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Summary

The claimant owned property (a house) but in November 2021 had moved to rented accommodation and let the house on a two-year assured shorthold tenancy – ie, until November 2023. She claimed UC in October 2022. It was decided that the net value of the property should be disregarded for six months (ie, until April 2023) because the claimant had advised the tenants she wished to move back into the property. In July 2023, the DWP decided not to further extend the disregard on the basis that the claimant could have issued a ‘notice to quit’ to the tenants (and therefore her UC entitlement was lost due to excess capital). On appeal, the claimant argued that she had been advised that she had no such power and that if she did the tenant was threatening court action. The First-tier Tribunal dismissed her appeal, saying the claimant had given inconsistent evidence for moving out of the property, that she not taken ‘legal efforts’ to obtain possession, that she had moved back to the property in September 2023 having persuaded the tenant to move and that ‘ultimately, a claimant in the appellant’s circumstances is only permitted a disregard of capital for six months.’

Judge Wikeley allowed the claimant’s further appeal and remitted the case to a fresh tribunal. He accepted both of the claimant’s grounds of appeal, firstly that the tribunal had made inadequate finding of fact and had given insufficient reasons regarding the application of the relevant disregard rule, and secondly, had misapplied that rule by suggesting that the extension of the disregard required the claimant to have taken ‘legal efforts’ to obtain possession. The judge noted that the decision notice made no reference, directly or indirectly, to any of the legislation. Although in itself that was not a problem, the statement of reasons also failed to refer accurately to the capital disregard rules. 

The relevant legislation was regulation 48 of the Universal Credit Regulations 2013, SI No.376, which provides for a disregard under Schedule 10 and also that where the Schedule specifies a six-month disregard, that period may be extended ‘where it is reasonable to do so’. Paragraph 4 of Schedule 10 provides for a disregard for ‘premises that a person intends to occupy as their home’, including, per paragraph 4(1)(b), where ‘the person is taking steps to obtain possession and has commenced those steps within the past six months’. At paragraph 4(2), a person is taken to have commenced steps ‘on the date that legal advice is first sought or proceedings are commenced’. The tribunal’s statement of reasons was ‘at best, a somewhat garbled version’ of that legislation (paragraph 27). There was no dispute over the valuation of the property. The tribunal had erred in misstating the statutory test by asserting that someone in the claimant’s circumstances was ‘only permitted a disregard of six months’ and that thereafter ‘in the absence of any legal efforts’ to obtain possession, the disregard must cease. The taking of ‘legal efforts’ was not the test. Rather it might, for example, be reasonable to extend the six-month period where the claimant had taken legal advice to the effect that there was no power under the tenancy to serve a notice to quit and that encouraging them to move out could constitute harassment. ‘Legal advice’ need not necessarily be from a lawyer but could be about the law in ‘some type of formal framework’ – for example, in a CAB [Citizens Advice Bureau] (paragraph 34). Secondly, the tribunal had been somewhat fixated on the claimant’s motives for letting the property in the first place and had failed to address the central question of the reasonableness of extending the six-month period, so failing to find sufficient facts about that.

Comment from CPAG

In the main, this decision concerns a First-tier Tribunal that became distracted about why the claimant moved out of her property and so failed to focus on the relevant test. The Upper Tribunal’s comments about the reasonableness of extending the initial six month disregard period and in particular what might constitute ‘legal advice’ are however of potentially wider application.

Summary

The claimant was living in a property which he and his former wife bought in 2015 as tenants in-common, each owning a 50 per cent share. His former wife had vacated the property in 2010, and the claimant was the sole occupier. He claimed UC in 2016 and stated that he was liable to pay rent, naming his former wife as his landlord. At around the same time, he entered into an assured shorthold tenancy agreement with her. Although initially awarded the housing element, in 2021 the DWP revised the award (saying, contrary to the claimant’s later argument, that it had not been aware of the fact that the claimant was a joint owner when the original decision was made), removing entitlement to the housing element and raising an overpayment. The First-tier Tribunal rejected the claimant’s appeal. 

Judge Sutherland Williams held that, although the tribunal had erred (by failing to give an adequate explanation of how it had evaluated the evidence and applied the law), the claimant was indeed not entitled to housing element and had been overpaid. She rejected the argument of the claimant that his payments to his former wife constituted liability for rent as an ‘occupation rent’ under the Trusts of Land and Appointment of Trustees Act 1996. Under regulation 25 of the Universal Credit Regulations 2013, SI No.376, to be entitled to the housing element a claimant must be liable to make payments, on a commercial basis, in respect of the accommodation they live in as their home; ‘rent payments’ were included as such payments at paragraph 2 of Schedule 1. On the facts, the claimant did not satisfy that requirement. The judge accepted the submission of the Secretary of State that the claimant had no commercial liability to pay rent regarding a property he himself owned and as such no liability to make rent payments within the meaning of paragraph 2 of Schedule 1. 

The judge made several criticisms of the validity of the tenancy agreement. That had been created following the claim for UC, and its framing as a generic assured shorthold tenancy was ‘manifestly ill-suited’ to the facts. The claimant:

‘already enjoyed a right of occupation by virtue of his 50 per cent beneficial ownership, and no payment of rent was required to secure that right… The purported fixed term is likewise of dubious effect: there is no principled basis upon which the appellant’s proprietary right could expire with the conclusion of a contractual term. Nor, in light of his pre-existing right to occupy, is it plausible that the agreement was intended to impose enforceable legal obligations upon him. A person cannot be both landlord and tenant of the same property, nor enforce obligations against himself (Rye v Rye [1962] AC 496; [1962] 2 WLR 361)’ (paragraph 40). 

Further, there was an ‘absence of commerciality: the tenancy agreement was plainly devised for the purpose of supporting a claim for UC housing costs’ (paragraph 41). The judge found that:

‘the agreement lacks legally enforceable terms establishing a true rental liability and does not evidence a contract made on a commercial basis between the appellant and his former wife. The tenancy was contrived for the purpose of claiming what the appellant has described as occupation rent. In effect, the agreement was drafted to satisfy the respondent’s requirements, not to create a binding commercial tenancy’ (paragraph 46). 

Regarding the Trusts of Land and Appointment of Trustees Act 1996, the judge pointed out that the payments provided for there were of compensation (to a joint owner), not of rent. On the facts, the payments made by the claimant did not resemble rent payments: 

‘The housing costs element of universal credit is intended to meet payments securing a person’s occupation of their home. It is not designed to meet discretionary or compensatory payments made to another co-owner who does not reside there’ (paragraph 67).

Comment from CPAG

In essence, the claimant’s appeal foundered on the liability condition for the housing element. On the facts, this was because of what the judge considered to be contrivance and the fact that claimant did not need to pay rent to occupy the home. In cases with different facts, it should be remembered that rent to an ex-partner or to a close relative who is not living in the accommodation is not necessarily excluded from constituting liability for rent.

Summary

The cases in this decision were the lead cases in a number of appeals regarding whether the claimant’s liability for rent in supported accommodation was ‘contrived’ – ie, created to take advantage of the HB scheme. In the two lead cases, the owner of the properties was a company that then let the properties to a charity that provides accommodation and support for HB claimants. In the Upper Tribunal, Judge Jacobs stated that this was a common funding model and ‘there is in principle nothing objectionable about that model…The ultimate issue in this case was the way the model was used involved a contrivance’ (paragraphs 11–12).

In the cases concerned, the same individual was involved in the company that let the properties to the charity, in another company that provided financial support for the charity and the charity itself. That individual was found by the First-tier Tribunal to be ‘controlling’ the actions of the companies and the charities, with the relationship between them, including a yearly donation from one of the companies to the charity to prevent it trading insolvently, the making of significant profits by the companies and the apparent lack of understanding by the charity of how it should operate within the confines of charity law or regarding the setting of the rent and claiming to provide supported accommodation to one of the claimants where the support was not needed, pointing to contrivance. The tribunal found that the tenancies concerned were contrived for the purposes of the relevant rule at regulation 9(1)(l) of the Housing Benefit Regulations 2006, SI No.213 – ie, as ‘the liability was created to take advantage of the housing benefit scheme’.

Holding that the tribunal had not erred in law, Judge Jacobs began by saying that there was ‘more than enough’ caselaw on meaning of ‘take advantage’ in regulation 9, and in summary that: ‘It is sufficient to say that “take advantage” is used in the sense that a writer in the romance genre might refer to the dastardly villain taking advantage of the heroine. It conveys an improper advantage being taken’ (paragraph 16). There was no procedural error in the refusal of the tribunal to direct that the local authorities must give evidence to support their decisions before the tribunal – tribunals themselves undertake a complete reconsideration of the claimant’s entitlement, make findings of fact and evaluate evidence, may have before them submissions from the decision maker and do not have to be required to give evidence. Neither had the tribunal erred in its approach to the burden and standard of proof before tribunals (ie, the balance of probabilities) or in having reference to a report on exempt accommodation from the House of Commons as a source of background information.

The tribunal did not err in relying on its combined knowledge and experience (it consisted of an experienced judge in social security and a financially qualified member) in accepting rent valuation figures provided by the local authority. Regarding its conclusions on the contrivance issue, ‘the tribunal’s evaluative judgment on contrivance was unassailable given the totality of the factors it took into account’ (paragraph 53). 

Comment from CPAG

The upholding of the contrivance finding was very much based on the particular facts in this case and not, as Judge Jacobs is careful to point out, the principle of the funding model.