1996 loophole, arrears paid to landlord

Had a query this morning which I’m not sure about and would welcome any input. Claimant was subject to bedroom tax from April, has pre 1996 tenancy. Local authority identified this and paid the HB arrears. The tenancy is with one of the ALMOs. Claimant has rent arrears - some but not all due to the bedroom tax, she also has historical arrears which she has been paying off a bit at a time. Her HB is paid direct, so the arrears were paid to the landlord. They have recouped the whole outstanding amount of her rent arrears from this payment and sent her a cheque for the balance. Her question is should they have done this? She has a service charge not covered by HB and bizarrely they seem to have paid themselves that out of the arrears as well and told her not to pay anything more till April.