Trinity Housing Barrister Summary of Cabo v Dezotti [2022]

Trinity Social Housing Law barrister, Henry Percy-Raine has prepared the following summary of the recent case of Cabo v Dezotti (Housing – House in Multiple Occupation – Rent Repayment Order) [2022] UKUT 240 (LC)

This was an appeal against the decision of the First Tier Tribunal  (Property Chamber) (FTT) which ordered Ms Cabo to repay rent to Ms Dezotti. The issues in the appeal centred on the fact that Ms Cabo owned the freehold of the House in Multiple Occupation (HMO) occupied by Ms Dezotti but the name of a company run by Ms Cabo’s husband appeared on the letting agreement under which Ms Dezotti occupied the property.

The facts

Ms Cabo is the owner of a six-bedroomed house (“the property”). She is married to Mr Grasso who is the sole director of Top Holdings Ltd (“the company”). In January 2016, Ms Cabo under a management agreement appointed the company as her agent to manage the property.

Briefly stated, the management agreement expressed that it did not create any relationship of landlord and tenant between the parties “nor any tenancy, licence, lease or joint venture”. The agreement permitted the company to let the property through “licence agreements by way of holiday lettings only”. The company was permitted to retain any income derived from letting.

In September 2016, Ms Dezotti met with Mr Grasso and signed an agreement allowing her to occupy a room in the property. The agreement was a “licence to occupy a room as holiday let” and “definitively not as a main residence”. The agreement was between the company and Ms Dezotti. She paid the rent to Mr Grasso initially and thereafter to an account belonging to Ms Cabo’s brother. Ms Dezotti ultimately moved out of the property in June 2019.

Proceedings in the FTT

In May 2020 Ms Dezotti applied to the FTT for a rent repayment order. She named Ms Cabo as the sole respondent. Her case was that Ms Cabo was in control of the property, that the company’s involvement was “artificial”, and that Ms Cabo had committed the relevant offence under section 72, Housing Act 2004 of being the person in control of or managing an unlicensed HMO.

Ms Cabo and Mr Grasso asserted that although they are married, their finances were entirely independent. It was contended that Mr Grasso’s and the company’s finances and his control over the company were entirely unconnected to Ms Cabo and that she received no rent nor other payments from the company or himself.

The FTT was satisfied that the property was an HMO at all times from 2016 until 2019. As to the nature of the short-term lettings, the FTT held the agreements between the company and the tenants were “something of a sham” [30]. The FFT did not find the arrangement between Ms Cabo and Mr Grasso to be credible and went on to find that Ms Cabo was a ‘person having control’ of the HMO within the meaning of s.263 HA 2004 as she was entitled to receive a rack rent [31]. In the alternative, the FTT found that Ms Cabo was also within the definition of “a person managing” the property under section 263(3)(b) HA 2004 on the basis that even if the arrangement between her and the company was true, Ms Cabo would have received the rent monies but for entering into the arrangement with the company [32].

The FTT went on to consider whether Ms Cabo was the landlord. It found that the company had a management contract but had no legal interest in the property. It concluded that “the company cannot, therefore, be a landlord”. Nevertheless, the company was acting on behalf of Ms Cabo which led the FTT to conclude that “she must be the landlord of the property” [33].

The Appeal

Permission was granted to appeal on three points:

(1)   Could the owner of a property be a person in control when someone else was collecting the rack rent and it is said not passing it on to Ms Cabo?

(2)   Did the FTT correctly interpret and apply section 263(3)(b), Housing Act 2004 in making its alternative finding that Ms Cabo was a person managing the property?

(3)   Could a company with no proprietary interest in the property be a landlord?

The answer to the first ground relied upon the definition of a ‘person in control’ within s.263(1) HA 2004.  The reference to “receives” rent in s.263(1) means actual receipt of money in their own hands; indirect receipt through an agent or trustee is insufficient [43]. Accordingly, an owner of a property who does not collect the rent is not a person in control in the sense described in section 263(a) HA 2004.

On the facts, the finding that Ms Cabo was a person in control could not stand. First of all, for Ms Cabo to be the ‘person in control’ it had to be established that she received that rack-rent. However, there was no evidence about how much rent money was going to Ms Cabo and no findings were made about how much she received [48]. Secondly, the FTT did not find that the company or Mr Gasso were tenants of Ms Cabo paying rent directly to her. They were simply managing the property, any sums they collected and passed on to Ms Cabo could not cause her to be a person having control as indirect receipt is insufficient for s.263(1) [50].

The second ground of appeal concerned the alternative limb (section 263(3)(b) HA 2004). In such a case the owner who entered into such an arrangement is a ‘person managing’ the property notwithstanding they do not receive any rent. The FTT relied on the second limb as an alternative route to fixing Ms Cabo with responsibility for licensing the HMO. The finding that s.263(3)(b) applied was found to be correct. Taking the management agreement between Ms Cabo and the company at face value, it was the type of agreement described in s.263(3)(b); Ms Cabo did not receive the rent monies, she would have received it but for the agreement (the agreement permitting the company to retain the rent monies), the company was not an owner or lessee of the property (as explicitly stated in the agreement), and the company received the rents “by virtue of” the Agreement [55-58]. Accordingly, it did not matter that the FTT’s conclusion on ground one would be set aside.

The third ground of appeal was also unsuccessful. In principle, a company (or other person) with no proprietary interest in land can grant a tenancy and be a landlord [65]. However, as this claim was against Ms Cabo not the company, the key issue was whether the FTT was right to find that Ms Cabo was Ms Dezotti’s immediate landlord. On the evidence, the FTT was so entitled to make that finding. The relationship between the company and Ms Cabo was considered as that of principal and agent [72-81]. The FTT’s rejection of the evidence of Ms Cabo and Mr Grosso about the financial arrangements was important in going to the agency relationship [77]. Ms Cabo was classified as an “undisclosed principal” to the letting agreement and accordingly could be sued on any contract made on her behalf by her agent acting within the scope of its authority [76]. The letting agreement between the company and Ms Dezotti was considered to merely be the company letting the property as Ms Cabo’s agent, accordingly creating the relationship of landlord and tenant between Ms Cabo and Ms Dezotti [81]. It followed that Ms Dezotti was entitled to make her claim against Ms Cabo as her landlord.