UK Social Security and Child Support Commissioners' Decisions

[2007] UKSSCSC CH_3282_2006 (02 May 2007)

CH/3282/2006

DECISION OF THE SOCIAL SECURITY COMMISSIONER

1. My decision is that the decision of the tribunal is wrong in law. I set aside the tribunal's decision and exercise my power under paragraph 8(5) of Schedule 7 to the Child Support Pensions and Social Security Act 2000 to make the decision which I consider that the tribunal ought to have made, namely, that the agreement pursuant to which the claimant occupies the dwelling in respect of which the claim for housing benefit has been made is not on a commercial basis, and that accordingly the claimant is not entitled to benefit.
2. This is an appeal by a housing authority against the decision of the tribunal allowing the claimant's appeal against a decision of the authority made on 1 July 2005, refusing a claim for benefit made on 3 May 2005. I held an oral hearing of the appeal on 16 February 2007, at which the authority was represented by Mr B Lintott of Counsel and the claimant was represented by Ms A Meacher of Counsel, instructed by Messrs. J. R. Jones, Solicitors.
3. The facts of the case are somewhat unusual. The claimant, who is now aged 73 and who suffers from bipolar depression and other health problems, states that for some time he has been engaged in litigation in the High Court, from which he expects to recover a very large sum of money in respect of international trade mark rights which his company lost as a result of a fraud in 1988. Between 1990 and 1995 the claimant lived with his present landlady at an address in Park Lane, and between 1995 and 1997 they lived in hotels in Brighton. The claimant returned to London in 1997 and lived there with his landlady in a succession of luxury West End hotels, but he states that he and his landlady were partners only until 1997.
4. In February 2000 the claimant was sentenced to a term of imprisonment. He was released on parole in December 2000, subject to a condition of residence at a permanent address, and went to live in his landlady's two bedroom flat in London on 1 January 2001. On 3 May 2005 the claimant made a claim for housing benefit, stating that he had a life tenancy and paid a weekly rent of £250.00. Enclosed with the claim form was a letter dated 28 April 2005, signed by the claimant's landlady, in the following terms:

"This letter is to confirm the oral agreement I have with (the claimant) made on 1^st January 2001 to be a Life Tenant of my property (address) at a weekly rent of £250 per week.

The tenant's occupation is of the second bedroom (which is adjacent to the bathroom) and use of the communal parts which include the lounge, kitchen and bathroom and toilet."

The claimant asked for the claim to be backdated to January 2003, stating in an accompanying letter that his landlady had been prepared to forego payment of rent until the conclusion of his High Court action, but was insisting on payment of the arrears of rent since January 2003 because of losses in her business.

5. In response to the authority's request for further information, the claimant wrote a letter on 14 May 2005, in which he stated that the whole of his pension was paid to his landlady to pay for his food and personal needs, and that his landlady often needed to subsidise him because his pension was insufficient to meet his needs. His letter also emphasised the help which his landlady had given him on his release from prison, and her inability to go on keeping him without receiving any rent. In a letter also dated 14 May 2005 the claimant's landlady stated that the rent for the room which the claimant occupied was £200 per week, plus £50 per week for the other amenities in the flat. Her letter concluded:

"Please be assured that I have gone to my limit in helping and assisting (the claimant) because of his health problems and he cannot get a job as he is not employable and I have only done all of this because of my true friendship and our agreement for the life tenancy that I have agreed with him.

I now look forward to receiving my back dated rent from my tenant 9the claimant) as agreed."

6. On 24 May 2005 the authority wrote to the claimant rejecting his claim for housing benefit on the basis that he and his landlady had occupied the dwelling together before they ceased to be partners, but that decision was revoked on 10 June 2005 in response to the claimant's appeal on the ground that he and his landlady had ceased to be partners in 1997. On 1 July 2005 the authority made a further decision rejecting the claim, this time on the basis that the claimant's life tenancy was a long tenancy and therefore not eligible for housing benefit by virtue of regulation 10(2)(a) of the Housing Benefit (General) Regulations 1987. The claimant appealed against that decision on 1 August 2005, and on 15 August 2005 an interview was conducted with him in order to establish whether he and his landlady were living together as husband and wife. On 31 August 2005 the authority notified the claimant of the decision which is the subject of this appeal, confirming the earlier decision refusing benefit on the ground that the claimant occupied the accommodation under an agreement which created a long tenancy, and on the further ground that the agreement was not on a commercial basis. The authority accepted that the claimant his landlady were not living together as husband and wife.
7. The authority no longer contends that the agreement between the claimant and his landlady created a long tenancy, and in my view that concession is correct. Although a tenancy for life takes effect as a tenancy for a term for 90 years under section 149(6) of the Law of Property Act 1925 and is therefore a long tenancy under regulation 2(1) of the Housing Benefit (General) Regulations 1987-see CH/2743/2003; sections 52 and 53 of the 1925 Act require leases in excess of three years to be made by deed. In CH/883/2006 Mr Deputy Commissioner Paines held that an agreement for a long tenancy which did not create a legal estate because of a failure to comply with section 52 of the 1925 Act was not a "tenancy granted" for a term in excess of 21 years, and was therefore not a long tenancy for the purposes of the 1987 Regulations. Since the agreement for a life tenancy in this case was not made by deed, it did not create a legal estate and therefore cannot be regarded as a long tenancy.
8. At a hearing held on 14 December 2005, at which the claimant gave evidence and was represented by counsel, the tribunal correctly anticipated the decision in CH/883/2006 in holding that the claimant did not occupy the premises under a long tenancy. However, the tribunal also found that the authority had failed to establish that the agreement was not on a commercial basis. The tribunal summarised the claimant's evidence as follows:

"(The claimant) stated that (his landlady) said that she would give him a tenancy for life at the rate of £250.00 per week. He said that the understanding was that if he failed to pay the tenancy for life would come to an end. (The claimant) said he had never managed to pay the £250.00. (His landlady) apparently then agreed that he could stay at the rate of £250.00 and that he would pay her when he had the money. (The claimant) admitted that he had never earned any money and he was of the view that (his landlady) would be within her rights to ask him to leave at any time. He added that she was happy for him to remain there because she trusted him. (The claimant) said that his only income was a state pension and it went straight into (his landlady's) bank account because he did not have a bank account. He agreed that she paid for various items and that the balance was given to him in cash. He last earned money in February 2000 prior to going into prison. When he came out of prison he went to (his landlady). She had come to visit him whilst he was in prison and he asked her to let him stay there as he had nowhere else to go. It was a condition of his early release from prison that he went to stay with her. In between 1991 to 1997 he agreed that he had a relationship with her."

9. The tribunal found that the authority had failed to establish that the agreement was not on a commercial basis for the following reasons:

"(The claimant) had a need of accommodation and an expectation of being able to pay rent. The papers refer to some litigation and that (the claimant) had an expectation of success and also (the claimant) was undoubtedly optimistic that he would find employment. The fact that he has not recovered any money in the litigation and has been unable to work it does not in itself undermine the nature of the original bargain. The Local Authority have, as a result of their in depth interview satisfied themselves that the parties are not living as husband and wife and therefore Regulation 7 Housing benefit (General) Regulation does not apply.

Accordingly, (the claimant) is entitled to Housing Benefit from and including 3^rd may 2005."

10. The authority appealed on the ground that the tribunal had not fully considered all the facts of the case and had given inadequate reasons for its decision, and I granted leave to appeal on 2 October 2006 because I considered that the tribunal had given no indication in its reasons of the weight which it gave to the unusual features of the letting agreement. After the tribunal hearing, the claimant's solicitors submitted a letter from the claimant's landlady in which she threatened to evict the claimant unless he paid the arrears of rent accrued due since the commencement of his tenancy.
11. Under regulation 7(1)(a) of the Housing Benefit (General) Regulations 1987, as in force at the relevant time, a person liable to make payments in respect of a dwelling is to be treated as not so liable where "the tenancy or other agreement pursuant to which he occupies the dwelling is not on a commercial basis", and under regulation 7(1A) "in determining whether a tenancy or other agreement pursuant to which a person occupies a dwelling is not on a commercial basis regard shall be had inter alia to whether the terms upon which the person occupies the dwelling include terms which are not enforceable at law". Both parties agree that in determining whether an agreement is on a commercial basis the test to be applied is that set out by Sedley J (as he then was) in R v Poole Borough Council ex parte Ross (1996) 25 HLR 351 at pages 359-360:

"The appropriate test is in my judgment a dominant purpose test. The correct approach is for the Board to ask themselves whether the evidence has satisfied them on the balance of probability that the principal basis on which the agreement was made was a non-commercial one. If the test is not met, the liability is excluded. As Blackburne J. pointed out in ex p. Smith:

"In regulation 71((a) the concern…is to exclude from benefit…certain arrangements which may not in fact be an abuse of the benefit scheme but which, by their very nature, are capable of being an abuse of the scheme. Rather than enquire whether there is, in fact, an abuse, those who framed the regulations have simply excluded them from benefit."

For this reason it is necessary for decision makers to move with great care for fear of excluding the payment of benefit to a person whose rental agreement is both genuine and necessary. While, as Kennedy L.J. pointed out in ex p. Simpson abuse is not limited to bad faith, it is to the prevention of abuse that Regulation 7 is directed. Because it operates, as Blackburne J. points out, by creating notional categories of abuse rather than requiring abuse to be affirmatively found in each case, the phrase 'other than on a commercial basis' must be construed and applied in order as far as possible to meet the regulation maker's purpose. Mr Jones is right to point out that an element of friendship cannot make a commercial arrangement or agreement non-commercial. To the question I have set out-and I realise that in practice it can be an extremely difficult one to answer-a number of elements will be relevant in the present case: they include Mrs Paull's need to let part of the bungalow in order to pay her outgoings; Mr Ross's need to have somewhere to live; the earlier history of their joint tenancy; and the (perhaps natural) wish of both parties that if Mrs Paull was to let part of her new bungalow it should be to someone she found congenial and who found her congenial. The Board's reasons barely address and certainly do not resolve these inter-related issues.

It cannot be the intention of the Regulations that a tenant who becomes good friends with his landlady but continues to live an independent life under here roof ceases to be eligible for housing benefit; nor therefore that two persons who, because they are friends, enter into a legal relationship by which the one provides the other with accommodation in return for an agreed payment should be excluded, without more, from the scheme. It is to the truly personal arrangement which is merely clothed in the garments of a legal agreement or liability that regulation 7(1)(a)(ii) is directed."

12. In her written submissions, Ms Meacher contended that the tribunal's duty to give reasons explaining the decision which it reached did not require it to identify each factor which was weighed in the balance, or to explain the role of each factor in its determination. The authority contends that the tribunal failed to consider whether the agreement to pay rent in the future (on the successful conclusion of the claimant's litigation) was a term likely to be found in a commercial agreement, but Ms Meacher submitted that that argument was not raised by the authority at the hearing. Relying on CH/294/2004 and R(H) 3/03, Ms Meacher submitted that a landlord's willingness to accept the rent that can be obtained, or not to enforce an agreement in its terms, did not mean that the agreement was not on a commercial basis, and that the authority was in error in seeking to construe the agreement between the parties on the basis of events after the agreement was made. The relationship between the parties is only one of the factors to be taken into account and an agreement may be on a commercial basis even if the purpose of the arrangement is to help out a friend and the landlord would not contemplate letting to any other person-see, in particular, CH/1097/2004 and CH/0296/2003. Ms Meacher contended that the authority's reliance on the absence of any provision in the agreement allowing for the rent to be varied was misconceived in the light of the fact that the claimant enjoyed no security of tenure, so enabling the landlord to increase the rent at any time. The authority have criticised the tribunal's decision for not investigating the detailed financial arrangements between the parties, but Ms Meacher contends that those matters were not raised at the hearing.
13. Ms Meacher also contended that the tribunal did not place undue weight on the fact that the claimant and his landlady had been found by the authority not to be living together as husband and wife, and she submitted at the hearing before me that I should not infer from the use of the word "therefore" in the final sentence of the penultimate paragraph of the statement of reasons that the tribunal regarded the fact that the claimant and his landlady were not living together as husband and wife as conclusive. Ms Meacher submitted that it is clear from the remainder of the statement of reasons that the tribunal took into account all the relevant circumstances, and I am content to decide the appeal on the basis that the tribunal did not regard the fact that the claimant and his landlady were not cohabiting as the only factor to be taken into account in deciding whether the agreement between them was on a commercial basis.
14. In R(H) 1/03 Mr Commissioner Jacobs held that the question of whether an arrangement is on a commercial basis is a 'compound fact', requiring the tribunal to make and record findings of constituent fact on all relevant matters to provide a foundation for its finding on that question. He continued:

"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. This has an impact on the explanation for a decision that it is possible to give to a claimant and on the approach that the Commissioners take on appeal on error of law.

A claimant is entitled to some explanation of why the tribunal came to the conclusion it did. There is a limit to the extent that this is possible, because the mental process of making the finding is subconscious. Although the constituent facts and their significance can be isolated and discussed, the final conclusion is based on the complex interaction of factors and impressions that a decision-maker cannot explain. If the tribunal has made proper findings of the constituent facts, there may be little more that can usefully be said to explain the finding of compound fact. At best, it may be possible to identify some of the constituent facts that have particularly figured in the tribunal's deliberation and conclusion, and to explain how and why the tribunal analysed their significance. It may also be appropriate to refer to matters that were particularly emphasised in argument."

15. Although both Sedley J. in Ross and Mr Commissioner Jacobs in R(H) 3/03 recognised the difficulties for decision makers in giving reasons in cases involving regulation 7(1)(a), I have come to the conclusion that the statement of reasons in this case did not adequately explain the basis for the tribunal's decision. As Mr Commissioner Jacobs pointed out in CH/3008/2002, the key step in applying regulation 7(1)(a) of the 1987 Regulations is to identify the tenancy or other agreement under which the claimant occupies the dwelling. If the agreement under which the claimant occupies the dwelling is genuinely on commercial terms, then it seems to me to follow that the agreement is necessarily on a commercial basis. Regulation 7 makes specific provision excluding entitlement to benefit in respect of agreements between parties in certain prescribed relationships, and I respectfully agree with Mr Commissioner Howell QC in CH/4854/ 2003 that the fact that the parties are friendly or related to one another cannot by itself turn a commercial agreement or arrangement into one that is non-commercial-see, for example, CH/296/2004 and CH/1097/2004.
16. If however the agreement is not on commercial terms, it will be necessary to decide in accordance with the approach in Ross whether the agreement is nevertheless on a commercial basis. All the circumstances must be taken into consideration, and the presence in the agreement of terms which are not generally found in commercial agreements does not of course necessarily mean that the dominant purpose of the agreement is not commercial. However, a finding by a tribunal that an agreement which contains such terms is on a commercial basis may require an explanation of how those terms can be reconciled with the overall dominant commercial purpose of the agreement. Whilst I agree that in many cases a finding on whether an agreement is on a commercial basis may involve little more than a subconscious evaluation of the primary facts, such an explanation will be necessary in a case where the terms of the agreement are on their face inconsistent with an agreement which has a dominant commercial purpose if the parties are to understand the reasons for the tribunal's decision.
17. In this case the claimant claims to have been granted a life interest of a single room in his landlady's flat. It is difficult to imagine circumstances in which parties to an agreement on a commercial basis would enter into such an arrangement, but the tribunal failed to refer to this issue in their reasons for holding that the agreement was not on a commercial basis. Ms. Meacher submitted that the tribunal dealt with the matter by holding that the agreement for a life interest was unenforceable, but the fact that the parties intended to create a life interest (whether or not they succeeded in doing so) was nevertheless relevant when deciding whether their agreement was on a commercial basis. In any case, under regulation 7(1A) the non-enforceability of the term of the agreement purporting to confer a life interest on the claimant was a matter to which the tribunal should have had regard.
18. I also consider that the tribunal should have dealt specifically with the very high level of rent said to be payable for the room. Although the claimant's landlady stated that the rent for the room on an unfurnished basis was £200.00, and that £50 per week was paid by the claimant for other amenities in the house, the rent was nevertheless extremely high for a single room in a London flat with shared use of other facilities. The tribunal failed to explain how a rent of that amount was consistent with an agreement on a commercial basis, and I consider that the statement of reasons was inadequate for that reason also.
19. I therefore consider that the tribunal's decision was wrong in law and accordingly set aside the decision.
20. Ms Meacher asked me to refer the case for rehearing before another tribunal, or direct the tribunal to provide supplementary reasons if I considered that their reasons were inadequate. However, Ms. Meacher accepts that the primary facts are not in dispute and I consider that I am as well placed as a tribunal to make a decision on the claimant's appeal against the authority's refusal of benefit.
21. The claimant and his landlady were formerly partners, and they have both been at pains to emphasise that that he was allowed to live in his landlady's flat as an act of kindness by her when he was released from prison in poor health. Although the claimant has his own room, the rest of the flat is shared. The claimant pays his landlady the whole of his pension and she provides for him and subsidises him when necessary. On her own account, she was prepared to forego payment of rent until such time as the claimant recovered money in his High Court action. In her letter of 14^th May 2005 the claimant's landlady states "…I have only done all of this because of my true friendship and our agreement for the life tenancy that I have agreed with him."
22. Mr Lintott submitted that the agreement between the claimant and his landlady were, in the words of Sedley J., "…a truly personal arrangement which is merely clothed in the garments of a legal liability." Even accepting the claimant's evidence in its entirety and taking the agreement between the parties at face value, it is difficult to imagine more personal and less commercial arrangements than those between the parties in this case. I therefore consider that no useful purpose would be served by referring this case for rehearing and accordingly substitute for the tribunal's decision the decision set out in paragraph 1 above.

(signed on the original) E A L Bano

Commissioner

2 May 2007