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Forum Home  →  Discussion  →  COVID-19: Welfare benefit rules and entitlements  →  Thread

No income because commercial tenant not able to pay rent.

Nicola Hersh
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Freelance benefits consultant, London

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The man is over pension credit age but only has a very small state pension, no other income & minimal savings.
He owns a commercial property and he lives off the rent from this property. However, his tenant cannot pay the rent, as they have had to close due to the virus. I note that a property can be disregarded for 26 weeks if it is in the process of being sold, but he does not want to sell the property now. I do not think he can claim under the Self-Employed Income Support Scheme, as a landlord of a single property is not considered self-employed.

Can he claim pension credit and/or housing benefit (he pays rent for the home that he lives in,) on the basis that he cannot currently take action against the tenant?

Overall, he cannot manage on his very small state pension. Any suggestions?

 

Stainsby
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He could make a claim for housing benefit and pension credit but the value of the commercial premises will not be disregarded unless he has taken “reasonable steps” to dispose of the premises. (Sch 6 paragraph 7 Housing Benefit (Persons Who Have Attained The Qualifying Age for State Pension Credit) Regulations 2006 as amended)

The rent from those premises may well be assessed as zero for the time being but the capital value would be what a willing buyer would pay, although the value might be considerably reduced in the current pandemic(?)

What ” reasonable steps ” are will depend on the circumstances .  In CIS/1915/2007 Mr Deputy Commissioner (now Judge) Mark held at [21]

“21. I am therefore satisfied that at 4 July 2006, the steps taken by the claimant temporarily to suspend her divorce proceedings until she had moved to a new address and changed her name to secure her safety did not mean that she was no longer taking reasonable steps to dispose of the premises through divorce proceedings.  She was taking such steps by moving home and putting herself in a position where she could safely proceed.”

Exploring options such as getting a valuation of the property might be considered to be “reasonable steps” while we are still in lockdown

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Nicola Hersh
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Freelance benefits consultant, London

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Derek - Thank you - very helpful

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Elliot Kent
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Whilst this is perhaps an unhelpfully flippant answer, given that the steer from central government is apparently that random stockpiles of cash can be disregarded on the proposition that they are to discharge future liabilities, I wouldn’t be too pessimistic about just putting the claim in and hoping for a fudge in your client’s favour.

https://www.rightsnet.org.uk/forums/viewthread/15963

Brian Fletcher
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With the greatest respect - if the property is a commercial business asset it is not about part ownership of a matrimonial home as addressed by CIS/1915/2007, and I would suggest the case has limited or no application at all in these circumstances. Neither is the conclusion that the ownership of a single property does not constitute self-employment.

Owning and renting out a single residential property may very well not be determined to be , but owning and renting out a commercial premises is a whole different scenario.

Stainsby
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One issue in CIS/1915/2007 was that of part ownership of a matrimonial home, but there was also the wider issue of whether she could still be found to be taking “reasonable steps” to dispose of the asset when she suspended proceedings.

Mr Deputy Commissioner ( now Judge ) Mark held in CIS/1915/2007 at [17]-[18]

17. On this appeal, the secretary of state has submitted that a more flexible approach should be taken to the question of reasonableness, so that if there is a break in the divorce proceedings, whether to see if a reconciliation could be achieved, or because of family pressures or threats of violence if they are proceeded with, all the factors need to be looked at to determine whether the claimant is taking reasonable steps in relation to the proposed divorce.

18. In my judgment, the secretary of state is right that in considering the reasonableness of the period taken by the claimant to secure a divorce and the resulting disposal of the premises, including any temporary suspension of such action, it is necessary to look at all the facts, including the pressures that were brought on this claimant.  The tribunal failed to approach the matter in this way, and on this account also it was in error of law.

The present case is obviously by no means on all fours with the case before Judge Mark in CIS/1915/2007, and I have not found any other authority, but I see no reason why (to use Judge Mark’s words at paragraph 18) it should not be “necessary to look at all the facts, including the pressures that were brought on this claimant”

The principle must apply to situations other than the disposal of former matrimonial homes in divorce proceedings

I don’t know enough about the commercial tenancy in this case to make a judgement on whether or not it could constitute the assets of a business.

Paragraph 10 of Sch 6 would allow the asset to be disregarded, but only if the claimant is engaged in , or has ceased to be engaged in that business as a self- employed earner, so that would be another hurdle to jump

[ Edited: 15 Jun 2020 at 01:59 pm by Stainsby ]
HB Anorak
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Paragraph 10 of Sch 6 would allow the asset to be disregarded, but only if the claimant is engaged in , or has ceased to be engaged in that business as a self- employed earner, so that would be another hurdle to jump

Well surely that is what would make it a business asset in the first place?  If the claimant is self-employed in the way he deals with that property, it’s a business asset, which in turn satisfies the disregard [principally para 9 of Schedule V if it’s a Pension Credit claim].

From what we know of the facts, I would actually be surprised if this involves enough work to amount to self-employment.  We are told there is one tenant, so this seems to have more in common with owning one residential property and renting it out to someone.  I would think that the “reasonable steps” angle is the only realistic route to a disregard.

Something worth noting is that Pension Credit has no capital limit, only tariff income so, depending on the value of the premises, the claimant might qualify for a small amount of Guarantee Credit which would then passport him to full HB even if the value is more than £16,000.  Obviously the amount of pension income he has (if any) would limit how far up the tariff income scale he can go.

Gareth Morgan
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I’m not clear why the type of property owned is important.  I think it’s more the scale of operation.

Commissioner Mesher considered this in CCS/2128/20018. ….  Commissioner’s decision R(FC) 2/92, although it is about the question of whether a house that was let constituted a business asset, does give helpful guidance. The mere ownership of property and the receipt of rent and payment of expenses or liabilities would not constitute employment as a self-employed earner. That situation is more properly looked at as the ownership of a capital asset, which produces income. But there will come a point, depending on the circumstances of individual cases, at which the amount of administration and/or activity involved even in the letting out of a single property would amount to the carrying on of self-employment

In R(CS)2/06 Commissioner Jacobs concurred:49. I respectfully agree with Mr Mesher. It is possible that in this case the rental of the properties and the related powers and duties constituted a business. The tribunal went wrong in law by not dealing with this issue. The tribunal must investigate this issue at the rehearing. The authorities relied on by Mr Goodman show that the issue is one of the proper use of language: is what the non-resident parent does within the normal signification of the word “business”? It is not just a matter of the number of people that are involved, or the number of properties that are owned, or of the number of units that are let. The tribunal must consider all the relevant circumstances of the case.23.The decision must be decided upon the relevant circumstances of the case, after detailed consideration.

In other words, there’s no simple rule related to the number of properties, it has to be looked at carefully.

Brian Fletcher
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I maintain my original position:

The OP says;
‘He owns a commercial property and he lives off the rent from this property. However, his tenant cannot pay the rent, as they have had to close due to the virus’.

This is clearly not primarily a residential property - and the income from it is what he lived off - which is on the circumstances, earnings from a commercial venture.

Schedule 10 IB regs 1987 (6) provides that
‘The assets of any business owned in whole or in part by the claimant and for the purposes of which he is engaged as a self-employed earner or, if he has ceased to be so engaged, for such period as may be reasonable in the circumstances to allow for disposal of any such asset.’

Just because the tenant of a commercial property has ceased to pay his rent, does not mean that the property owner has ceased his business. Indeed, he does not want to sell the property according to the OP, so effectively, he is only experiencing a downturn in his business and it would seem he wishes to carry on. If the business is carrying on, then he has not ended the business at all, and for the purposes of this section, he has not ‘ceased to be so engaged’; therefore it would fall to be disregarded entirely.

In this situation, and where the property owner intends to keep the property and carry on with the business, the six months disregard would not apply – the property is simply disregarded.

That would be my argument with which you may not necessarily agree, it is nonetheless, the route I would take on the information to hand.

In respect of the tenant(s) themselves, the Coronavirus Act does not suspend the right to rent or other payments. While the moratorium applies, landlords retain the right to charge interest on the arrears at a rate specified in the lease and to bring debt recovery proceedings against tenants.

Charles
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As Peter and Gareth say above, what the tenant uses the property for has no relevance. A commercial property will be used by the tenant for a business, but that doesn’t mean the landlord is carrying out a business.

Not relevant here, but it is interesting to note that Universal Credit has restricted the business asset disregard to a “trade, profession or vocation”, so it will not apply to a property business. See Sched. 10 Para. 7 and Reg 77(1) and (3). I have heard a number people mistakenly say the same rules (and case law) applies, and in fact the CPAG handbook makes this error.