UK Social Security and Child Support Commissioners' Decisions

R(CS) 12/98


Mr. D. G. Rice CCS/11591/1995

19.2.97

Housing costs - interest payments on second mortgage taken out by absent parent to buy parent with care's share in joint home - whether payments made in respect of the "provision of a home"

The absent parent had given the parent with care £5,000 at the time of their separation to pay her for her share in the joint home, which he had raised by way of a second mortgage on the home. Subsequently, the parent with care applied for a maintenance assessment, which was carried out. The absent parent appealed against that assessment to a child support appeal tribunal. The tribunal allowed the appeal but also decided against the absent parent that the interest payable on the loan of £5,000 was not an eligible housing cost. The absent parent appealed that point, amongst others, to the Commissioner.

Held, allowing the appeal, that:

the tribunal erred in law because they failed to make a finding as to whether the £5,000 was paid to the parent with care for the acquisition of her interest in the home, which on the evidence before the Commissioner was the purpose of the payment (para. 5);

mortgage interest payments in respect of the "provision of a home" are eligible to be taken into account as housing costs, and should be distinguished from eligible housing costs in the context of income support which include interest on mortgages taken out for the purpose of "acquiring an interest in ... a home" (para. 6);

if a person has an unchallengeable right to the occupancy of a home, he has been provided with a home and payments of mortgage interest arising from any unconnected action are not eligible housing costs, but the acquisition of a further interest in the home if necessary to preserve the right of occupancy will amount to the "provision of a home" (paras. 10 to 11).

The Commissioner set aside the tribunal's decision and remitted the appeal for rehearing by a differently constituted tribunal for determination after further investigation of the facts.

DECISION OF THE CHILD SUPPORT COMMISSIONER

1. My decision is that the decision of the child support appeal tribunal given on 24 May 1995 is erroneous in point of law and accordingly I set it aside. Pursuant to section 24(3)(c) of the Child Support Act 1991, I refer the case to a child support officer for redetermination in accordance with the directions set out below.
2. This is an appeal by the absent parent, brought with my leave, against the decision of the child support appeal tribunal of 24 May 1995. In view of the complexity of the case, I directed an oral hearing. At that hearing neither the absent parent nor the parent with care was present or represented, but the child support officer appeared by Ms. K. Steyn of Counsel instructed by the Solicitor's Office of the Department of Social Security.
3. On 30 September 1993 the parent with care applied to the Secretary of State under section 6 of the Child Support Act 1991 for a maintenance assessment to be made in respect of her son Matthew. The application was referred to a child support officer. The necessary forms were completed by the absent parent and the parent with care, and in the light of the information given the child support officer considered that the absent parent was obliged to pay child support maintenance at the rate of £46.70 per week. On 2 February 1994 the absent parent applied to the Secretary of State for that assessment to be reviewed. The Secretary of State referred the matter to a second child support officer, who on 5 June 1994 refused to review the earlier award. On 21 June 1994 the absent parent appealed to the tribunal, who in the event allowed the appeal, on the ground that the assessment was based on a mistake as to a material fact or made in ignorance of a material fact, and directed that the matter be remitted to the Secretary of State to arrange for a reassessment. The tribunal further decided that the interest payable on a loan of some £5,000 taken out by way of a second mortgage on the absent parent's home was not an eligible housing cost. The absent parent contends that the tribunal's decision was erroneous on two substantive grounds, namely that the interest on the loan should have been accepted as an eligible housing cost, and that regard should have been had in the calculation to the costs of his travelling to work. As regards the second ground of appeal, the claimant never complained of the disregard of his travelling costs until 25 July 1995, which was after the hearing before the tribunal. Accordingly the tribunal did not err in point of law in not considering travelling costs. This was something which was not before them. However, the tribunal did consider the question whether the loan interest was to be treated as an eligible housing cost, but determined the matter adversely to the absent parent, who now contends that the tribunal erred in law in reaching the conclusion they did.
4. Although the tribunal stated that they had had regard to paragraph 1 of Schedule 3 to the Child Support (Maintenance Assessments and Special Cases) Regulations 1992, SI 1992 No. 1815, they did not explain how they interpreted that particular provision nor why it did not apply in this instance. Manifestly, there was a breach of regulation 25(2)(b) of the 1986 Adjudication Regulations, and on that count I must set aside their decision as being erroneous in point of law.
5. The crucial issue in this case is whether or not the interest on the loan taken out by the absent parent is eligible as a housing cost. It is not in dispute that the absent parent gave to the parent with care the sum of £5,000. Initially, the absent parent stated (in document T63) that he made the payment "to pay my partner for share of house". However at the actual hearing before the tribunal, he contended that the £5,000 was not for the acquisition of her interest in the house, but as a goodwill payment. Moreover, he has stuck to this version of events ever since. The tribunal made no finding on this point. However, I have further documentation before me, which establishes beyond any doubt that the £5,000 was paid to the parent with care to purchase her interest in the absent parent's home at 43 Bray Street, Preston. I have before me a receipt issued by the absent parent's solicitors in respect of their fees for arranging on behalf of the absent parent the purchase from the parent with care of her interest in the home. Moreover, I also have before me a receipt issued by another firm of solicitors to the parent with care in respect of their professional charges for arranging the sale of her share in the property. Neither of these receipts was before the tribunal. Accordingly, I am satisfied that the payment of £5,000 made by the absent parent to the parent with care was for the acquisition of her interest in the property, and not merely a goodwill payment.
6. In order to finance the transaction the claimant took out a loan secured by way of a second mortgage on the property. He contends that the interest on that loan should rank as a housing cost for the purpose of calculating his liability for maintenance. The provision governing what constitutes housing costs is paragraph 1 of Schedule 3 to the Child Support (Maintenance Assessment and Special Cases) Regulations 1992. That says, so far as is relevant to this appeal, as follows:

"1. Subject to the following provisions of this Schedule the following payments in respect of the provision of a home shall be eligible to be taken into account as housing costs for the purposes of these Regulations-

(a) ...

(b) mortgage interest payments

(c) ...

(d) interest payments on loans for repairs and improvements to the home ..."

The crucial word is the word "provision". "Provision of a home" is to be distinguished from "acquiring an interest in ... a home", which appears in paragraph 7(3) of Schedule 3 to the Income Support (General) Regulations 1987, SI 1987 No. 1967. Paragraph 7(3) defines a claimant's "eligible interest" (so as to render it a housing cost) as meaning:

"3. ... the amount of interest on a loan, whether or not secured by way of mortgage ... taken out to defray money applied for the purpose of-

(a) acquiring an interest in the dwelling occupied as a home

..."

The criterion for determining whether mortgage interest is an eligible housing cost within Schedule 3 to the Child Support (Maintenance Assessments and Special Cases) Regulations 1992 is not the acquisition of an interest in the home, but "the provision of a home".

7. Originally the home occupied by the absent parent and the parent with care, which was at 43 Bray Street, Preston, was held jointly by both parties. The absent parent therefore had a home, and his acquisition of the interest of his former partner in that home did not constitute the provision of a home. He already had a home. His interest in that home was, of course, subject to a first mortgage, and he and the parent with care were presumably jointly liable for the interest due under the mortgage. But, so long as he paid that interest, he continued to have the occupancy of the house assured to him. He did not require his former partner's share in the home in order to ensure that the mortgage interest was duly paid.
8. Ms. Steyn contended that the word "provision" should be construed widely, and should embrace not merely the initial provision of the home, but any action done to make that provision more secure. And the acquisition of the interest of the parent with care served to reinforce the absent parent's position with respect to the retention of the home.
9. I fully see that the provision of a home must mean something rather more than the mere initial acquisition. It must extend to take in matters which serve to preserve the home with which the person in question has already been provided. Accordingly, it must embrace repairs and improvements. But does it go further, and encompass acts done simply to consolidate, as distinct from initiate, the right to occupancy of the home?
10. It would seem to me that it is all a matter of degree. If a person has an unchallengeable right to the occupancy of a home, he has been provided with that home, and any unconnected action on his part resulting in the payment of mortgage interest is, as regards qualifying for housing costs (as that term is to be understood in the relevant provisions of the child support legislation) wholly unnecessary. For example, if a person has a long lease of the property, he does not need to acquire the freehold. The lease in itself is sufficient interest to bring about the provision of a home. The subsequent acquisition of the freehold does not change the position. However, if the lease is on the point of expiry, then the acquisition of the reversion could be said to be an action directed to the provision of a home in the broad sense of the word. The acquisition of this further interest would operate to prevent the loss of the home, and I consider that the word "provision" in the context in which it appears is wide enough to cover this situation.
11. But in the present instance, was it necessary for the absent parent to acquire the share in the property owned by the parent with care? Crucial to the absent parent's position was the preservation of his right to occupancy of the home. And was he at risk of losing it if the parent with care decided to exercise her rights under section 30 of the Law of Property Act 1925 and seek an order for sale. In order to liquidate her interest at the proper price she would need exclusive possession, so that she could sell with vacant possession. And in order to obtain exclusive possession she would have to get an order from the Court. Was she likely to get such an order?
12. The operation of section 30 in circumstances similar to the present was considered in Bernard v. Josephs (CA) [1982] 2 WLR p. 1052. There it was held that, where a house was held in equal shares on trust for sale, and the purpose of that trust was exhausted, as when the parties separated, the normal course was for a sale to be ordered under section 30 unless the Court considered that this course of action was inequitable. In the words of Kerr LJ at p. 1069:

"Once the purpose of the trust has come to an end, it seems clear that a sale can be insisted upon by any of the beneficiaries unless the court considers that it is inequitable for him to want to realise his investment: see the decision of the majority of the court in Jones v. Challenger [1961] 1 QB 176; Rawlings v. Rawlings [1964] p. 398 (albeit under section 17 of the Married Women's Property Act 1882) and Bedson v. Bedson [1965] 2 QB 666, 6786, per Lord Denning MR. The fact that these cases were between married couples does not appear to make any difference; on the contrary, when property is bought otherwise than as a matrimonial or family home, it seems to me even more difficult to find grounds for refusing an order for sale."

Although in Bernard v. Josephs the court accepted that the purpose of the trust had come to an end, this was not the view taken by the court in Gordon v. Douce (CA) [1983] 1 WLR 563. In the words of Fox LJ (at p. 567):

"... there were children and the woman (the plaintiff) is still living in the house with the children. Further, in his evidence the defendant stated that he expected the house 'to be a home for her and the children'. It is not his intention, so I understand, to seek an order for sale while the children are still living in the house. In my opinion, therefore, the purposes of the trust have not come to an end. They are still very much in existence."

Has the trust come to an end in the case with which I am concerned?

13. Presumably it has, in that there are no children left in the house, and it would seem that the parties purchased the property for a joint home. Once they had separated, it would seem to me that the purpose behind the trust was exhausted. If that was the case, then the absent parent needed the share in the house owned by the parent with care to avoid a sale with vacant possession. And the purchase of that interest was clearly to ensure that he continued to be provided with a home.
14. However, the position is not straightforward. For it has been the absent parent's contention throughout that, as the property had only recently been bought, there was no "equity" in it, and no advantage could accrue to the parent with care in enforcing a sale. However, against that, it is not obvious to me how the absent parent raised a loan on the property by way of an additional mortgage unless there was some equity. Manifestly, this is a matter which has to be investigated, and whether or not the interest payable on the second loan is a housing cost will depend upon the outcome of such investigation. If a loan was necessary in order to ensure the retention of the home by the absent parent, the interest thereon will, in my judgment, constitute a housing cost, but not otherwise.
15. It would appear not to be in dispute that there has in any event to be a recalculation of the assessment. Certain errors have arisen, and in addition the absent parent seeks to have taken into account from 25 July 1995 his travelling costs. Accordingly, I consider the proper course is for me, pursuant to section 24(3)(c) of the Child Support Act 1991, to refer the case to a child support officer to make a fresh assessment. Whether or not the interest on the second loan raised by the absent parent constitutes a housing cost will depend upon the child support officer's findings as to whether the absent parent's right to occupancy was dependent on his purchasing the interest in the home of the parent with care.
16. I allow this appeal.

Date: 19 February 1997 (signed) Mr. D. G. Rice

Commissioner