Guide to payment of housing benefit where the landlord and tenant are related

LHA - Council "mindset" nearly bankrupts landlord aunt!

A tribunal hearing recently in Oxford, regarding a tenant & landlord who were also niece and aunt highlights the often difficult task of convincing councils that there is nothing illegal, immoral or contrived about renting property to close family members whilst claiming Housing Benefit (LHA). The RLA's housing benefit adviser deals with this type of case all too frequently and he is usually able to overturn the council's decision because they're invariably flawed. Sometimes the case needs to be referred to a First-tier tribunal which can take months to arrange causing both tenant and landlords' financial grief and strife.

In this case, the aunt (Miss W) who owned the property offered the tenancy to her single parent niece (Miss B) because she was experiencing anti-social problems from rowdy neighbours in her other private tenancy and despite the intervention of social services and a housing charity wasn't able to secure either a council or housing association tenancy.

The rules provide that benefit is not payable if the tenancy is not commercial or the claim contrived. One key question is whether the landlord collects any shortfall from the tenant. If you do not there is a risk that the tenancy will be regarded as non commercial so benefit would not be paid.

Not anticipating any problems they agreed an AST for 1 year at a monthly rent of £750 (2 bedroom rate). The tenant, Miss B submitted a claim for Housing Benefit (LHA) as her main income consisted of Income Support. In her application she declared her landlord as her aunt. Despite the family relationship HB was surprisingly awarded without any hitch. As suggested above, councils invariably operate a mindset refusing all such claims in the first instance, because the tenancy agreement is not deemed "commercial" in nature or the claim is perceived to be "contrived to abuse the HB scheme". In this case, the initial award was quite encouraging.

However, 6 months into the award, HB was all of a sudden suspended and both ladies were called to a meeting where they were cautioned that there was an ongoing "fraud investigation" into the extent of their relationship. The Council had discovered that Miss B's father and Miss W (landlord) had been living as a couple years before. Miss B's father, along with two other business partners, had also built the house she was residing in, before selling it to Miss W at full market price 5 years ago. The investigation concluded with HB being withdrawn and an overpayment of £4500 being pursued against the landlord. Miss W who had a buy to let mortgage ran up substantial arrears with the lender bank until eventually the bank appointed an agent to intervene and take control of the property management. However, Miss W still remained the owner.

Miss B and her aunt fell out over the affair and stopped communicating. Miss B did not challenge the council's decision because she did not know how to, whilst her landlord aunt, desperate to resolve matters, sought advice from a number of sources without success. The bank's agent raised legal proceedings against Miss W but also wrote to the council saying it was now in control of the property management. On hearing this, the Council invited a new claim from Miss B and restored HB, making payment direct to the bank's agent. This lasted for 9 months until the landlord managed to clear her debt to the bank; regain control; and avoid the real threat of bankruptcy.

The agent subsequently wrote to the Council stating it was no longer involved and that control now rested with Miss W. The Council promptly cancelled HB again. On this occasion, the landlord was referred to the RLA's adviser. He wrote to the council stating that there were no grounds for withdrawing HB as payment to the agent was based on the same AST that aunt & niece had signed nearly three years before. There was no other agreement in existence and there must be a liability to pay rent before HB can be awarded. Consequently, there were no grounds for superseding the HB award. The Council refused; the tenant appealed; and the case was heard nearly 9 months later by a First-tier tribunal.

After the usual formalities, the Judge asked the council officer to immediately address the concerns which had been raised about there being no grounds for altering the original award. She, like our adviser, pointed the officer to a Tribunal of Commissioners decision R (H) 6/06 which had underlined the importance of this first step in the revision process. She explained to the officer that unless he could provide valid grounds for supersession she would have no option but to allow the appeal. After a bit of hesitation and stuttering he eventually conceded the point. Miss B, sat alongside me, did not have a clue what was happening until the Judge told her the appeal had succeeded.

Not entirely satisfied with succeeding, the Judge was asked to provide a full statement of her reasons, confirming the fact that the tenancy agreement, signed three years before, was both commercial in its terms and was not a case of contrivance and/or abuse of the HB scheme. A week later the award was fully revised over the three year period; £10,650 paid in arrears with £4500 written off.

Unsurprisingly, both niece and aunt were delighted by the outcome. Miss B, at a stroke, had cleared her rent arrears and erased the threat to her tenancy being terminated. The landlord was now £14K better off and no longer threatened with bankruptcy and the loss of her property.

The Council now fully understands the critical importance of being able to demonstrate grounds for revision/supersession and is unlikely to make the same schoolboy error again. The same principles equally apply to situations where councils decide to change the LHA payee from landlord to tenant. Councils simply can not do this on a whim, they must have good reason for doing so, and a request by the tenant for redirection, in itself, is not justification. So keep this in mind when you're challenging such decisions. Councils often overlook this critical step; applying the approach outlined above could unlock substantial HB awards.

Anyone wishing any further information on this topic can contact the RLA's adviser Bill Irvine at bill@ucadvice.co.uk or phone 07733 080 389.

Landlord & Investment Show
Martin Co
Six Hills House
Landlord Broadband

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