Forum Home → Discussion → Housing costs → Thread
Is refusal of a housing costs element on ’non-commercial’ grounds ultra vires?
I’ve recently had a case where the appellant’s parents were his (non-resident) landlords. UC Housing costs were firstly refused on the grounds that he was treated as not liabe, and then that the tenancy agreement was not commercial.
Having looked at the WRA 2012 and relevant Regs, I don’t think there is a lawful provision for the nature of the tenancy – ie whether it’s commercial or not - to be considered at all. I raised this on the day of the hearing in a written submission, and the FtT Judge adjourned, directing the DWP to address the issue. The DWP responded by revising their decision on the basis that the agreement was after all commercial – no reference made to the ultra vires question. Claimant is very happy, but I selfishly hoped to test the argument
I’ve copied and pasted the submission below as trying to precis it would probably kill me. Don’t resist the temptation to point at fatal flaws in the reasoning .......... any comments on style should be strongly resisted :)
‘5. Although Mr E had been awarded Universal Credit, he was refused a housing cost element. The reason for refusal was that ‘Mr E has not demonstrated that he is paying rent’ and therefore he is ‘not treated as having a liability to make rental payments’.
6. We submit that this reasoning is confused. Liability to pay rent is a matter of fact, not dependent on the question of whether the tenant actually meets his liability.
7. It is submitted that there is nothing in Mr E’s tenancy agreement to indicate that he is not liable to pay rent under the agreement.
8. If it is accepted that Mr E is in fact liable to pay rent can he, as the Respondent suggests, be treated as not liable under the Universal Credit Regulations 2013?
9. Regulation 25(3)(b) provides that the circumstances in which a claimant can be treated as not liable to pay housing costs are those set out in Part 2 of Schedule 2. A copy of Part 2 of Schedule 2 is attached (C). Failure of the tenant to pay rent is not one of the provisions included in Part 2. The Respondent cannot therefore treat Mr E as being not liable to pay rent on the grounds that he has not shown that he pays his rent.
10. In the Mandatory Reconsideration Notice, the Respondent has given a second reason for deciding that Mr E is not entitled to a housing cost element, that is, that the liability to make payments is not on a commercial basis. The Respondent cites Regulation 25(3) of the Universal Credit Regulations.
11. A copy of Regulation 25 is attached. Sub-paragraph 25(3)(i)(a) states that the claimant must have a liability that is ‘on a commercial basis’. However, it is our submission that Regulation 25(3)(i)(a) is ultra vires.
12. Section 11(3) of the Welfare Reform Act 2012, as in force at the date of the decision under appeal, enables regulations to be made regarding Universal Credit housing costs. A copy of Section 11(3) is attached.
13. Section 11(3) enables regulations to make provision for the following:
(a) what is meant by payment in respect of accommodation [payments of rent are covered by Regulation 25(2)(a) and paragraph 2 of Schedule 1];
(b) circumstances in which a claimant is to be treated as liable or not liable to make such payments [Regulation 25(3)(a)(ii) and (b) and Part 1 and 2 of Schedule 2];
(c) circumstances in which a claimant is treated as occupying or not occupying the accommodation [Regulation 25(4) and Parts 1 and 2 of Schedule 3];
(d) circumstances in which land is to be included in the accommodation [as (c) above]
14. Nowhere in Section 11(3) or in the relevant Regulations identified above, is there any requirement for the liability to be commercial. In summary:
• The definition of ‘payment’ in Regulation 25(2)(a) and paragraph 2 of Schedule 1 makes no reference to, or
requirement for, the payment to be on a commercial basis.
• The circumstances in which a claimant is to be treated as liable or not liable to make payments under
Regulation 25(3)(a)(ii) and (b), set out in Parts 1 and 2 of Schedule 2, make no reference to, or requirement
for, the liability to be on a commercial basis.
15. Although Regulation 25(3)(a)(i) requires liability to be on a commercial basis, Section 11(3) of the WRA 2012 does not enable regulations to define the nature of the liability itself: so far as rent is concerned, the regulations can only define what a payment is and when a claimant can be treated as liable or not liable to make payments. Our submission therefore is that Regulation 25(3)(a)(i) is ultra vires.
16. It cannot be argued that the nature of the tenancy (whether commercial or otherwise) is dealt with by Reg 25(3)(b) – circumstances in which the tenant is treated as not being liable to make payments, because those circumstances are defined under Reg 25(3)(b) as being those listed in Part 2 of Schedule 2. None of the circumstances listed therein relate to whether the tenancy is commercial.
17. We believe that this is a drafting error. Under the previous housing benefit scheme, non-commercial liabilities were included in the list of circumstances which will cause the claimant to be treated as not liable for housing costs (Regulation 9(1)(a)). As stated above, this is not the case with Universal Credit. The list of circumstances which will cause a claimant to be treated as not liable to make payment for Universal Credit purposes is in Part 2 of Schedule 2; the list is finite and does not include liabilities which are deemed non-commercial.
18. It is our submission therefore that the Respondent’s reasons for refusing to award a housing cost element have no basis in law:
i. the question of whether Mr E meets his liability to pay rent cannot be relevant to whether he has a liability; and
ii. there is no lawful provision for entitlement to the Housing Cost Element to be based on whether the liability is commercial or not.
Hi Rachel
I’m not sure that I am travelling with you on this. It seems to me that you have overlooked s11(1) which states:
“The calculation of an award of Universal Credit is to include an amount in respect of any liability of a claimant to make payments in respect of the accommodation they occupy as their home”.
(As an aside: there can be no such thing as a contract unless something is provided for valuable consideration, i.e. money or money’s worth. Thus the very essence of a contract is its commerciality. This is as old as the law itself. As a tenancy is a form of contract the “liability” gets it’s commerciality from the essence of the contract itself. However, the legislator has left nothing to chance by including the word “commercial” in the regulations).
Regulation 25(3)(a)(i) stipulates that the liability to make payments must be on a commercial basis. The HB regulations did not directly do this, considering that the need for liability was contained in s130 of the SSC&B Act. In the HB regulations the word commercial first appears in regulation 9 which provides for treating someone as not liable. Given the provision of 25(3)(a)(i) there is no need to include the commerciality factor in the UC equivalent of regulation 9.
Thus, in my view, it would be wrong to consider whether s11(3) authorises regulation 25(3)(a)(i) as s11(1) does. So the regulation is fully intra vires s11(1).
Where, I do travel with you though is on the payment of rent. I wouldn’t put it as bluntly as “payment of rent is a matter of fact”. It is, but that it is as a legally enforceable term in a contract which can be sued upon in a court of law. Not paying his rent does not in itself, destroy the commerciality of the agreement, nor nullify the liability within it. It is simply one factor to consider in deciding whether, as a whole, the agreement is commercial or not. That is an old, old argument.
Hi Nevip
Thanks and I can see what you’re saying. I’m just still struggling to see how someone who is liable can effectively be deemed not liable on non-commercial grounds when the ‘deemed not liable’ list is finite and doesn’t include non-commercial liabilities.
s11(1) of the WRA says that any liability will do, and the only qualification to that is s11(3) which states that regulations can provide for claimants to be treated as liable or not liable. That’s it. And then Reg 25(3)(a)(i) is slipped in to say, ‘Oh and by the way the liability also has to be commercial’ . The Act doesn’t say that the agreement has to be commercial. or that Regulations can define what ‘liability’ means.
I think that’s the difference for me between HB and UC - the HB Regs didn’t define what liability meant, but provided that a liability which did exist would not count if it was not on a commercial basis. The UC regs seek to define what is meant by ‘liability’ and that seems to be a different thing to me..
Perhaps I just can’t let go!
The OED definition of liability means:
1. The state of being legally responsible for something
2. A thing for which someone is responsible, especially an amount of money owed
The third definition is not relevant here.
A tenancy, i.e. A grant of land for rent is a form of contract. In contract law a contract is a commercial agreement in private law which gives an outward tangible form to legal relations. One that is capable of enforcement in a court of law.
When the word liability is used in HB/UC legislation within the context of the legislative scheme then commerciality is implied in light of the above. If there is no obligation in law to pay rent for the use of the land then not only is there no commerciality (as there is no legal contract, written or otherwise), there is no liability either. Thus s11(1) is simply not satisfied.
I understand your point about the fact that as “commerciality (or the lack of it) is not on the list of things that don’t make a person not liable for rent then the fact of that non-commerciality does not make the person not liable. But if the above analysis is correct then it doesn’t need to be on the list as the person is not liable in fact and law so a deeming provision making him not liable is unnecessary.
That said, this is far from my final position on this and at this point I think HB Anorak’s input would be beneficial here.
I think Reg 25(3)(a)(i) is intra vires section 11 - I don’t think it is necessary to read a commerciality requirement into s11(1) itself.
I read paragraphs (2) to (4) of Reg 25 as mirroring heads (a) to (c) of subsection 11(3), in the same order:
- 25(2) deals with the nature of eligible payments for the purpose of s11(3)(a)
- 25(3) deals with liability for the purpose of s11(3)(b)
- 25(4) deals with occupation for the purpose of s11(3)(c)
Thus the whole of Reg 25(3) is prescribing circumstances in which a person is or is not to be treated as liable to make payments under s11(3)(b). Commerciality is seen as such a fundamental requirement that it has been placed right up there in Reg 25 itself and not relegated to the Schedule. But in substance Reg 25(3)(a)(i) is saying that the circumstances in which a person is not treated as liable for the purp[ose of s11(3)(b) include a case where the payments are not on a commercial basis. It must be saying that because it is in Reg 25(3) - that’s what Reg 25(3) is for.
I might be missing the point but surely whether a liability is legally enforceable and whether it is commercial is a different thing. For example someone might own a property hoping for a big fat capital return in the future and rent it out at a loss in the meantime. This is arguably not commercial - no money being made from the tenancy but I don’t think that changes whether the person is legally liable.
I think you’re reading too much into the word ‘commercial’ - specifically, that ‘commercial’ necessarily implies making a profit. Such an interpretation would put a question mark over a significant number of tenancies, not least those where the landlord is a charity or HA and where, at least if one were to assess the issue on what those organisations say about themselves, they are not run for profit.
I think you’re reading too much into the word ‘commercial’ - specifically, that ‘commercial’ necessarily implies making a profit. Such an interpretation would put a question mark over a significant number of tenancies, not least those where the landlord is a charity or HA and where, at least if one were to assess the issue on what those organisations say about themselves, they are not run for profit.
I agree. Commercial connotes the existence of legal relations. Profit is a separate question.
Just re-visiting this one as the “non-commercial” v “contrived” tenancy situation has arisen in a case I am advising on. Client, in full-time employment and not in receipt of benefit, rents a property from his father (non- resident) in 2012. A Tenancy agreement was drawn up and signed. Father is renting the property as an additional income to his retirement provision and it just so happens his son was looking for a property. Win-Win. Son has mental health problems and in 2019 eventually claims UC after a few months without money. UC reject his claim for housing costs on the grounds client does not have a liability to make payments on a commercial basis.
The decision appears based on the following:
Client is £1800 in arrears (6 months rent) and his landlord would not accept a lower amount in rent.
Landlord has stated he will not take legal action to recover rent arrears (in fact he doesn’t quite state this, he says he would find it difficult to make someone homeless with the difficulties [mental health] he has. Client has been issued with a warning (prior to claiming UC) that if he did not pay he would be evicted, but nothing formal appears to have been done about this)
Finally he did not pay a deposit to be held in the Tenancy Deposit Scheme which is “standard practice for commercial tenancies”
There is some gumph about abuse of the HE of UC, but as the tenancy existed prior to UC coming into existence, this is an easy argument to counter, as this clearly has not been contrived in order to secure the HCE.
So my counter-argument is that the tenancy must be commercial as it has a tenancy agreement and the son has a history of paying the rent under that agreement since 2012 and it is only when he fell on “hard times” that he could not pay. His father has made it clear that if he does not receive payment he will have to sell the property, but is finding it difficult to do so and thus make someone (co-incidentally his son) homeless because of his social conscience. The fact that he chooses not to evict or delays doing so, surely does not automatically render what was once clearly a commercial tenancy non-commercial, (after all I have seen greater inaction on behalf of some social landlords).
Does this sound reasonable or do UC have a point?
Confusingly the MR notice contains the following gem, which I think is a cut and paste from two pieces of guidance:
“The issue is not whether a liability exists, but whether a liability was created to abuse the HE of UC. It must be decided as to whether a liability exists before considering whether or not it is contrived” Chicken and egg folks?
I wonder if this should be a new thread?
I think that sounds like quite a strong, and certainly reasonably arguable, case. The argument is that it is in all respects an ordinary tenancy and it is only really marked out because, the way the chips have fallen, the landlord decided to rent to his son rather than someone else. There is presumably records of the rent having been paid prior to the UC claim. The points raised by the DWP are all pretty weak in my view. The only real argument they have is the landlord not taking action regarding the rent arrears, but it is not inconsistent with an ordinary commercial agreement to have a landlord carry some amount of rent arrears (particularly whilst an appeal process is being followed which might well mean that it is all paid). The deposit point is really weak.
Perhaps I will be told off for this, but I don’t think you need to get hung up on the distinctions between liability, commerciality and contrivance in a case like this. They tend to congeal together. Your client’s primary case - that this is all a perfectly ordinary bona fide tenancy - is a complete answer to all of them if accepted. I would just focus on that.
Thanks Elliot. I think UC are hanging this one out on the liability peg because they know they can’t succeed on the contrivance argument. and I don’t think they have much chance on the liability as this is as you point out a bona fide tenancy.