The Department of Work and Pensions (“DWP”) has issued new guidance to local authority staff for local housing allowance. In the guidance, a new point is raised concerning direct payments to landlords when the tenant is the equivalent of eight weeks or more in arrears.
At this point, it is perhaps worth recapping a little as to where we are right now.
The guidance from some time ago stated that the DWP did not regard a tenant to be eight weeks in arrears until the they had been in occupation for the full period (so a landlord had to wait at least eight full weeks before payment would be made).
Then, we took the Doncaster v Coventry City Council case which overruled the guidance and showed that where rent is monthly in advance, the tenant is eight weeks arrears after one month and one day.
Although this was only first tier tribunal (so not binding), the DWP accepted the decision and in December 2009, changed the guidance [Circular HB/CTB A26/2009]
The next logical step was landlords thinking that it might be possible to always receive direct payment if they made the rent payable eight weeks or two calendar months in advance. Following Doncaster, payment would have to be made to the landlord from the outset (assuming no rent was received).
The December guidance made a small mention of two calendar monthly rent agreements and suggested a landlord who created such a tenancy might not be a “fit and proper person” and therefore not entitled to receive direct payment. We never agreed with this but the opportunity to challenge never arose.
However, in the new guidance it would seem the DWP has given this point of two calendar monthly tenancies some thought and it now states (highlights inserted by author):
Even where the tenant has eight weeks rent arrears, direct payments are not mandatory if it is not in the tenant’s overriding interests to make them. For example
- a new tenant is in arrears from the outset because the frequency of rental payments is two monthly. In these cases the rent arrears will fall below eight weeks as soon as HB is paid
- the tenant is withholding rent pending the landlord carrying out essential repairs, or
- the landlord is not a ‘fit and proper person’
Paragraph 4.063 continues (which was in the earlier guidance)
Most private sector tenancy agreements make provision for rent to be paid on a weekly or monthly basis. Tenancy agreements which stipulate less frequent payment, for example two-monthly in advance, could have the effect of placing a tenant in eight weeks arrears before they have received any benefit. You should consider carefully whether the tenancy agreement has been construed intentionally to obtain direct payments to the landlord. In these circumstances you should consider whether it is in the tenant’s overriding interests to not make direct payments (see ‘Overriding interest’ and ‘Fit and proper person’ test earlier in this chapter).
Unfortunately for landlords, the term “not in the overriding interests of the claimant” is a very broad term and could have many interpretations. Also, if an appeal is taken (which we have several possible cases lined up), the Tribunal is not going to want a decision to go the landlords way because if it did, the legislation would have to be changed as it would be rendered almost useless.
It would seem there are two arguments used by the DWP for not paying direct if a landlord creates a two monthly rental tenancy.
- The tenancy agreement has been construed intentionally to obtain direct payments to the landlord
- A new tenant is in arrears from the outset because the frequency of rental payments is two monthly. In these cases the rent arrears will fall below eight weeks as soon as HB is paid
Creating a tenancy with two calendar monthly rent
Before addressing the two arguments raised by the DWP, it is worth quickly pointing out that when creating a two calendar monthly tenancy, it must be done genuinely. I have seen many landlords who have created such a tenancy but then in rent demands or rent schedules supplied to the local authority or tenant, the rent is shown as monthly. In order to set up a tenancy properly, the rent must be demanded properly and the tenancy worded correctly. For example if the normal calendar monthly rent is £400pcm, the agreement should say the rent is £800 payable in advance every two calendar months and must be demanded on that basis.
We have provided previously in-depth guidance on how to properly create a two calendar monthly tenancy. There are several problems that can arise in particular regarding the service of a section 21 notice so creating a two monthly tenancy is not for everyone.
The DWP arguments
We have previously written about the potential legal arguments in detail so to avoid repetition, below is just a summary of rebuttal arguments.
The tenancy agreement has been construed intentionally to obtain direct payments to the landlord
We have been advising since the 1990’s about making rent payable two calendar monthly because under the old HB rules, direct payment required the tenants consent. However, this consent could be withdrawn anytime and so the two calendar months was a useful backup.
Two calendar months in advance also has the advantage of potentially making a section 8 notice on the basis of rent arrears quicker (depending on how the rent falls).
In a case that we took which went to the Court of Appeal (Laine v Cadwallader (2001) 33 H.L.R. 36), the court specifically referred to the clause where the rent was payable:
… The fact that it was payable every two months in advance was only a provision as to time of payment which, for present purposes, is not material …
We can therefore safely show that (members of the Guild at least) have been using two monthly rental tenancy agreements since well before 2001 and haven’t just started to avoid the local housing allowance regulations.
Since the 1990’s, our tenancy agreements have been pre-printed with the two calendar monthly option available (not that I would be able to find any old ones!)
I think therefore, we can show that we have been creating two monthly (and on some occasions quarterly) tenancies long before LHA and have not just started to “avoid the legislation”. However, this alone does not answer whether in the particular case it was done to avoid the legislation. But a landlord who has been creating two calendar monthly tenancies for several years, long before LHA will have a much greater chance of arguing against the point that the DWP make. Ideally, in addition, the landlord will be able to show the granting of two monthly tenancies to non LHA tenants as a further confirmation that there no avoidance intention.
The question of whether “avoiding” the legislation is unlawful anyway would need to be asked.
A new tenant is in arrears from the outset because the frequency of rental payments is two monthly. In these cases the rent arrears will fall below eight weeks as soon as HB is paid
I can’t see how this can be a valid argument personally. Local authorities should, under the regulations make the first payment “within 14 days” (see this article), yet never do. If we take a normal monthly tenancy, the local authority rarely sorts out a new claim before six to eight weeks and therefore, because of Doncaster, the tenant is two months in arrears before the first payment in any event. How is a two calendar monthly tenancy different?
The new guidance has certainly provided food for thought if nothing else and I’m fairly certain that we will have a tribunal case in the near future.