Although housing benefit is being phased out and being replaced with Universal Credit, this case is still useful and if nothing else, interesting.

With great thanks to Sue who is one of our subscribers for sending the decision over.

Background

Under regulation 95 Housing Benefit Regulations 2006, a local authority must make payment of housing benefit direct to the landlord if the rent is eight weeks or more in arrears:

95.—(1) …, a payment of rent allowance shall be made to a landlord (and in this regulation the “landlord” includes a person to whom rent is payable by the person entitled to that allowance)— (a) … (b) … the person is in arrears of an amount equivalent to 8 weeks or more of the amount he is liable to pay his landlord as rent, except where it is in the overriding interest of the claimant not to make direct payments to the landlord.

Some time ago, we assisted with a very important case – Doncaster v Coventry City Council FTT 032/09/00932 5 October 2009 – which decided that rent in advance is included in the calculation for eight weeks arrears meaning after one month and one day of non-payment, regulation 95 is triggered and the landlord can make a request for direct payment.

After Doncaster, the government issued a circular (HB/CTB A26/2009) informing local authorities they should follow the decision.

Further guidance (last updated 2014 at the time of writing) states if a landlord made the rent payable “two months” in advance, that would mean payment should not be made directly because it would be in the ‘overriding interest’ of the tenant not to pay direct:

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’.

Our view was the legislation says what it says and it should be possible to create a two monthly rent tenancy for instant direct payment irrespective of what the guidance said (it’s only guidance).

Current Case and Decision

ST (the landlord and one of our subscribers) granted two assured tenancies where the rent was payable two months in advance. The local authority refused to pay direct and ST appealed. At first instance, the First-tier Tribunal dismissed the appeal so the landlord applied for permission to appeal to the Upper Tribunal (UT) which was granted.

It was common ground that the landlord and her husband had been active in the locality for many years renting out properties often to those who might otherwise have found it difficult to obtain accommodation and there was no question she was a fit and proper person to receive direct payments.

Under these tenancies offered by the landlord, two months rent in advance was required. If the tenant could not afford this lump sum, the effect was that they were in arrears when they took possession and sometimes by the full eight weeks.

The question was, does regulation 95 (requirement to pay direct to a landlord) apply in these circumstances?

Local Authority Arguments

The housing authority’s central position was its reluctance to accept what it saw as, in my words, “engineered” arrears could, at the outset of a housing benefit claim, give rise to a direct payment to the landlords, nor that rent charged in advance could be rent in arrears until the tenant had been in possession of the property for that period.

The local authority also suggested further-

… that the tenancy agreement had been designed to take advantage of the Housing Benefit Regulations.

There was also a principled general argument by the local authority relating to what they believed to be the purpose of the legislation namely-

… for claimants to have responsibility for their own budgeting and the conviction that direct payments should not be made without giving the tenant a chance to manage their income, including rental payments and until they had failed to do so.

Landlord Arguments

The appellant landlord who has been letting properties in the area since 1983, strongly disagreed that the tenancies were drawn up with any intention to either engineer the eight weeks arrears, or take advantage of the housing benefit scheme.

… they had always stipulated two-months rent in advance in their tenancy agreements, and, unlike many current landlords, they offered assured tenancies with more protection to the tenant than the more usual assured shorthold tenancies …

ST further argued-

… rent payable in advance was rent which was in arrears as a matter of law after the time due for its payment, and that in such circumstances direct payment to a landlord was mandatory …

Importance of the Issue

It was acknowledged that the issue was of importance since the case of Doncaster v City of Coventry confirmed that rent did accrue where they were established by non-payment of a contractual period of rent in advance. The decision was not binding though and many local authorities didn’t follow the decision.

… It is apparently a matter which arises frequently for housing authorities across the country, and I am told that a binding decision will be of practical assistance.

The decision of Upper Tribunal Judge Paula Gray

ST v SCC (CH) [2019] UKUT 33 (AAC)

Judge Paula Gray was quick to dismiss the question of engineering rent arrears and the argument that the tenancy agreements were contrived to take advantage of the scheme:

… the only statutory provision is regulation 9(1)(i) under which a housing authority can find that a tenancy is contrived to take advantage of the housing benefit scheme … That is not the argument here. In my judgment whether or not the eight-week advance rental provision in the tenancy agreement was set with the intention of defeating the eight-weeks arrears rule in regulation 95 (and I remind myself of the appellant’s explanation that this provision was in their standard tenancy agreements well before that provision came into effect) is irrelevant to the issues I must decide. Rent is a payment that a tenant is bound by contract to make to his landlord for the use of property let: Property Holding Ltd v Clark (1948) 1 KB 630 at 638. It may be payable in advance or in arrears. It is due on the date fixed for payment, and becomes in arrears after midnight on that date: Re Aspinall, Aspinall v Aspinall (1961) CH 526. The remedy of distress arises the day after the rent comes due: Dibble v Bowater (1853) 2 E&B 564, and rent payable in advance may be distrained for on the day following that fixed for payment. In the context of these appeals, it is clear that the contractual position was for payment of two-months rent in advance, and arrears of rent accrued at the time the tenant took possession which, being equivalent to arrears of eight-weeks, mandated consideration of direct payments to the landlord under regulation 95(1)(b).

There was a relatively lengthy discussion about the exception to direct payment where it’s in the “overriding interest of the claimant” not to make direct payments. For full details of this, please refer to the decision linked at the bottom but sufficient to say for the purposes of this article, it is not the same as whether the landlord is “fit and proper” to receive the money. That term is dealt with separately in the regulations and in deciding overriding interest:

The interest being considered is that of the claimant: whether or not the landlord is a fit and proper person to receive direct payments cannot be considered under this exception … … the use of the word overriding sets a high hurdle and the starting point … is for direct payment to the landlord once sufficient arrears exist …

There was a discussion about the cessation of direct payments.

… the housing authority has argued that if a payment is made by the tenant which takes the arrears below the eight-week period, direct payments must cease because there are no longer grounds to make them.

This received short thrift from the UT. For the reasons, see the decision but sufficient to say the UT held:

The argument is erroneous.

In respect of amounts already paid to a tenant when in fact it should have been paid to the landlord under regulation 95, the UT had no power to deal with that point but agreed with the decision of Judge Jacobs’ in the earlier decision CH/3629/2006 (for which see our article about Doncaster v CCC) in which there are two options for a landlord:

I respectfully agree with Judge Jacobs’ conclusion, which set out two possibilities for the landlord. The first, in many cases something of a pipe dream, was to seek recovery from the tenant, who remained liable for the unpaid rent. The second was to seek compensation from the local authority. Our guidance, therefore, remains valid for claiming compensation after a local authority has paid the tenant when they should have paid the landlord.

In this case, ST sought compensation equivilent to the amounts that had been paid to the tenant (which should have been paid to the landlord). At first instance the local authority refused to make payment. However, within 3 weeks of a letter to the Ombudsmen, the landlord received the full compensation!

Conclusion and comment

The decision of the UT was summarised as follows:

(i) Rent is in arrears once the contractual date for payment has passed irrespective of whether rent is due in advance or in arrears. (ii) The plain words of regulation 95 mandate payment direct to the landlord where rent is the equivalent of eight-weeks in arrears, subject to the overriding interest provision set out there.

This decision confirms our long-held view and it’s good to see the legislation was interpreted this way.

It’s fantastic news that Doncaster v CCC has finally been confirmed by the Upper Tribunal and MUST now be followed by every local authority (who are still on housing benefit).

Major well done to the landlord for pursuing this all the way to the Upper Tribunal. To clarify, despite being a subscriber, all the work was done by Sue and we had very limited input by only replying to a couple of questions when asked.

Read the full judgment of ST v SCC (CH) [2019] UKUT 33 (AAC) here.