants in their property are being exploited. The law already allows an owner to sue an agent for damages if any unlawful practices not authorised by the owner leads to costs.

A further important reason for introducing strict liability on the property owner is that it secures the route for a tenant to enforce any award in civil law against the value of the property to which the award relates, a route that is very often closed to them where the owner has used an agent that can quickly ‘disappear’, with or without the owner’s collusion.

If the owner is the backstop any award granted would have the ultimate security of the property being an asset to draw down on, no more evasion or avoidance.

If we can persuade government to adopt our recommendation, then the result of the appeal case mentioned above wont matter one way or the other.

   by Ben Reeve Lewis

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About Cambridge House Safer Renting

The Cambridge House Safer Renting team present the ‘go-to’ blog on the world of the Shadow Private Rented Sector.

We monitor the world of rogue landlord and agent activity, publicise developments, circulate innovative ideas, keep readers abreast of changes in laws and regulations, raising awareness of criminal trends and scams, celebrate successful actions and interview people working in the field, connecting up anyone involved, from tenants and their advisers, to enforcement officers, lawyers and journalists.

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