From whom is an overpaid managed payment recoverable?

This one is extremely important with several hundred thousand quid at stake in about 38 linked cases.  Must get this right!  Buckle up, long post!

I am struggling to resolve the apparent conflict between paras (2) and (7) of Reg 4 of the overpayment recovery regs.

Briefly, the background is that a landlord has been paid housing costs twice by both HB and UC over a prolonged period.  UC made “managed payments” direct to the landlord.  It is now common ground that this was not temporary or specified accommodation.

In the cases I am dealing with, HB was claimed before full service UC rolled out to the area and so the claimants were initially quite properly entitled to HB.  In due course they claimed UC and, due to a misunderstanding for which everyone blames each other, HB payments continued for a while.  The Council has now terminated HB and notified DWP of overlapping payments under Reg 10 of the UC(TP) Regs.  This will result in overpayments of UC equal to the duplicate housing costs.  DWP has suggested any such overpayments will be recoverable from the claimant and not from the landlords.  My client is the LA who paid Housing Benefit.  We want the overpayments to not be recoverable from the claimants or at least not solely recoverable from the claimants.

There are a few perplexing issues in the case, including:

- Is UC(TP) Reg 10 engaged here?  I think so, but if i were one of the claimants I might arguing that this is not the kind of situation that Reg 10 contemplates
- Is this an overpayment of housing costs for the purpose of Reg 4?  Here is a fine example of UC being a smoothie and not a fruit salad - the overpayment’s immediate cause will be the addition of unearned income to the assessment.  Who is to say which elements are tapered first?  It’s impossible to answer that.  But the root cause of the overpayment is the duplication of HB and UC housing costs, so let’s continue on the basis that this is an overpayment of housing costs for the purpose of Reg 4.

As I understand it the entire APA/managed payment regime relies on the sweeping discretion in Reg 58 of the Claims and Payments Regs.  If so, then managed payments of housing costs seem to be caught by Reg 4(2) and overpayments are recoverable from both the claimant and the payee.  But then we come to paras (4) to (8) and especially para (7).  The overpayment is not one described in para (5) and probably not (6) either - there has been a calamitous mutual misunderstanding but not necessarily misrepresentation of the facts.  Para (8) does not apply because the UC managed payments did not exceed the rent.

So we are left with para (7), which says that an overpayment of housing costs with no other cause specified in Reg 4 is recoverable only from the claimant not the payee ... but only if para (2) does not apply.  And surely para (2) applies to all managed payments, does it not?  Para (7) seems to give it precedence.  But then ... doesn’t that deprive (7) of any purpose?  Or is para (7) limited to cases where the housing costs were paid as third party deductions for arrears and not an APA for current rent?

What a mess.

So you’ve got a landlord, presumably not your LA client, having received a massive overpayment of UC for several tenants.

Surely the failure to disclose the ongoing overpayment by the landlord grounds recovery from them under 4(6) of the OP(R) regs. Wouldn’t the “continuing duty” issue bite here?

Reg. 4(6) is worded a little oddly, isn’t it?

(6) Where the Secretary of State is satisfied that an overpayment occurred in consequence of a misrepresentation, or a failure to disclose a material fact (in either case, whether fraudulent or otherwise), by any person (“M”), then, if M and the payee are not the same person, the overpayment is recoverable from M instead of the payee.

But that doesn’t tell us - at least not expressly - what happens where M and the payee are one and the same. I think it has to be the case that in those circumstances, the overpayment is only recoverable from the payee.  And that view is supported by the fact the other paras make provision for recovery from the claimant and the payee or the claimant instead of the payee where the circumstances specified in those paras are met. So I think that interpretation is right both when one reads the reg as a whole and on policy grounds.

Thanks both.

I think the silence of Reg 4 on certain situations - such as where the payee misrepresents the facts - is accounted for by s71ZB(2)(a) providing that in general an overpayment is recoverable only from the person to whom it was paid.  Section 71ZB(2)(b) allows regs to prescribe exceptions to that general rule and that is what Reg 4 is doing.  If it’s not in Reg 4, s71ZB(2)(a) kicks in and the payee is in the frame.

My problem with Reg 4(6) and failure to disclose is that the settled position now is that the claimants are entitled to UC housing costs which have been correctly paid to the landlord.  It’s HB that shouldn’t have been paid, and there would be good old square-go between the Council and the landlord if this case were to be played out in a conventional HB Tribunal where there are arguments on both sides about misrepresentation through misleading documents and whether they could reasonably have been expected to realise in the event that there has been any LA error.

However, the only reason why a UC overpayment is going to exist is that the Council has shovelled it all over to DWP via UC(TP) Reg 10 - which I do think is correct.  This sidelines the HB Regs completely by virtue of UC(TP) Reg 10(3), which is why we have to go to Reg 4.

My preferred outcome is that Reg 4(2) overrides everything else and DWP uses its common sense to choose the landlord as the more promising recovery target, what with the massive credits sitting there on the rent accounts as it stands.  The claimants just carry on with their lives, oblivious to all of this.

I agree that Reg 10 of the TP Regs applies in this case.

I think that an overpayment of housing costs, as referred to in Reg 4(4) of the O&R Regs, only includes cases where the “maximum amount” of UC included an amount for housing costs which either should not have been included, or was too high.

As such, Para (2) would apply in this case, and the overpayment can also be recovered from the payee.

In a case where there was an overpayment of housing costs, I agree that Para (2) does have precedence over Para (7), and I am struggling to think of a case where Para (7) is relevant (and, for that matter, a case where Para (8) is necessary).

I’m not happy with your example of a TPD for arrears of housing costs.
Firstly, the arrears themselves are not the overpayment, so you could as well have referred to a TPD for any debt in a case where there happened to be a housing costs overpayment in the UC award.
However, more importantly, any such TPD is already covered by Para (3), so what is the need for Para (7)?
In a case where the TPD is not covered by Para (3) because it was more than the amount allowed to be paid as a TPD, then it wouldn’t make sense for Para (7) to require it to be recovered from the claimant.

Thank you Charles

I like your suggested definition of what an overpayment of housing costs means - it is the only one I can think of that enables a housing costs overpayment to be isolated from the UC “smoothie”.  So there hasn’t been such an overpayment in this case.  That means we can rely on para (2) without going as far as the paragraphs dedicated to housing costs.  Except ...

Only some of the claimants’ UC was paid to the landlord as a managed payment, they received part of it themselves.  So we still have the problem of deciding whether the overpayment was paid to the landlord or the claimant.  I suspect in most of these cases there would not have been enough UC paid to the claimant to account for the entire Reg 10 overpayment.  From a moral and common sense point of view, the amount overpaid is ultimately attributable to housing costs and so the managed payment should be accounted for as an overpayment first.  In practice there would then be little or no surplus overpayment that was paid to the claimant.  But legally I think it is impossible to say which end we start at isn’t it?

I agree. I don’t think there is any reason legally to specifically chase the landlord over the claimant.
As you say though, morally it certainly makes sense to go after the landlord. And not just because the UC housing costs were paid to them, hut also because the extra (deemed) unearned income was received by them too.

Thanks again Charles.

So the Council’s position needs to be:

- we have correctly applied Reg 10, this has ceased to be our problem as it stands
- but we want to add in our suggestions about how the UC side of things is handled because we are very worried about the claimants having to pay for the landlords’ windfall
- nothing in the Act or Regs tells us how much of the overpayment is attributable to the managed payments and how much attributable to the residual payments received by the claimants, but since the landlords received the money, and none of this would have happened if the housing costs hadn’t been duplicated, we think it is reasonable to say that the overpayment should be attributed to the managed payments first
- this means the overpayment is recoverable under Reg 4(2) from both the claimants and the landlords to whom the money was paid
- it really makes sense to go after the landlords and it would be unreasonable to the point of being perverse to pursue the claimants themselves
- only if the overpayment exceeds the amount of the managed payments in any case would the surplus be recoverable from the claimant
- one potential outcome from any appeals would be that Reg 10 was not correctly applied, or that the amounts have been incorrectly calculated for the purpose of Reg 10, therefore the Council should be joined as a party in any appeal against the Reg 10 decisions, and it can then make the submissions summarised above.

That works for me I think.