lodger and severe disability premium

I have a client who receives ESA with a Severe Disability Premium. He has taken in a lodger, charging her £20 per week, primarily to deal with the bedroom tax.  Within the rules a lodger does not count as another person for SDP purposes but I am worried that £20 per week might not be considered to be “on a commercial basis”. He may leave himself exposed to malicious information as to “living together as husband and wife”. He has informed his landlord and LCC and I will be writing to the Jobcentre Plus on his behalf.  Any comments or suggestions as to how to establish that it is a genuinely commercial relationship.  Thanks   Ruth

Why is he only charging £20 p wk?  Won’t he have to explain that if there is any query?

The DMG at chapter 44 references R(IS)11/98, to say:

For a liability to be on a commercial basis1 (see DMG 44139 5.)
1. there should be a legal liability to make the payment and
2. the payment should be broadly in line with what a lodger might pay for similar accommodation and facilities.
Payments for gas, electricity, laundry, food and the provision of care are not payments for facilities. Payments for such items do not confer liability and should be ignored in any comparison.

‘Commercial basis’ and ‘legal liability’ are two separate tests:

44129 “Liable to make payments” refers to legal liability. When considering the question of liability, the DM must consider whether
1. the claimant has the contractual capacity to enter into an enforceable contract and
2. there was an intention to create legal relations.
44130 If the conditions in DMG 44129 are met, the DM must then establish that1
1. there is an obligation to make payments derived from a recognized source of law (for example contract law) and
2. the obligation to make the payments is for the occupation of the premises and not, for example, for food or clothing and
3. the power to bring the licence or lease to an end is referable to a breach of the condition to make the payment under the contractual licence or lease and not to some other matter.

CPAG references further caselaw at p252 on the factors taken into account.

I think I’d be asking things like: is there a rent book? Are there bank statements showing the actual payments? How was the arrangement made in the first place? (eg keep a copy of any advertisement, if it was done that way).

Regarding the level of payment, income from a lodger has a £20 disregard. A tenant might decide there is nothing to be gained in restricting his choice of lodgers by charging above that, and he would lose the excess £ for £ from his ESA. That might just be a sensible commerical decision? In any case, there is no requirement in any of the above to be making a profit, or even fully covering all the costs.

But isn’t the problem what you quote?

“2. the payment should be broadly in line with what a lodger might pay for similar accommodation and facilities.”

Would that not be quite a bit more than £20 p wk?

It’s a good point, especially when the local “shared room” rate for LHA, for example, might be £55 or so. Of course, a charge might be “broadly in line” with that, while being higher or lower to take into account the particular accomm and facilities being offered. I would perhaps point out that the caselaw about commerciality appears to be from the tribunal trying to decide if payments to a family member are commercial in nature, i.e. are such as might be paid by a lodger. On the assumption that there is no other link between the tenant and putative lodger apart from the contractual one, then I don’t know whether the level of payment would be so crucial in determining commerciality?
(I’m hoping someone more knowledgeable than me will weigh in on this now)

Modern developments in housing law have taken the view that leases are types of contract.  Assuming that is so, then one of the basic elements required for a contract in English law is that of consideration, or valuable consideration.  Thus, each party to the contract must have given something of value to make the contract enforceable in the courts.  The exchange of values does not, as a matter of law, need to be equal and the courts, generally, will not be too worried as long as the value is sufficient to form the contract. 

However, that will not be the end of it by far for HB purposes.  Assuming that the agreement is sufficiently commercial with its terms enforceable at law then (if HB is an issue) the LA, of course will have to look at all of the facts and circumstances, including the intentions of the parties in order to make a broad determination in light of all the evidence to as to whether the agreement was contrived and designed to take advantage of the HB scheme.  Otherwise the DWP will lookk to determine whether it’s a sham agreement. Thus each case will turn on its own facts.

I don’t know why but I’d initially assumed this was a HB issue so I’ve edited my post to add in the reference to the DWP but left in the HB stuff for the sake of completeness.  Thinking further, I think that the DWP (and the LA if HB is an issue) would probably be more minded to consider the lodger a non-dep rather than partner (unless they had some evidence).  Either way, bang goes the SDP.

Is it worth all the hassle risking non dep / SDP status for 20 quid?? If he is in SG of ESA he will have at least £234 a week coming in. Even in Wrag he will get £212 a week.

Im not saying he will live like a king or anything on that amount, it just appears he is risking an awful lot for not much gain.
I wonder if someone has told him to charge only 20 quid as any more may affect his benefits. Confusion about Lower earnings Disregard maybe??

I’m not sure a lodger could be a non-dep. Reg71 (6) of the ESA regs says that a person resides with another if they share any accommodation except a bathroom, lavatory or communal area but not if each person is separately liable to make payments to the landlord.

I wonder if the fact that person A is liable to pay rent to the landlord and person B is liable to make payments for board and lodging to person A may be sufficient to qualify as making separate payments. If this were not the case then anyone who lived in a bedsit where the landlord lived on the premises would have the landlord as a non-dep.

Yes, but the liability must be a legal one.  So, if it’s determined that the agreement is a sham or not commercial, the rule will apply and they will be classed as non-deps.

I don’t think a lodger is separately liable to make payments to the landlord either: the branch falls with the tree.  Separate liability is where the landlord has individual agreements with more than one person - basically an HMO.

£20 is the highest rent that is guaranteed not to affect the means-test as income from a commercial sub-occupier, that’s probably why people choose that amount.  Not an earnings disregard - it’s a different kind if income and £20 is the basic disregard (plus another 50% if meals are included) - see Schedule 8 paras 20 and 21.  But DWP may well take the view that such a low rent is indicative of a non-commercial arrangement fror the purpose of Reg 71(3) ... you can see why they would.  There is a wheelbarrow full of HB case law on commerciality and low rent is not fatal to the case, but it is obviously a relevant factor.

Don’t forget to let your client know that things will be different under Universal Credit.

Under Universal Credit lodgers and boarders will have all their payments disregarded but they also won’t count as occupiers for bedroom rules.  Clearly low payments will not be sensible for for the occupier after that change.

benefitsadviser - 28 November 2013 02:42 PM

Is it worth all the hassle risking non dep / SDP status for 20 quid??

It’s not just the £20 income, a lodger is an occupier for bedroom tax (under HB, though not under UC). So, it’s £20pw, plus 14% of the rent, offset against higher household bills, and so on. I guess we’ll be seeing more of this sort of scenario. Many people have been advised to consider taking in a lodger to mitigate welfare reform, but it’s not often straightforward to weigh up all the pitfalls of doing so.