Appeal Ref: PR/2017/0014, 16 October 2017 (transcript only recently available)
Peter Hinchliffe, Tribunal Judge
The First-tier Tribunal (General Regulatory Chamber) has held that a “corporate” tenant, which took leases of residential properties to sublet them on assured shorthold tenancies and guaranteed a certain rent to the superior landlord, retaining the difference for itself, was not engaging in property management services to which the requirements of The Redress Scheme for Lettings Agency and Property Management Work (Requirement to Belong to a Scheme etc.) (England) Order 2014 (SI 2014/2359) applied.
The appellant, Ridgemoor Properties Limited, described itself as a company specialising in “the smooth and efficient management of properties in Reading”. Its business model was to take tenancies of residential properties from freehold or leasehold landlords and to sub-let them to individuals on assured shorthold tenancies. As part of its marketing material, it guaranteed to pay the rent every month, and asserted that it would be responsible for minor repairs such as painting its own expense, although if major work was required it would liaise with the superior landlord to arrange it. Cintra Estates, an estate agent which, inter alia, also managed properties, acted as guarantor to a number of Ridgemoor’s agreements.
Under para.5 of The Redress Scheme for Lettings Agency and Property Management Work (Requirement to Belong to a Scheme etc.) (England) Order 2014, made under s.84(1) of the Enterprise and Regulatory Reform Act 2013, any person engaging in property management work is required to belong to an approved redress scheme for dealing with complaints about that work. In s.84(6) of the Act, “property management work” is defined as:
“things done by any person (‘A’) in the course of a business in response to instructions received from another person (‘C’) where – (a) C wishes A to arrange services, repairs, maintenance, improvements or insurance or to deal with any other aspect of the management of premises in England on C’s behalf, and (b) the premises consist of or include a dwelling-house let under a relevant tenancy.”
On 30 March 2017, the respondent authority served on Ridgeway a Final Notice pursuant to the Order, requiring it to pay a penalty charge of £5,000 for failing to belong to an approved redress scheme.
The subject agreements were between Ridgemoor and a private landlord, granting to Ridgemoor tenancies of premises for between three to five years. Cintra acted as guarantor, and referred potential tenants to Ridgemoor, to whom Ridgemoor then granted assured shorthold sub-tenancies. Ridgemoor paid the rent to the superior landlord regardless of whether the premises were occupied. For the occupied premises, any sums remaining after its rental obligations to the superior landlord were paid, were sums to which Ridgemoor was entitled as rent from the premises.
Ridgemoor asserted that it was the tenant of a superior landlord, offering sub-leases to tenants, and engaging in services, repairs, maintenance, improvements and insurance at the sub-let premises as a consequence of its own obligations arising from the sub-leases. It did not act for a third party, and it was therefore not engaged in property management work as defined by the Act, and not required to register with an approved redress scheme.
The authority asserted that the contractual agreement between Ridgemoor and the superior landlord was immaterial when looking at the reality of the arrangement. The difference between the sum Ridgemoor paid to the superior landlord and the sum it took from the assured shorthold tenants was effectively its “management fee”. Ridgemoor undertook day-to-day management of the premises in accordance with the instructions of the superior landlord. It had also accepted that it was the “manager” of premises for the purposes of any properties which were HMOs. Alternatively, the authority asserted that Ridgemoor was receiving instructions from Cintra to carry out property management work.
In quashing the Final Notice, the Judge considered that the obligations in the tenancies between the superior landlord and Ridgemoor, and the obligations between Ridgemoor and the sub-tenants as created by the ASTs, were to be construed in the context of established property law. Ridgemoor acted on its own behalf by entering into those agreements and by carrying out its obligations under the agreements, and there was nothing about the particulars of the case that required him to find otherwise. Ridgemoor was therefore not carrying out property management work.