Upper Tribunal (Administrative Appeals Chamber)

IN THE UPPER TRIBUNAL Case No.  CH/1837/2011

ADMINISTRATIVE APPEALS CHAMBER

 

Before Judge Mark

 

Decision:  The appeal is allowed.  I set aside the decision of the tribunal and substitute my own decision that the claimant is entitled to have her claim for housing benefit backdated to 22 May 2009 and to have it assessed by the council on the basis that her capital did not exceed £16,000.

 

 

REASONS FOR DECISION

 

1.     This is a supported appeal in that it is common ground that the tribunal failed to provide any adequate reasons for its conclusion that the claimant had capital in excess of £16,000.  In other respects there is disagreement between the parties as to the legal principles to be applied and I am asked to determine these issues, since otherwise there would inevitably be a further appeal were I to remit the case to a new tribunal.

 

2.     The claimant is fairly recently divorced.  In 2007, while she was still married, her parents-in-law gave to her and her husband two properties, 1 and 3 CP.  They retained as their home 2CP.  The parties have proceeded here on the basis that the claimant and her husband held the two properties as joint tenants and not as tenants in common.  According to the claimant’s representative, in a letter dated 23 July 2010 (p.160), this is what appears from the Land Registry entries which he appears to have seen, but which are not otherwise in evidence.

 

3.     One of these properties, 3CP, is a 5 bedroom house and became the matrimonial home.  The other, 1CP, was a development site, and the claimant and her husband began to build a further house on it with a view to selling it off.  This was financed by a loan from Yorkshire Bank secured by a charge on both 1 and 3CP.  At the time in issue here, May to July 2009, the new house was a shell with much of the interior to be completed.  I set out further details later in this decision.

 

4.     The husband’s parents have claimed that on the sale of 1 CP it was agreed that they would receive £100,000 (file, p.190).  It is unclear from other documentation whether this was to be paid regardless of whether any profit was made on the sale of 1CP, or whether it was to be paid out of the profits.  It is also unclear whether the parents-in-law claim a beneficial interest in 1CP, or some lien over it.  The claimant’s position, as stated at p.201 is that the land was conveyed to her and her husband on the understanding that they would repay the parents-in-law £100,000 out of the proceeds of sale.  On the face of it, that would give the parents-in-law an interest in the proceeds of sale of 1CP ahead of the interests of the claimant and her husband. 

 

5.     The Land Registry entries in respect of each property as at the relevant dates in May and July 2009 would show any charges or other entries relating to each property, but, as I have indicated, they are not in evidence.   

 

6.     The letter at p.190 also reveals that an easement is required to be granted by the parents to enable a sale of 1CP to proceed and that the parents were refusing to sign it until agreement had been reached as to their entitlement.

 

7.     The claimant’s marriage deteriorated in 2008 and her husband left 3CP on 1 September 2008.  Despite there being evidence that he returned to the property subsequently, against the wishes of the claimant (as to which the tribunal made no findings), the tribunal concluded that 1 September 2008 was the date of the marital breakdown and that the claimant remained with her children as lone parent until they left in May 2009.  On 12 May 2009, there appears to have been a tenancy agreement between (1) the claimant and her husband and (2) a Mr. and Mrs. R by which 3CP (described as 19a CR) was let furnished to Mr. and Mrs. R for 24 months from that date at a rental of £1600 per month.  The agreement appears to have been executed by estate agents for the claimant and her husband, and the rent is stated to have been paid to the husband, who used it to discharge mortgage instalments due in respect of 3CP (p.52) although correspondence about arrears (see below) suggests that this was not being done regularly.

 

8.     There is evidence of two relevant mortgages.  The first is a mortgage in favour of Birmingham Midshires.  A letter dated 23 September 2009 (p.115) shows that nearly £355,000 was owing at that time, with arrears of £3117.97, which had been accruing between November 2008 and June 2009.  The property is given simply as CP, with no number, but the evidence suggests it refers to 3CP.  The second charge was in favour of Yorkshire Bank, and the statements of account at pp.125-126 indicate that the amounts due on the two accounts which appear to have been covered by the charge (which again was not in evidence) was approaching £400,000 in May 2009 and was over that sum by July that year.  According to the claimant’s evidence, that sum was secured on both 1 and 3CP, a fact repeated by her representative in a letter to the council dated 9 December 2009 (p.110) and confirmed by Yorkshire Bank itself at p.121.  The claimant has stated in an email dated 23 September 2009 that the sum due to Yorkshire Bank was £487,000 (p.51), but I have seen no evidence to support this, and it may be a mistake.

 

9.     In her email of 23 September 2009, the claimant also states that 3CP had been on the market for over a year without an offer despite reducing the price to reflect the market.  She states that at that time her advice was that it could not now be marketed until 2 months before the tenants were due to move out.  At p.52 she states that the last market price was £595,000 and that her agent had explained that properties of over £500,000 were currently not in demand or being viewed.  She also states that the value of 1CP would be about £450,000 when completed, but that as a part finished house which would not be mortgageable the value would be substantially less and would not cover the outstanding loan. A letter from her estate agent dated 18 November 2009 (p.112) gives the value of £525,000 to £550,000 for 3CP and £475,000 to £495,000 for 1CP, although it is unclear if they are referring to 1CP in its current condition or when completed.

 

10. A letter dated 9 October 2009 from surveyors on behalf of Yorkshire Bank  (pp.113-114) provides an update on 1CP since their last report of 5 August 2009, which is not on the file.  It would appear that since the report of 5 August 2009 the top floor had been plastered and on the first floor the first fix power and plumbing had been completed, the area was 90% plaster-boarded and two rooms were plastered.  At the time of the inspection on 30 September 2009 the en suite bathrooms were being fitted with the fittings on site and further work to the electrical installation to the ground floor was being completed.  A small amount of work had also been carried out externally including the removal of the former garage and site clearance.  The surveyors recommend Yorkshire Bank to release a further £9525 in respect of further works completed between the two reports.

 

11. It can be seen from this description, and the schedule at pp.117-118, that two months earlier 1CP must have been very much a shell with very incomplete electrics, plumbing and plastering.  Even that earlier date is over 2 months after the date to which backdating is sought on this appeal.  At p.118 it is stated that the expected cost to complete is just under £100,000, with a total of £40,000 being reclaimable.  It is clear therefore that a great deal more needed to be done to 1CP before it would be completed.

 

12. A letter from Yorkshire Bank to the claimant dated 8 February 2010 (p.210) shows the total indebtedness to that Bank to have exceeded £460,000.  An accompanying letter from the Bank’s surveyors (p.122-123) confirms that over £20,000 still remained to be spent, and gave a current valuation for 1CP when completed as £525,000 but less on a forced sale and up to £50,000 less if the finishing works were done cheaply.  3CP was valued at about £595,000 once vacant possession was obtained subject to its still being in good order.

 

13. Finally, valuation evidence as to the value of the two properties, and of the claimant’s beneficial interest in both, is given in letters from a senior surveyor at the district valuer’s office, who had inspected the two properties externally on 19 October 2010.  The valuations also state that the surveyor had regard to the information provided by the claimant on form LA1 dated 3 September 2010 (pp.191-202).  The valuations are stated to be as at 30 July 2009.

 

14. In relation to 3CP, the valuer refers to the 24 months tenancy and assumes that vacant possession can be obtained after this period following service of the appropriate notices.  She also sets out her understanding of the approach of the court in the event of a dispute between co-owners, although it is by no means clear to me that she has any expertise in that regard, and states her understanding that the claimant’s husband was not, at the relevant time, willing to purchase the claimant’s share of either property or place either property on the market.

 

15. The valuer values the property at £550,000 as at 30 July 2009 based on an order for sale being likely to be made by the court and a sale of the entirety taking place within 6 months.  She then adds on rent receivable for 21 months of £33,600.  This is clearly impermissible as the value at 30 July 2009 would be on the basis of a theoretical sale with the purchaser obtaining the benefit of the rental until the property is resold.  The whole purpose of this exercise is to determine if the claimant could notionally have raised in excess of £16,000 if she had realised her capital asset at that time. 

 

16. There is, however, a much more serious error in the surveyor’s calculations in that she ignores the fact that there was a further sum of about £400,000 due to Yorkshire Bank secured on 3CP and that no sale would be possible or would be ordered by the court without Yorkshire Bank’s involvement until that debt was discharged.  Even more fundamentally, nobody, however willing to purchase such an interest, would purchase the claimant’s beneficial interest in 3CP alone in July 2009 or indeed in May 2009 or at any other time while there remained a possibility of the proceeds of sale being used (whether on a sale by the claimant and her ex-husband or a sale by one of the mortgagees) to discharge both the Birmingham Midshires debt and, insofar as there was any surplus, that of Yorkshire Bank.

 

17. The surveyor also valued 1CP, referring to the fact that it had not been completed internally and had no kitchen or bathroom fittings or electric and plumbing to the second floor.  As can be seen from the reports from Yorkshire Bank’s surveyors, there was much more to be allowed for than that, and a further £100,000 would need to be spent by a prospective purchaser as late as the end of September 2009 despite additional work having been done since the end of July.  Bearing in mind the additional time to complete the house as well and the costs, including mortgage interest, involved, that interest and those other costs ought to be written into the equation and allowed for in the valuation.  It would also, as at 30 July 2009, be necessary to take into account that Yorkshire Bank might decide to take possession of and sell the property incomplete on a forced sale basis, and the court would not order a sale of it on the claimant’s application without the consent of Yorkshire Bank except on the basis that the whole of its secured debt was discharged from it, since the purchaser could not otherwise be given a good title.  Finally, the surveyor does not appear to have been aware of the need for the easement which the parents-in-law had indicated that they would not grant until their entitlement to £100,000 had been agreed.

 

18. Taking a forced sale basis of £475,000 when completed, and deducting £100,000 for the costs of completion, together with a further sum for interest accruing on the debt of £400,000 over a period of say 6 months to achieve an order for sale and a further say 6 months while a sale was achieved, together with the notional costs of litigation (the £3000 estimated by the surveyor would in my experience be far too little) and any deductions which may be appropriate due to the refusal of the parents-in-law to grant the easement, it appears to me not only that the claimant’s share would have nil value, but there would be a very substantial and unascertainable deficit on any sale of the property.  This deficit would be a debt owed to Yorkshire Bank which would be added to the sums secured on 3CP.

 

19. For the reasons given, nobody would, in my judgment, be willing to purchase the claimant’s interest in either property either at all or for more than a nominal amount in July 2009.  A slightly more difficult question is whether somebody might have been willing to purchase both interests together.  There one does at least start with the properties at that date having a value of perhaps £550,000 in the case of 3CP and perhaps £350,000 (on the basis of a potential forced sale and taking into account the cost of completion) in the case of 1CP, a potential total of £900,000, with mortgage debts at that time of just under £760,000 as at 30 July 2009 (p.193) and a potential claim by the claimants parents-in-law to £100,000 out of the proceeds of sale of 1CP ahead of the claimant’s beneficial interest. Further, the mortgage debts could escalate if interest payments were not being met by the husband out of the rent, and there would be a question, not addressed, what the attitude of the two Banks would be to the sale, and whether, and if so on what terms, the parents-in-law could be persuaded to grant any necessary easement.  Litigation costs could be substantial and could be linked with ancillary relief proceedings in any divorce.  There would also be a question whether the purchaser would be able to register a restriction in respect of the purchased beneficial interests at the Land Registry as bank mortgages typically lead to the registration of a restriction in favour of the lender precluding any such application being given effect to without the bank’s consent.

 

20. There is also an issue whether, bearing in mind that the properties came from the husband’s parents, a property adjustment order might be made in his favour in ancillary relief proceedings in the divorce. 

 

21. In the end the question is what would somebody be prepared to pay at the relevant date for the two interests together, bearing in mind both the very limited market (if any) for such interests, the absence of any evidence that, as suggested by the district valuer, a family member might be willing to intervene, the fact that the purchaser would be buying litigation and could be at the mercy of the two banks were they, or one of them, to decide to enforce the mortgage.

 

22. It appears to me that I am in as good a position to resolve these matters as a new tribunal would be if I were to remit the matter.  There had already been one adjournment for valuation evidence before the hearing on 21 March 2011, and the council had therefore had ample opportunity to submit all the valuation evidence that it wanted to submit.  In all the circumstances, I consider it appropriate to deal with the matter on the basis that the evidence is complete and to make the necessary findings of fact and decide the issues myself.

 

23. I conclude that there is no evidence of any potential purchaser for these two combined beneficial interests or for either separately and that any attempt to dispose of them in July 2009, or indeed in May 2009 would have been doomed to failure unless perhaps at a nominal sum well below the £16,000 threshold even without allowing for the deduction of the notional 10% costs of disposal.

 

24. It follows that the claimant was entitled to have her claim for housing and council tax benefits determined on the basis that she did not have capital in excess of £16000 as at any date between 21 May and 30 July 2009.  It would appear that the situation may have changed in 2010, as the claimant has stated that the tenants of 3CP vacated on 16 July 2010 and her ex-husband agreed to sell in May 2010, but that is not a matter before me and there has been no evidence either as to that or as to how matters then proceeded and with what result.  I note that 1CP is described at p.198 as still being built as at September 2010 and as not being habitable in July 2009.

 

25. This renders it unnecessary to consider the scope of the disregard in paragraph 25 of Schedule 6 to the Housing Benefit Regulations 2006 and the equivalent provision in the Council Tax Benefit Regulations 2006.  However, in case it should become relevant for any reason, I consider it plain that the 26 weeks disregard runs from the time that the claimant ceased to occupy the premises and not from some earlier date when her ex-husband did so.  I can see nothing in the terms of the disregard which requires the latter construction and no reason in principle why it should not receive a natural construction so that time runs from when the claimant ceases to occupy the premises.  In any event, on the facts of the present case, I accept the evidence of the claimant that the husband had returned to 3CP and it was after that occurred that the claimant left with her children.

 

26. It is also unnecessary for the purposes of this appeal for me to make any findings in relation to paragraph 26 Schedule 6 to the Housing Benefit Regulations or the equivalent provision in the Council Tax Benefit Regulations, as I have already found that the claimant’s beneficial interest in those premises was of no value.  I would draw attention, however, to my decision in CIS/1915/2007, where I stated as follows:

 

17.  “On this appeal, the secretary of state has submitted that a more flexible approach should be taken to the question of reasonableness, so that if there is a break in the divorce proceedings, whether to see if a reconciliation could be achieved, or because of family pressures or threats of violence if they are proceeded with, all the factors need to be looked at to determine whether the claimant is taking reasonable steps in relation to the proposed divorce.

 

18.  In my judgment, the secretary of state is right that in considering the reasonableness of the period taken by the claimant to secure a divorce and the resulting disposal of the premises, including any temporary suspension of such action, it is necessary to look at all the facts, including the pressures that were brought on this claimant.  The tribunal failed to approach the matter in this way, and on this account also it was in error of law.”

 

27. In the same way in this case, reasonableness must depend upon all the factors including the existence in the case of 3CP of charges which exceeded the value of the property as well as the husband’s refusal to join in a sale, and in the case of 1CP those factors together with the need to complete the house to obtain a reasonable price.  Looking at all the facts here, it appears clear to me that the claimant was trying to get the husband to complete 1CP and agree to a sale of that and 3CP.  The position with regard to both was further complicated by the charges, particularly in relation to 3CP, for the reasons given.

 

28. I reject the submission of the claimant that the incomplete house should be treated as part of 3CP because of the definition of dwelling in paragraph 25(2) of Schedule 6.  It is in no way impracticable or unreasonable to sell 1CP separately from 3CP.  This was what the family had always intended, and what was preventing it was that the house at 1CP was unfinished. 

 

29. Finally there is the question of backdating.  This depends on whether the claimant had continuous good cause for failing to make a claim until 30 July 2009.  “Good cause” has been described R(S)2/63(T) as “some fact which, having regard to all the circumstances (including the claimant’s state of health and the information which he had received and that which he might have obtained) would probably have caused a reasonable person of his age and experience to act (or fail to act) as the claimant did.”  The more reasonable the claimant’s behaviour in not claiming earlier, given her age, experience and the information available to her, the more likely she will have good cause (UH v LB Islington [2010] UKUT 64 (AAC).  Although this is a question of fact for the tribunal, having set aside the decision of the tribunal, that question of fact is one for me to determine or to remit to a new tribunal. 

 

30. The tribunal below accepted that divorce or marital breakdown is always stressful and emotionally upsetting.  In addition, the claimant had children to care for, and was not somebody who had ever claimed housing benefit in the past. However, as the tribunal pointed out, there was no medical evidence that the stress had made her ill.  The tribunal took the view that any person faced with an uncertain financial future as a result of marital breakdown and separation would have been prompted and without delay made enquiries into what benefit she may have been entitled to, or even made such claims immediately upon moving into her new home to attempt to receive such benefits without delay.  It appears to me that that is a conclusion which the tribunal was entitled to come to, and had I not set aside the decision on other grounds, it would have stood. 

 

31. However, I also take into account that the claimant would not have been familiar with the housing benefit system and that she had paid the first six months rent in advance, so that she was not having to find rent as she went along.  Although it appears to me that there is room for two views as to this, I conclude that in the absence of any pressure as regards rent and with the stress of the separation and potential divorce and the other matters which she had to attend to, so that she could try to support herself financially, she had good cause for not claiming housing benefit before 30 July 2009, and that her claim should be backdated.

 

(signed on the original) Michael Mark

Judge of the Upper Tribunal

 

22 December 2011