The Department of Work and Pensions (“DWP”) have published housing benefit circular HB/CTB A4/2011 which advises local authority staff on how to make decisions under the new direct payment provisions which commence in April 2011.

What’s changing?

From 6 April 2011, the Housing Benefit Regulations 2006 are amended to include a new “discretionary” direct payment to landlords. Regulation 96(3A)(b) (circumstances when payment “may” be made to landlord) will have added to it:

“(iv) the relevant authority considers that it will assist the claimant in securing or retaining a tenancy”

None of the changes affects the provisions contained in regulation 95 where payment “shall” be made to the landlord if the tenant is the equivalent of 8 weeks or more in arrears. Nor is there any change to the existing rules of a vulnerable person in which case payment “may” be made direct to a landlord.

Existing Tenants

The policy intention

The intention behind the new safeguard is to protect tenants who find themselves living in accommodation after April 2011 when the announced cuts to housing benefit are made. If a tenant finds that his housing benefit is reduced so that he can no longer afford the full rent, this new direct payment provision can be offered as a bribe to the landlord so that he will reduce the rent to a level that the tenant can afford. If the landlord reduces the rent, then, the local authority can offer direct payment because that rent reduction is assisting the tenant to retain the tenancy.

The importance of the amount of rent

The [tenant] can only be accepted as being able to retain or secure a tenancy if the rent is at a level you consider they can reasonably afford whilst in receipt of HB. If the [tenant] continues to have a shortfall which they cannot meet they will be unlikely to be able to meet their rental commitment and will be at risk of eviction. In these circumstances, they will not be able to retain the tenancy and so the safeguard will not apply. [para 10 circular A4/2011].

Therefore, the DWP argument is that if the rent is higher than the local housing allowance rate (either before or after the announced reductions) then direct payment can never be made under the new provisions because the landlord is still likely to evict if they can’t pay any shortfall. Therefore, the criteria of assisting in retaining the tenancy is not met.

Note: I’m not entirely sure I agree with this interpretation from a legal point but I see the point and for now will run with it.

Of course, if the rent you charge is already lower than the LHA rate and is less than or equal to any reduced LHA rate after the cuts take place, there is no need for a landlord to show that they have reduced the rent because the landlord will be able to show the tenant can afford the rent. In this case, the provision maybe used if the tenant is less than 8 weeks in arrears if the landlord intends to evict because the provision of assisting to retain the tenancy still applies.

What is an affordable rent?

The intention is that the rent should be at a level which is affordable to the tenant. In the vast majority of cases this will be the LHA rate which applies to the customer and on which their maximum rent determination is based. However, some tenants may decide that they can pay slightly more than the LHA rate if they have other resources. For example, if they have resources such as capital to meet a shortfall. However you must be satisfied that the rent is affordable to the customer. [para 16 circular A4/2011]

New Tenancies

The new provision of direct payment is not only available for assisting with retaining a tenancy, it is also available if will assist the tenant secure a tenancy. It is this that will be of most interest to landlords because it maybe useful to try and achieve all new tenancies are paid direct to the landlord.

As with existing tenants, in order to achieve the direct payment, according to the guidance it is absolutely essential that the rent is affordable (see above). Therefore, if the rent you are asking is above the LHA rate then it is unlikely that the landlord will receive direct payment under these new provisions (but the 8 weeks arrears rule still applies).

The rent therefore will need to be reduced to at least the LHA rate (if like me your rents are usually well below the LHA rate, then no reduction will be necessary).

The guidance states:

The safeguard can also apply to customers seeking new tenancies who might not otherwise be able to secure a property with a rent which is affordable. You should not apply the safeguard unless you are satisfied … the letting would not have been made without direct payments and the rent charged is affordable. [para 21]

But continues …

If you are aware that the landlord has routinely let to HB customers at affordable rents without direct payments it would be reasonable to expect that they would continue to take on new tenants without direct payments. It is not the intention that the safeguard be used to make payment to the landlord as a matter of routine. [para 23]

Because of this last paragraph landlords are going to have to make a decision and stick with it if they wish to achieve direct payments.

What the guidance is basically saying is that if you have always charged a lower rent and always accept housing benefit tenants then the new provision cannot apply because it is not assisting the tenant to secure a tenancy (because the landlord would have let to them anyway and past history has proved this).

However, it seems there is no reason why a landlord in this type of situation cannot make a decision to never again let to a housing benefit tenant unless direct payment is made. Once a landlord has made such a decision (and must stick with it) then any request for direct payment will assist the tenant in securing the tenancy. However, just to repeat, if a landlord does not stick with the decision to never let to housing benefit again without direct payment but then does so will never be able to receive direct payments from the local authority.

It seems a landlord can make a decision to never let to housing benefit tenants unless direct payment is made because in the examples contained in the guidance it states:

Maria needs to leave her current tenancy because she cannot afford her rent because of a reduction in her LHA rate. She has two children aged less than 10 years. A friend puts her in touch with a landlord of a two-bedroom flat for which he charges £200 a week. The local LHA for a two-bedroom flat is £215 in March 2011 and reduces to £205 in April 2011.

The landlord has not let to anyone on benefit for some time as a previous tenant left without paying the rent. He says that he is willing to let to Maria and her two children, if HB is paid direct to him. The LA agrees to pay HB direct, as otherwise it would not have been possible for Maria to secure the tenancy and she would have been at risk of being made homeless.

[Annex A circular A4/2011]

This example makes it clear that it is possible for a landlord who has previously let to housing benefit tenants but because the benefit was paid to the tenant and the landlord was left with arrears, the landlord decided not to take any more tenants unless payment was made direct. There is therefore no reason why any landlord cannot make this same decision (but to clarify a landlord making such a decision must stick with the decision).

How to apply for direct payment before the tenancy has been granted

The Guild of Residential Landlords has produced a notice / letter that either the landlord or prospective tenant will take to the local authority. This notice explains that a tenancy will not be granted (or a higher rent above the LHA rate will be charged) if the local authority refuse to pay direct to the landlord.

However, any landlord using this notice will have to stick to the contents i.e. if you say you won’t let the property unless direct payment is made and the local authority refuse to pay, you should not let the property to the prospective tenant. Otherwise, the production and use of such a notice will be pointless.

The local authority will either sign the notice accepting that direct payment will be made or alternatively the local authority may notify of a decision in the normal manner when making decisions (the guidance suggests the latter approach).

If the local authority either refuses to sign or notifies of a decision that payment will not be made direct, then, the landlord should not agree to let the property to the tenant and should find someone else. Appealing a decision is a possibility but because it is a discretionary provision, these are much harder to appeal.

Of course, this theory is going to depend on market conditions. If most landlords simply carry on as now and accept tenants where the tenant receives the payments, the local authority are going to have no incentive in awarding direct payments. However, if the majority of landlords simply refuse to accept tenants unless they get direct payment, then the provision of assisting to secure a tenancy will apply and direct payments will be made in many more cases than currently.

A suitable form requesting direct payment from 6 April 2011 is available here.