Upper Tribunal (Administrative Appeals Chamber)

IN THE UPPER TRIBUNAL Case No.  CH/2062/2015

ADMINISTRATIVE APPEALS CHAMBER

Before Judge Mark

Decision:  The appeal is allowed.  I set aside the decision of the tribunal and I remit the matter to be reheard by a new tribunal in accordance with the directions below.  The new tribunal would be assisted if the claimant’s son and landlord were to attend and give evidence and, if he, or his letting agent, has any relevant documents helping to explain some of the points raised below, it would be helpful if he were to provide copies of them to the claimant for her to submit to the tribunal as soon as possible.

REASONS FOR DECISION

1. This appeal is brought with the permission of an Upper Tribunal Judge from a decision of the First-tier Tribunal dated 1 April 2014 disallowing the appeal of the claimant from a decision of the council dated 12 September 2014 that she was not entitled to housing benefit because her tenancy was non-commercial.

2. The letting in question was of a four bedroom house (the house) owned by the claimant’s son which he had previously let on the open market.  According to evidence given orally at the hearing by the claimant, the property had been vacant for a week prior to June 2014 (file, p.75).  She had previously lived there for a time in 2013 and before that she had lived with her son (p.76).  I note that there is evidence at p.72 that the claimant had previously stated on 4 September 2013 vacated the house on 2 September 2013 and that she had been living with her son who was still there.

3. The claimant had been referred to a hospice for end of life care.  According to a letter from the hospice (p.67) she had been discharged to her new home at the house on 10 June 2014 with a full care package for end of life care.  She had a hospital profile bed, walking frame, commode and oxygen included in the care package.  She had carers three times a day to assist with personal care, she had difficulty mobilising and she required the assistance of two people to transfer.  Her previous home was unsuitable and the house was currently vacant.  At least when she was visited on 3 July 2014 she was noted to be experiencing episodes of confusion and poor concentration.  She appears to have had cognitive problems.

4. There does not appear to have been any evidence before the tribunal as to how long the claimant was expected to live at the relevant time or, if that was only a few months, why and how that expectancy changed.

5. Because of her problems, the claimant could only live on the ground floor of the house, which had two stories, but after the addition of a stair lift in about September 2014, she was able to use the first floor as well.

6. The claim for benefit was initially made on 3 July 2014, when the claimant stated that she started renting the house from 16 June 2014 at a rent of £80 per week.  She stated that she lived with her son and they had a verbal agreement about rent.  The statement that she lived with her son was not correct, as later established.  She asked for backdating to 16 June 2014 because she was incapacitated and her hospice support worker had been on holiday.

7. Her son completed the landlord’s form on 7 July referring to her severe health problems and that she was having end of life care.  He described the tenancy as lifelong.

8. There is a standard form assured shorthold tenancy agreement which appears to have been drafted on 31 May 2014 (p.23) but which was signed by the claimant and her son only on 11 July 2014 (p.28).  It seems to have been the standard form of the son’s letting agent.  This states that the tenancy was for 12 months from 1 June 2014 at a rent of £80 per week, the first payment to be made on the signing of the agreement.  There was no deposit provided for. Clause 4.1 permitted the landlord to break the tenancy after 6 months.

9. The application was initially rejected because the application form had stated that the claimant was living with her son, the landlord (p.29).  The claimant then sought to submit proof that the son was not living with her and included gas and electricity bills addressed to her covering periods from 10 June 2014.

10. By letter dated 1 September 2014 the claimant confirmed that no rent had yet been paid and that the signing of the tenancy had been delayed because of her illness and getting it written up.  She also stated that no action had been taken or arrangements made in respect of the unpaid rent and that she had access to the whole property.  It was following this that the decision was taken to reject the application on the ground that the tenancy was not commercial.

11. Somewhat curiously considering the history of the tenancy provided to the council as above, by letter dated 1 July 2014, a date 6 days before the benefit application was submitted and 10 days before the tenancy agreement was signed, the letting agent wrote to the claimant giving notice that the rent would be increased from £80 per week from 1 September 2014 “due to inflation and increase in rental values” although “the proposed rent remained in line with market value”.  However, the enclosed notice under s.13(2) of the Housing Act 1988 appears to have been signed by somebody as landlord on 21 November 2014 (p.55).  The signature at p.55 differs from that of the son at p.20.  For the reasons given below, I consider that the letter dated 1 July was probably only generated from an earlier document on or shortly before 21 November 2014.  It also appears to me that the letter was in a wholly inappropriate standard form which the letting agency had not noticed.

12. I note from the claimant’s oral evidence at p.80 that she got a stair lift at about the end of August or beginning of September.  By clause 2.5 of the tenancy agreement she was not permitted to make any alteration or addition to the property.  The addition of a stair lift would arguably be, or involve, an alteration of or addition to the property, so that it could not be done without the consent of the landlord.  It would also enable her to use the upper floor and a landlord might want more rent if this was to happen.  It would not be surprising if the rent increase was in some way connected with the installation of the stair lift, although whether it was or not is unclear.

13. A rent statement to 21 November 2014 is at p.57 and it shows no payments until 15 September 2014.  The rent is shown as £80 per week from 1 June 2014 until the week of 31 August 2014 and is then shown as £150 per week.  A payment of £300 cash is recorded on 15 September and subsequently payments in cash of £50 per week are recorded, the last being on 17 November 2014.  At pp.59-64 there is a new standard form assured shorthold tenancy agreement apparently prepared by the letting agent on 1 September 2014.  The term was stated to be for “12 months beginning on 1 September 2014 and expiring on 31 March 2015” with a rent of £150 per week.  The first payment was to be made on the signing of the agreement.  The agreement is in fact signed and dated by both parties on 21 November 2014 (p.64).

14. A further rent statement as at 8 December 2014 shows continuing cash payments of £50 per week plus a one off cash payment of £1000 on 28 November 2014.

15. The claimant attended the hearing and was represented by a welfare benefit adviser who had signed the letter on behalf of the hospice starting at p.67 of the file to which I have already referred.

16. The tribunal found that, despite the best of intentions, the tenancy was not on a commercial basis.  It did so for the following reasons, taken from the decision notice:

(a)  The rent was not a commercial one for a 4 bedroom property.

(b)  There were a lot of inconsistencies with the paperwork. 

(c)  A rent increase would not occur midway in a commercial tenancy agreement and then go back to a date prior to the date when the tenancy agreement was signed.

(d)  The original agreement was for the whole of the property and so the landlord could not increase the rent because the upstairs was being used when the original agreement does not mention that only the downstairs could be used.

17. While these reasons could be factors in considering commerciality, (a) charging a low rent does not on its own make an agreement non-commercial - charities and voluntary organisations and some individuals choose to let at below market rents without making the lettings uncommercial (R v Rugby BC v ex p.Harrison (1994) 28 HLR 36, at 48-9); (b) inconsistencies in paperwork are, in my experience, commonplace in agreements of this kind and in many other commercial arrangements; and as to (c) and (d) there was, on the evidence, an obvious possible reason why a landlord who has initially agreed a very reduced rent for a disabled tenant who could not use half the house, may want to seek an increase in return for permission for alterations which would enable her to use it all.

18. The statement of reasons elaborated on the original reasons and added that the claimant had objected to the landlord moving in other tenants into the top floor and a commercial landlord would not refrain from doing so just because the existing tenant did not want anyone else to be there.  I have some difficulty with this reasoning.  If she was already the existing tenant of the whole house, the landlord could not put other tenants in the top floor.  If the objection was raised before she moved in on the basis of an oral agreement only later reduced to writing, then the landlord had to make a decision, commercial or otherwise, whether he wished to let to his dying mother on the basis that he would not be able, so long as she was there, to use the upper part of the house.  That was a decision that could be influenced, for example, by her life expectancy at the time and by the likely length of time it might take to let the property if it was not let to her.  There are other possible commercial factors as well such as the landlord’s long term proposals for the house which may have made an immediate letting that was unlikely to last 12 months more attractive than waiting for a tenant who could pay the full rent.  A letting can be on a commercial basis even though the motivation for the letting is non-commercial (CH/1097/2004).

19. The statement of reasons goes on to state that a commercial landlord would not let his premises without some kind of a firm tenancy agreement in place especially as no deposit had been paid.  Again, this is an expression of opinion on the part of the tribunal for which I can see no basis.  It may well be the case where there is a substantial landlord letting to a stranger, but a commercial landlord may well make a commercial deal with a tenant who is known to him without either a deposit or, initially, a written agreement.  In Wychavon DC v EM [2012] UKUT 12 (AAC), [2012] AACR 41, accommodation was provided by parents to their very disabled daughter in circumstances in which the daughter came under an obligation at common law to pay a reasonable sum for the accommodation.  There was not, and could not be, any written agreement with the daughter because of her disabilities.  The contention that this was non-commercial was rejected on the very special circumstances of that case.  So too, if the letting had been made by a commercial landlord to a person lacking capacity to understand a contract, there could, to the knowledge of the landlord, be no contract or only a voidable one, but the letting, if there was a letting rather than an obligation to  pay a reasonable sum, would still be a commercial one. 

20. The third reason in the statement of reasons is that when asked to complete the landlord section of the form the landlord stated that the tenancy began on 4 April 2015 and the claimant moved in on 1 June 2015.  It is pointed out that a commercial landlord would know when his tenant moved in as this would affect official paperwork concerning council tax and utilities.  This is correct, but the date of 4 April 2015 is plainly an error as the form was completed in July 2014.  The date of 1 June 2014 was not the date on which the claimant moved in, but it does appear to have been the date from which the tenancy was agreed in the later agreement to have begun.  It is possible, although it does not appear to have been investigated, that the landlord simply took the date from the tenancy agreement which, although not signed until a few days later, appears to have been drafted on 31 May 2014.

21. The fourth ground given in the statement of reasons is that a commercial landlord would not allow a tenant to move in without any agreement on rent initially and would not be so sympathetic on determining rent based on the claimant’s ability to afford as opposed to the market rent for a 4 bedroom property.  In fact, there was evidence that £80 per week had been agreed before she moved in, even if not in writing and the agreement had been drafted on that basis.  Further, it does not appear to me that the tribunal here took into account that this was an empty house and that the claimant was terminally ill.  Nor did it take into account the matters set out in paragraphs 17 and 18 above.

22. The fifth reason given was that a commercial landlord would not produce such incoherent documents.  The documents were certainly very flawed and that is a matter for comment, but they were prepared by commercial letting agents and there is no evidence that they were aware of the inconsistencies or that they were significantly worse drafted than similar standard form documents drafted by the same agents for indisputably commercial lettings.  The statement of reasons also manages to find that because the rent increase letter had a typed date of 1 July 2015 the increase was effectively notified before the original tenancy agreement had been signed.  This is despite the fact that the documents accompanying the letter are dated by hand 21 November 2014.  This ignores the obvious alternative explanation that the standard form letter used had been adapted from an earlier letter of 1 July 2014 but the date had not been altered – a common oversight when using an old document as the template for a new one on a computer.

23. I note in considering the incoherence of the documents that it even extends in the second tenancy agreement to the description of the tenancy as a 12 months tenancy yet with a termination date 6 months after the commencement date, an error which appears to me symptomatic of a general inability on the part of the letting agency to produce coherent documents rather than indicating that the incoherence was connected with the non-commercial nature of the tenancy.  By that date, and bearing in mind the scrutiny to which the agreement was likely to be subject by the council and potentially by a tribunal, one might have expected any competent person, letting agent or landlord, to have scrutinised the document sufficiently at least to enable defects of that magnitude to be picked up.

24. The sixth reason repeats the proposition that a commercial landlord could not would not legally increase the rent during the tenancy, but again overlooks that there could have been a reason for this connected with the installation of the chair lift which probably required his permission.  The circumstances surrounding the installation of the chair lift and its possible relationship to the rent increase were not considered. 

25. Finally, it is said that a commercial landlord would not have allowed arrears of over £2000 to have built up without formal action being taken despite the fact that the claimant was unwell since the landlord would be losing money.  It was not reasonable for a commercial landlord to await a tribunal decision as he would only be concerned about his money and not whether his tenant would receive their housing benefit at some uncertain time in the future.  Not only is this extremely uncharitable to landlords, it leaves one wondering whether the tribunal has had any experience of the many cases in which landlords who let to tenants who are known to be reliant on housing benefit to pay the rent not only await the outcome of an application for benefit and of any appeal, but often deal with the appeal for the tenant while allowing the tenant to remain pending the outcome of the appeal.

26. In CH/206/2004, Mr Commissioner Jacobs, as he was then, stated:

“26. … I was impressed by the evidence from the claimant’s father when I asked him if he would evict his son. The difficulty of the choice was immediately apparent from his demeanour and what he had to say. Clearly, he does not want to evict his son. I can understand that he does not want to consider this possibility or acknowledge it, even to himself. I can understand that he would want to postpone thinking about it until the appeal process is complete. In the end, I suspect that the question of eviction is an artificial one. The claimant has income from benefits and from wages. He can afford to pay, and is paying, something towards rent and that amount is significant. His father may decide that reducing the contractual rent to the amount his son can afford is preferable to evicting his son. That would be bowing to reality. It would not mean that the arrangement was not commercial. Rackman is not the only model of a commercial landlord. There are many landlords who are prepared to accept the rent that can be obtained rather than insist on the full contractual rent and others who are prepared to be patient while the claim and appeal process is in process. 

27. Left to my own devices, I would have decided that the arrangement between the claimant and his father was on a commercial basis. However, I have to remind myself that that is not enough to show that the tribunal, which came to the opposite conclusion, went wrong in law. I have re-read the tribunal’s decision with that in mind. It emphasised the intimate and personal aspects of the arrangement. I have come to the conclusion that in doing so, the tribunal overemphasised the care and support aspects of the arrangement. It did not refer to, and as far as I can see was not referred to, the service charge provisions which show that that aspect of an arrangement is not necessarily incompatible with it being on a commercial basis.”

27. The decision also deals in general with the effect on commerciality of a letting between father and son.  It appears to me that it would assist the new tribunal and the parties if a copy of that decision were to be added to the hearing bundle.

28. I consider that the tribunal’s reasoning was in error of law for the reasons given.  I am unable, however, to substitute my own decision for that of the tribunal.  Explanations are needed as to why the rent was increased and whether or not it was related to the stair lift being installed.  Explanations are also needed as to other matters as noted above.  Evidence from the claimant’s son could well assist the new tribunal, particularly if he could attend to give oral evidence and if he and the letting agents made available any documents they have showing more clearly when the various steps were taken and not leaving them to be deduced from the documents. This is all the more the case bearing in mind the evidence as to the cognitive difficulties the claimant is said to have been suffering from at the time.

29. The fact that I have criticised the tribunal’s approach to the various matters that it has relied on does not mean that those matters are to be totally ignored in assessing whether this letting was on a commercial basis.  The relationship between the landlord and the claimant is relevant, as is the low rent and the effect of the letting on the landlord’s ability to obtain a rack rent.  So too the inconsistencies may, but need not, point to a non-commercial agreement depending on whether the cause is incompetence or the written agreements being, for example, simply concocted to mislead.  But, there are no rigid rules in determining what is commercial and as Mr. Commissioner Jacobs pointed out in CH/296/2004, a letting may still be commercial even if it is one that the landlord would only contemplate with a relative or close friend.   

30. Although not commented on by the tribunal, in addition to the matters raised above, I am unclear as to why, if £80 was agreed on as a rent the claimant could pay out of the benefits she received (see the foot of p.78), no rent at all was paid until mid-September when £300 was paid in cash, or why only £50 per week, and not £80 per week, was paid after that, except for the payment of £1000 in cash on 28 November.  Nor was there any inquiry as to the source in particular of the £300 on 15 September and £1000 on 28 November.  If the claimant was paying out of her benefits, why did she not pay the agreed £80 per week, and where did she get the £300 and £1000?  If the money was provided, for example, by her son, this would be a significant factor pointing to the arrangement not being commercial.  These are matters which the new tribunal may wish to enquire into.

(signed) Michael Mark

Judge of the Upper Tribunal

20 October 2015