How to challenge decisions -contrivance and non-commercial agreements for Housing Benefit and Universal Credit Housing Element
A how-to guide looking at how to challenge decisions regarding contrivance and non-commercial agreements for Housing Benefit and Universal Credit Housing Element
Main issues
Claimants can find they are refused Housing Benefit (HB) or Universal Credit housing element (UCHE) if the local authority or DWP decision maker:
- decide that their tenancies are non-commercial, or
- believe the tenancy has been created deliberately in order to obtain HB or UCHE (contrived).
This article aims to help advisers challenge such decisions by:
- explaining how case law has helped to define the meaning of these provisions, and
- outlining the factors to consider when preparing appeals.
Most of the case law derives from the Housing Benefit Regulations 2006 but should also apply to similar provisions within the Universal Credit (UC) Regulations 2013.
Difference between non-commercial and contrived
Non-commercial
Regulation 9 of the HB regs 2006 outlines situations in which a person will be deemed not liable to pay rent and thus not entitled to HB. These include provisions which are commonly referred to as ‘anti-abuse’ provisions. Under reg 9(1)(a) HB regs 2006, a person is treated as not liable for rent if ‘the tenancy or other agreement pursuant to which he occupies the dwelling is not on a commercial basis.’
Under reg. 25(3) of the UC Regs 2013; the circumstances of the liability to make rental payments must be such that — ‘the claimant (or either joint claimant) has a liability to make the payments which is on a commercial basis’.
Contrivance
Under reg 9(1)(l) HB regs 2006, a person is treated as not liable for rent if the local authority believes that the liability was created to take advantage of the HB scheme.
The UC regulations contain similar provisions. Under sch 2 para 10 of the UC Regs 2013;
‘… A claimant is to be treated as not liable to make payments where the Secretary of State is satisfied that the liability to make the payments was contrived in order to secure the inclusion of the housing costs element in an award of universal credit or to increase the amount of that element’.
Non-commercial and contrivance are separate provisions. It’s easy for advisers (and decision makers) to confuse the two, and although there is some similarity in the factors considered for both, it is important to understand how they differ so that unfavourable decisions can be challenged effectively.
Under HB, a decision maker can only consider contrivance if none of the other circumstances under reg 9 HB regs 2006 apply (including whether an agreement is commercial). However, decision makers often run non-commercial agreement and contrivance arguments at the same time as alternatives, and there is nothing to stop them from doing this. Under UC, the DWP decision maker doesn’t have to consider whether reg. 25(3) UC regs 2013 applies before considering a contrivance argument under sch 2 para 10 UC regs 2013, so they could run both arguments as alternatives anyway.
To date all the case law in relation to commerciality and contrivance has considered HB. Given there is no material difference between the HB and UC schemes on these issues, HB case law is likely to be argued by the DWP and accepted as being arguable by a tribunal in relation to UCHE. Neither the HB regs 2006 or the UC regs 2013 clarify the issues to be decided when considering commerciality or contrivance, so existing case law on HB will be important in determining appeals, although the specific facts in an individual client’s case will be the ultimate determining factor.
What is a commercial basis?
The burden of proving that an agreement is not on a commercial basis is on the decision maker and not on the claimant. It is important to stress this to a tribunal as it can be a decisive factor in favour of the claimant if evidence is sparse. It is the whole agreement and not just the payment made by the tenant that should be considered by the decision maker when assessing the commercial nature of an agreement. R(H)1/03 is the leading case which considers the approach that should be taken when considering this and holds that:
‘… the proper approach for an appeal tribunal is to investigate and determine the facts material to the issue and then determine as a question of ‘compound fact’ whether as a matter of the proper use of language the arrangement was not on a commercial basis, applying the principles established by the authorities’
R(H)1/03 gives general guidance on how to assess ‘commerciality’:
- Bad faith is not a necessary ingredient
- The whole nature of the arrangement must be considered. That includes all the terms and the whole relationship between the parties so far as it concerns the occupation of the dwelling
- The amount payable is not the only consideration
- An arrangement may still not be on a commercial basis despite the presence of a financial element that is more than minimal
- A long-term stable relationship between the parties does not necessarily show there was not a commercial basis. Nor does friendship
- The test that must be applied is one of the dominant purpose of the arrangement. The issue is: is the tribunal satisfied on the balance of probabilities that the principal basis on which the arrangement was made was not a commercial one?
- In appropriate circumstances, it is necessary to consider: (a) the owner’s need for rent; (b) the claimant’s need for accommodation; and © the history of previous arrangements between the parties.
- In applying those principles (summarised by the commissioner in para 10–14), the tribunal must not reason by analogy from the reported cases and must consider the individual facts of each case in the context of all the others (para. 22).
Can it be commercial if the landlord is a friend/relative?
Agreements between relatives or friends should not automatically be deemed non-commercial, although it does appear that claims for benefit under such arrangements will attract closer investigation by decision makers. The mere fact that both parties are close friends or relatives does not necessarily mean that the agreement is not capable of being on a commercial basis. Much will depend on the individual facts of each case.
In CH/3282/2006, the claimant paid ‘rent’ in respect of an alleged life tenancy of a single room owned by a former partner. The commissioner, quoting from R v Poole Borough Council ex p Ross [1996] 28 HLR 351, decided that the agreement between the claimant and his landlady was ‘a truly personal arrangement which is merely clothed in the garments of a legal liability.’ On the facts, the commissioner held, it was ‘difficult to imagine more personal and less commercial arrangements than those between the parties in this case.’
Subsequent decisions have considered the commercial nature of agreements between close relatives and reached different conclusions. In CH/296/2004 the commissioner concluded that there was nothing necessarily incompatible in a commercial arrangement where the landlord was the claimant’s parent, although it may make such a finding less likely. An agreement may still be commercial even if the landlord would not let the property to anyone other than that particular claimant, as there may well be valid reasons for doing so. For example, because the landlord knows that that particular tenant is reliable and trustworthy. However, decisions will often be based very much upon the evidence of each individual case. For example, CH/2822/2009 considered a situation very similar to that in CH/296/2004 but decided, on the facts of the case, the tenancy was not on a commercial basis.
A further unfavourable approach for claimants can be seen CH/663/2003 which held that for a tenancy to be commercial there must be some generality as to who could take up the tenancy (tenancies set up exclusively for the benefit of a particular claimant could not be commercial). However, CH/2899/2005 found that, to the extent that CH/663/2003 sought to describe what were the only relevant factors determining commerciality, it was inconsistent with R(H)1/03 and should not be followed.
In CH/2062/2015 the son had let a 4 bed property to his terminally ill mother. No deposit was provided for in the tenancy, there was some inconsistency in the paper work and there was a rent increase shortly after the tenancy was signed. The Upper Tribunal (UT) held (see para 18), that a letting can be on a commercial basis even though the motivation for the letting is non-commercial (see CH/1097/2004). Also at para 19:
‘ .. 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’.
Can it be commercial if the landlord does not pursue rent arrears?
In CH/1076/2002, the claimant could not afford to make up the difference between her HB and the contractual rent. Her HB claim had terminated, with the decision maker holding that the landlord’s acceptance of the lower payment of rent was evidence that the tenancy was non-commercial. The commissioner accepted that it was not uncommon for landlords to accept lower rents rather than evict claimants, as it may not be in the landlord’s interest to pursue non-payment from tenants who had limited financial resources. Landlords would often write off small amounts of rent in return for an easy and regular tenancy with reliable tenants.
Similar findings were reached in CH/296/2004 and CH/2263/2009 where it was also accepted that commercial landlords may be prepared to accept lower amounts of rent (or no rent) whilst the tenant was pursuing an HB appeal. In CH/2062/2015 with regard to rent arrears, the UT, referring to CH/296/2004 at paras 26 and 27, said:
‘…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. (see para 25)’.
What is a contrived tenancy?
A tenancy will be deemed contrived and therefore treat the claimant as not liable to pay rent and not entitled to HB or UCHE, if the liability was created to take advantage of the HB scheme or the tenancy was contrived in order to secure or increase the amount of UCHE. For a tenancy to be contrived, it has to be shown that there was an intention to abuse the HB UC scheme or take improper advantage of it (reaffirmed in CH/39/2007).
All tenants take advantage of the scheme by using HB or UCHE to assist with the rent, as may a landlord in using these payments. For example, many landlords may use the HB/UCHE to finance the purchase of property as an investment, but that does not necessarily mean that any resulting tenancy will be contrived.
The burden of proof remains with the decision maker and what must be shown is that the intention to take advantage of the HB scheme was present at the time the tenancy was created although the fact that a future advantage was anticipated at the time the agreement was created is sufficient. All the circumstances surrounding the creation of the tenancy must be considered when deciding whether there had been an intention to take advantage of the HB scheme. The UC regs 2013 directly uses the word ‘contrived’ so this may be less of an issue with UC/HE.
The intentions of the claimant
Where the claimant’s dominant purpose in entering into an agreement is to provide a home for themselves, it is unlikely that such an agreement would be contrived, even if the circumstances surrounding the creation of the tenancy were unusual. Even if the claimant would be unable to pay any rent due under the agreement without claiming HB or UCHE, this should rarely be of great significance, as to use that fact against the claimant would defeat the whole purpose of the HB/UCHE scheme (R v Solihull MBC ex p Simpson [1995] 1 FLR 140). Note, however, there is nothing to stop a claimant who enters into an arrangement at a time when they are not reliant on HB/UCHE from using this fact as evidence that their intention could not have been to take advantage of the scheme..
The intentions of the landlord
The intention of the landlord can be a more significant factor than that of the claimant. This means that a decision maker might decide that a liability has been contrived even if they accept that claimant’s motive was not to take advantage of the HB/UCHE scheme (R v Stratford Upon Avon DC. ex p White [1997] 30 HLR 178). If the landlord deliberately sets rents at a higher level in the knowledge that they will be covered by HB, then creation of such specific tenancies could be viewed as contrived (R v Manchester CC ex p Baragrove Properties Ltd [1991] 23 HLR 337). Again, each case must be looked at on its own merits and the evidence balanced to arrive at the correct conclusion. For example, if the landlord can show that they cannot maintain the dwelling without the rent being paid, then this could be evidence that the liability was not contrived.
All facts of the case must be considered
Decisions on commerciality or contrivance must take account of all the factors involved in a case. No single factor is likely to be determinative of the issue. Commissioner Jacobs stated of the anti-abuse provisions in CH/716/2002:
‘…The categories may be drawn in a way that can produce rough justice. No doubt, that was based on a policy decision to err on the side of protection for the scheme rather than fairness in an individual case. However, given that the categories can produce rough justice, it is appropriate to give them the narrowest interpretation that is consistent with the policy of protecting the scheme.’
In CH/39/2007 at para 49 the commissioner was at pains to point out that, for commerciality, each case depends on its own facts, as do all cases of contrivance. Reasoning by factual analogy or comparison from case to case is unlikely to be helpful. Authorities are only relevant for the propositions of law on which they are based.
Conclusions and appeals
Claimants refused HB or UCHE on the basis of contrivance or commerciality should consider appealing negative decisions. As everything will depend on the facts of a case it can be difficult to predict the outcome of an appeal. For UC a claimant will need to lodge a mandatory reconsideration (MR) prior to lodging an appeal. A HB claimant can ask for an appeal without having to ask for a MR first. If a claimant is at risk of eviction it may be important to get a case to tribunal as soon as possible.
Advisers should be aware that the tribunal has the power to expedite an appeal if required. Under rule 5 of The First-Tier Tribunal (Social Entitlement Chamber) Rules of Procedure 2008 the tribunal has case management powers to expedite an appeal. A claimant would need to ask for this on the appeal form and may need to chase this up with the Tribunal Service. The claimant will also need to give compelling reasons as to why a quick response is needed. In cases concerning housing costs this will normally be due to the risk of eviction. Advisers and claimants should supply as much evidence as possible to the Tribunal Service when making a request to expedite an appeal. This might include evidence that the landlord is taking action to repossess the property or letters from the County Court regarding possession proceedings.
Thanks to Fiona Seymour and Carlos Hagi for co writing this article.
Rachel Ingleby, Fiona Seymour and Carlos Hagi are Welfare Benefits experts in the Expert Advice team at Citizens Advice.
