Commercial or non commercial agreement query

Hihi

I would be grateful is any wise bods could assist me with a housing benefit query.

I have a client who currently resides in a property owned by her sister. She has lived there for some years rent free. She moved in because her sister could not rent the property to anyone else and because she needed a stable place at which to reside to receive support from her family due to her health problems. My clients family have struggled to pay the mortgage on the property so instead of tuffing my client out they created a tenancy agreement and applied for HB which was turned down on the basis it was not a commercial agreement.

They then came to see me. Given the fact that they state that if no rent was paid they would struggle on and not evict the client i’m struggling to see merit in an arguement that it’s a commercial agreement. Having reviewed CH 1096/2008 I can’t really form a strong arguement that she should receive HB. Whilst it would appear to be rather unfair because if they rented out to someone else they would get HB and that they are just trying to take care of my client this seems to just be tough as per [15] of the aforementioned case.

If i was super clever I might be able to conjure up some article 8, Equality Act 2010 arguemetn but it just doesn’t seem to be happening.

Any help appreciated

Cheers

There are two separate but overlapping issues here.  Contrivance and commerciality.  To take commerciality first.  An agreement is commercial if, at the one end, it contains legally enforceable terms.  It is non commercial if, at the other end, it contains non legally enforceable terms.  That, of course, is a gross oversimplification but it serves to highlight what the authorities would be looking for in order to decide the matter either way.  The agreement must be looked at in the round and a broad judgement needs to be made whether the document as a whole is a commercial one or not.  I think that it would fail if it contained no legally enforceable terms but would not necessarily fail if it simply contained one non legally enforceable term.  And, remember, the issue is one of legal enforceability.  A term does not have to be legally enforced in fact.  Your client might wish to seek advice from a contract lawyer.

As to contrivance.  This goes behind the facts and the terms of the agreement and looks at the motives of the parties.  The fact that rent has not been charged in the past is a rather awkward negative but not necessarily fatal.  Economic circumstances change and no one can fail to notice the downward slide in the economy, rise in rents and housing shortages.  All the facts have to be examined and the true motives of the parties teased out.  It is up to the LA to show evidence of contrivance and this must include an element of bad faith on behalf of one or both of the parties.  Moreover, the test is, has the liability between the parties been created to take advantage of the HB scheme (in this case - abuse)?  Once liability has been established it falls to the LA to establish bad faith.  Contrivance is the last limb in the relevant paragraph, so where a decision is made on commerciality the LA will not usually go on to consider contrivance although might do so on review or appeal.

Finally HRA article 8 arguments based on respect for the home are extremely difficult to sustain.  They are most frequently used in housing cases as a defence to possession proceedings.  The lead case is Manchester City Council v Pinnock (2010) Supreme Court which makes it clear that the threshold to success is a very high one indeed.  Where the risk to the home is not regarded as imminent then I would be surprised if an article 8 argument were to succeed.

I didn’t mean to suggest that the enforceability of terms was the only issue.  I should have been clearer on that.  My fault.  Of course one of the big factors as to commerciality is the question of consideration.  In other words, an agreement by a party to a contract to provide something for money or money’s worth. As a tenancy usually involves payment of (more than minimal) rent I felt it unnecessary to explore this issue.  As for other factors, such as the relationship between the parties, then Tony is right.  Whether an agreement is commercial or not is a complex one and that is why I think your client might want to refer to a contract lawyer.

Thanks both for your considered responses.

I’m not so worried about the contrived part more the commercial point.

Tony you’re right in that it’s not held on trust or anything which is a plus point, just not a great one.

I think I just have to get it out the Local Authority’s hands and off to a tribunal perhaps. More pondering to do first!

Thanks a lot for the digest link will have a look at that as well.

I’d be concerned that the reason for this application is not to protect the tenant but to generate income for the landlord. That is not the point of the housing beenfit scheme.

I have allowed appeals in the past where an agreement between family members was made at a time where the tenant was working and paying the rent, so there could be no question that the arrangement was made to take advantage of the HB scheme.

I also disallowed one where the landlord (the tenant’s mother) originally allowed her mother to live there rent free, and then heard from a colleague at work of another person who had got HB for an elderly dependent and thought “what a good idea”, issued Mum with a tenancy agreement and got her to apply for HB. If that wasn’t a tenancy contrived to take advantage of the HB scheme then I don’t know what is. It was for the advantage of the landlord, not the tenant, as she would never have evicted her mother.
Wasn’t appealed.

The landlord in this case has a mortgage to pay, they are really struggling to pay it, but the love they have for their family member means they won’t kick them out and get a different tenant in who would have no problems getting HB.

It erks me that the state are saving money as a result of a family’s compassion, although I realise the family are taxpayers to etc…