UK Social Security and Child Support Commissioners' Decisions

 
DECISION OF THE SOCIAL SECURITY COMMISSIONER
1. My decision is as follows. It is given under paragraph 8(4) and (5)(b) of Schedule 7 to the Child Support, Pensions and Social Security Act 2000.
2. 1. The decision of the Preston appeal tribunal under reference U/06/075/2001/01449, held on 20^th December 2001, is erroneous in point of law.
3. 2. I set it aside, make findings of fact and give the decision appropriate in the light of them.
4. 3. I find as fact that the arrangement between the claimant and her landlord was on a commercial basis.
5. 4. My decision is that the claimant remained entitled to housing benefit in respect of 16 Egerton Grove for the inclusive period from 5^th June 2000 to 14^th August 2000.

The appeal to the Commissioner

6. The appellant in this case is a housing benefit claimant. The first respondent is her landlord. The second respondent is Chorley Borough Council.
7. The case comes before me on appeal to a Commissioner against the decision of the appeal tribunal brought by the claimant with my permission.

The issue

8. The issue in this case is whether the agreement under which the tenant occupies her dwelling was on a commercial basis.
9. The relevant law is contained in regulation 7(1)(a) of the Housing Benefit (General) Regulations 1987:

‘'(1) A person who is liable to make payments in respect of a dwelling shall be treated as if he were not so liable where-

(a) the tenancy or other agreement pursuant to which he occupies the dwelling is not on a commercial basis’'.

I analysed that provision in CH/0627/2002. I wrote (paragraph 22):

‘'The tribunal must analyse the constituent facts of the case as a composite whole. The significance of each factor cannot be considered in isolation. Each must be considered in the context of all the others. An overall view must be taken.’'

10. The issue arises in this case because the landlord has not collected the contractual rent from the claimant, but has accepted the amount of housing benefit that she has been paid from time to time.

The history of the case

11. The claimant’'s tenancy began on 1^st November 1996, although she did not move in until 16^th November. She signed her claim for housing benefit on 19^th November 1996.
12. The contractual rent for the dwelling was £400 each calendar month. This was referred to the Rent Officer Service. As a result, the claimant’'s housing benefit was calculated on a rent of £299 a month. She received maximum assistance towards the eligible rent, except for two weeks in June 1999 when she in work. Her housing benefit was paid direct to her landlord.
13. On investigation, the claimant’'s housing benefit was terminated from and including 5^th June 2000. The investigation revealed the following. The terms of her tenancy had remained unchanged despite the reduction in the rent used for housing benefit purposes. And the landlord had accepted as sufficient the amount of housing benefit received by the claimant, even when it was reduced. As far as I know, there were two reductions. One occurred for the two weeks when the amount was reduced while the claimant was working. The other occurred when the Rent Officer further reduced the valuation of a reasonable market rent. No attempt had been made to recover the balance. No action had been taken to terminate the tenancy or to obtain possession of the dwelling.
14. The claimant appealed against the termination of her entitlement to housing benefit.

The local authority’'s submission to the appeal tribunal

15. The local authority submitted that the claimant’'s tenancy was not on a commercial basis. It relied on two facts. First, the father of the claimant’'s son was the landlord’'s father. So her son and the landlord were half brothers. Both are in their late 20s. Second, the failure to alter the terms of the tenancy to coincide with the Rent Officer’'s valuation and the willingness to accept variable amounts of housing benefit as rent was not consistent with a normal commercial arrangement between a landlord and a tenant.

The tribunal’'s decision

16. The tribunal dismissed the claimant’'s appeal.
17. The tribunal concluded that

‘'The foregoing of such large sums by way of rent by the landlord over the material period and his apparent contentment in simply receiving a greatly lesser sum than provided in the tenancy agreement caused the tribunal to conclude that this tenancy was not on a commercial basis.’'

18. The landlord argued that it would be pointless to pursue the claimant to the County Court for money she did not have. The tribunal rejected his argument:

‘'Whilst this might be an acceptable argument for a very short period of time, the tribunal agreed that no landlord, under a commercial tenancy arrangement, would allow an arrangement to continue over a period of years in this fashion. If the tenant were not paying the appropriate rent, then possibly after a short period of grace, the landlord would simply recover possession of the premises and re-let them to a tenant [who] would meet the rent that the landlord required in the agreement.’'

The relevance of failure to enforce the contractual rent

19. The law recognises that parties do not always operate their agreements in accordance with their legal terms. As I wrote in CH/1618/2002, paragraph 18:

‘'It is common experience that contracts are often not implemented to the letter in all circumstances. There is much give and take in the operation of contracts.’'

The law has a variety of concepts that allow the parties’' practice to override their legal agreement. Waiver and estoppel are but too examples. These concepts may operate either permanently or merely in relation to particular facts. So, the fact that the parties have chosen not to act in accordance with their legal agreement is not necessarily inconsistent with their arrangement being on a commercial basis. But nor is it irrelevant. The tribunal had to analyse the significance of the landlord’'s conduct in this case.

20. The tribunal’'s reasons for rejecting the landlord’'s argument do not accord with my experience. That experience, albeit now some years out of date, was that landlords of properties let to housing benefit claimants were willing to accept the rent fixed by the Rent Officer or the amount paid by way of benefit. That experience is confirmed by evidence produced by the landlord for the appeal to the Commissioner. The evidence comes from the owner of a London firm Estate Agents and Letting Agents. It reads:

‘'I understand that my duty is to the tribunal and I have complied and will continue to comply with that duty.

‘'I have been an estate agent since 1978 and have been a proprietor of my own business since 1984. I am a fellow of the National Association of Estate Agents.

‘'In 1990 I established the letting department of my business and we currently manage over 150 properties, the majority of which are let to tenants who claim Housing Benefit. Therefore I have an extensive knowledge of the Housing Benefit system and landlords attitudes and responses to rent paid in this manner.

‘'In my experience it is not unusual for a landlord to accept the amount of rent paid by Housing Benefit as payment of full rent even if it is lower than the contractual rent. In fact I would say this practice almost becomes the norm when such a tenant is behaving well and caring for the property. It should be remembered that people who qualify for Housing Benefit have very limited personal funds and most reasonable landlords are happy to write off a small amount of potential rent in return for an easy and regular tenancy.

‘'I confirm that in so far as the facts stated in my report are within my own knowledge I have made clear which they are and I believe them to be true, and that the opinions I have expressed represent my true and complete professional opinion.’'

Did the appeal tribunal go wrong in law?

21. Yes, it did. The tribunal attached too much significance to the legal form of the tenancy and too little to the reality of the arrangement between the parties.
22. The claimant was receiving housing benefit. Her entitlement was terminated by the local authority. The local authority had the legal burden of proving that she was not entitled to housing benefit. The evidence showed that the claimant and her landlord entered into a tenancy agreement for a contractual rent of £400 a month. There is nothing to show whether that was a realistic and attainable rent for the property. The Rent Officer gave a valuation that was reduced by 25%. That suggests that the contractual rent was on the high side. It is obvious that the landlord was prepared to accept the maximum housing benefit paid on the basis of that valuation. There is nothing to suggest that that was not a sensible commercial decision for the landlord to make. He and the claimant could have entered into a replacement tenancy agreement to reflect that. They did not do so. However, the reality was that for all practical purposes the maximum housing benefit became the rent payable. Seen in that way, the only period when the landlord accepted less was when the claimant was working. That was only for two weeks.
23. The local authority has relied on three features to show that the tenancy agreement was not on a commercial basis.
24. 1. First, there is the relationship between the claimant and the landlord’'s father. That was a long time ago. It proves nothing, except to show that she and the landlord were known to each other and, probably, that they could trust each other.
25. 2. Second, there was the failure to bring the legal agreement into line with the reality of their arrangement. The significance of that has to be assessed in the context of parties who knew and could trust each other. It must also be borne in mind that lay people do not always attach the same significance to legal form as lawyers do.
26. 3. Finally, there is the way in which the agreement was operated. But the significance of that diminishes when the reality of the arrangement is emphasised. The failure to pursue a longstanding tenant for the small amount involved in the reduction while she was working does not show that the tenancy was not on a commercial basis.
27. My conclusion is that the tribunal did not correctly analyse the significance of the undisputed facts of the case. On a proper analysis, the local authority had not discharged the burden of proving that the tenancy agreement was not on a commercial basis.
28. As the underlying facts are not in dispute, I am able to make my own analysis. A rehearing is not needed. I find, for the reasons I have given, that the local authority has not shown that the tenancy was not on a commercial basis. It was not entitled to terminate the claimant’'s housing benefit.

Signed on original

Edward Jacobs Commissioner 12th September 2002