Category Archives: legislation

Summertime… but the living ain’t easy!

Andrew Arden QC & Robert Brown

The bedroom tax is now 16 months’ old. Publication of a new report shows that it is not working.

We considered part of the Government’s package of benefit reductions (or “reforms” as the Government insists on calling them) a few months ago, in ‘Being for the benefit of Mr Tight’. One of the key measures is the bedroom tax. To recap, the bedroom tax is implemented by regs A13 and B13 of the Housing Benefit Regulations 2006 (SI 2006/213) (as inserted by the Housing Benefit (Amendment) Regulations 2012 (SI 2012/3040)). It requires local housing authorities to calculate the housing benefit payable to social housing tenants by, inter alia, reference to the number of bedrooms for which the claimant is eligible, defined by the number of occupiers of the property – for instance, a couple are expected to share a bedroom; likewise, two children under the age of 10 are expected to share. If the property contains an extra bedroom, the housing benefit payable is reduced by 14 per cent; if two or more extra bedrooms, by 25 per cent.

As we noted back in April, the impact assessment supporting the amending regulations suggested no great financial savings, maybe even none. The theory behind the bedroom tax was that under-occupied social housing should be freed up in order to allow families to move out of over-crowded housing. As we said then

“In reality, it is not so simple: there are many more cases where an extra bedroom is legitimately required than the Regulations provide for; and, it is outright ignorant to assume that moving is simple or in many cases even possible, especially if a social landlord (offering an affordable rent) does not have (or is not willing to offer) an appropriate, smaller property. Thus, there is no qualification on the reduction that smaller, affordable accommodation is available, or that the local housing authority will make it available. …

“We do not need to rely on our experience of working with social landlords and tenants to know just how exceptional it is to be able to make this sort of home-swap. Not only is it general knowledge but it was also the predictable consequence of an increasingly-capped housing benefit system that more and more private landlords would cease to accommodate tenants dependent on it.”

You no longer need to just take our word for it: DWP has now published an interim report, Evaluation of Removal of the Spare Room Subsidy, which looks at the first six months of the bedroom tax. A final report is promised for 2015 but for now there is much to take from the interim report.

Discretionary housing payments (which, if Government is to be believed, are the solution to any discrimination caused by the bedroom tax) are not sufficient. The interim report notes that some disabled applicants for DHP have failed means tests applied by local authorities, because they are in receipt of disability benefits – even though those benefits are meant to help with some of the extra costs of having a long-term disability or health condition and are not intended to help with housing costs: see Burnip v Birmingham CC [2012] EWCA Civ 629; [2013] H.L.R. 1.

Another concern in relation to DHPs was that some benefit claimants affected by the bedroom tax had either failed to apply for a DHP altogether or failed to provide adequate evidence in support of their application, especially where there was a mental health condition.

Finally, so far as DHPs are concerned, awareness of their availability is too low: over half of those who were affected by the bedroom tax and had not applied for a DHP said that they were not aware of the possibility.

Tenants, meanwhile, are clearly struggling with the financial impacts: 57% say that they have spent less on household essentials, 21% that they have borrowed money from family or friends, 3% have borrowed money via a credit card, while 3% have borrowed money through a pay day loan. The researchers do not appear to have asked tenants whether they had borrowed from a loan shark, but we note that 2% of affected tenants said that they had taken some “other” action, which must raise concerns about the measures to which tenants are being forced to resort.

On the other hand, only 13% of tenants said that they had looked at moving to another social housing property. Just 3% said that they had looked at moving into the private rented sector although those who had done so did appear (according to the report) to have had some success: 1.4% of affected claimants (i.e. half those who had looked into it) moved out of social housing and into the private rented sector. The net result for the HB bill is fairly obvious.

Unsurprisingly, rent arrears have increased. While the interim report was careful not to attribute this directly to the bedroom tax, it is surely the most obvious candidate. The conclusion seems logical: 41% of affected tenants are reported as having paid the full shortfall; if 41% did…

And what does the interim report say about the grand aim of the bedroom tax: incentivising tenants to move to smaller properties and free up space for larger households? Very little, it seems. A mere 4.5% of affected claimants managed to move to a smaller property.

If the Government is concerned about wasted space, it is not even clear that the right people are being targeted. A recent research paper, ‘Quantifying the extent of space shortages: English dwellings’, has concluded that, if the Government wishes to identify oversized homes, the relationship between the number of inhabitants and the number of bedrooms is a poor metric to use. The researchers found that under-occupation was less common in dwellings where HB was paid and that most properties for which HB was paid were undersized when compared with the space standard adopted by the Greater London Authority for new-build homes. The researchers also found that, somewhat counter-intuitively, 75% of households who lost some HB due to the bedroom tax were undersized when compared with the space standard. Based on their analysis, only 19% of those affected by the bedroom tax actually had more space than they needed. One cause of the problem is that properties in the UK are simply too small: the UK has the smallest homes by floor area in Europe. As the research paper concludes

“the vast majority of homes are at or below acceptable space standards. This physical shortcoming has been mitigated by residents having low occupation rates, which are necessary and should not be regarded as a wasteful use of space.”

Assuming that the policy goal is a legitimate one, the bedroom tax fails to achieve it because the brute-force methodology does not identify those properties with excess space.

The future for the bedroom tax is uncertain. Labour have said that they would scrap it, while the Liberal Democrats have undergone a partial change of heart and no longer support its current implementation. Given the damage that is being done to tenants, and to the budgets of social landlords, the real question is whether change can await the final report and the general election.

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Measure Twice, Cut Once

Andrew Arden QC & Robert Brown

As Parliament prepares to amend legislation protecting tenancy deposits, we look at what this means for landlords and tenants and consider the lessons for legislators.

Tenancy deposit legislation: a brief history so far

The idea that a landlord taking a deposit from a tenant was free to do pretty much whatever he chose with the money have been around for a long time. In 1998, the National Association of Citizens Advice Bureaux published its report, Unsafe Deposit, which suggested that 48% of CAB clients surveyed had had a landlord unreasonably withhold some or all of the deposit in the previous five years. The Survey of English Housing for 2001/02 found that 69% of tenants who had not had any or all of their deposit returned felt that money had been unjustifiably withheld. While these figures should be treated with some caution – “after all, they would say that, wouldn’t they?” – they clearly gave rise to justified concern.

The sums involved are far from insignificant. In 2002, 70% of the 2.21 million private rented sector tenants had paid a deposit. The average deposit was around £510 (the equivalent of a month’s rent), leading to a calculation that around £790m was being held in deposits. As we have previously noted, the number of private rented sector tenancies has now risen to 4 million. The English Housing Survey reveals that the average rent in the private rented sector is now £163 per week, or a little over £700 per month. Assuming that the proportion of tenancies in which a deposit has been paid has remained stable at 70%, and assuming that the average deposit still represents a month’s rent, £1,960m is currently being held by way of tenancy deposits. Furthermore, as experience is that it is becoming increasingly common to ask for a deposit of more than one month’s rent (i.e. a second months’ deposit to cover the last month’s rent), the total is likely to be even higher.

The consequences for tenants can be more than just the obvious financial issues: Unsafe Deposit cited cases of households facing considerable hardship and even homelessness through their deposits being withheld, as they had no means to raise a deposit for the next property.

In 2000, a voluntary tenancy deposit scheme was set up by the Independent Housing Ombudsman. Take-up was very slow. In 2002, the Office of the Deputy Prime Minister consulted on this issue in Tenancy money: probity and protection, saying that the failure of landlords to sign up to the voluntary scheme meant that a statutory scheme was being considered. Although a draft Housing Bill was published in March 2003, just a month after the consultation closed, it did not make any provision for tenancy deposits. In December 2003, a Bill was introduced to Parliament but there was still nothing covering tenancy deposits.

It was not until May 2004 that the then Minister for Housing and Planning announced that the Government would be bringing forward amendments to the Bill to cover tenancy deposits. Those amendments did not, however, materialise until a relatively late stage in the Bill’s passage through Parliament which had the unfortunate effect that, while the policy behind the measures had been consulted on, the technical detail of the legislation had not.

The tenancy deposit schemes provisions were ultimately passed as Pt 6, Ch.4, Housing Act 2004. Section 213(1) provided that where a landlord received a tenancy deposit in connection with an assured shorthold tenancy, he had to deal with the deposit in accordance with an authorised scheme. The initial requirements of the scheme had to be complied with within 14 days of receiving the deposit and a landlord had to provide his tenant with certain prescribed information within the same period. The prescribed information is to be found in the Housing (Tenancy Deposits) (Prescribed Information) Order 2007 (SI 2007/797). It includes such matters as the contact details and procedures for the deposit scheme and identifying features of the tenancy.

The sanctions for non-compliance are found in ss.214 & 215. Where a deposit has been paid, but the landlord has failed to deal with it properly, the tenant could apply to the county court. The county court is empowered either to order the landlord to pay the deposit into a custodial scheme or to repay it to the tenant. The court was obliged to order the landlord to pay the tenant a sum equal to three times the amount of the deposit. Section 215 provides that a landlord who had not complied with the requirements relating to a deposit is unable to serve a notice under Housing Act 1988, s.21.

There are two types of tenancy deposit scheme: custodial and insurance. In a custodial scheme, the landlord pays the deposit over to the scheme administrator. The scheme administrator then keeps the deposit until the end of the tenancy, at which point it is returned to the landlord or tenant, as appropriate. In an insurance scheme, the landlord keeps the deposit. At the end of the tenancy, the landlord is required to make the appropriate repayment to the tenant, via the scheme administrator. The scheme administrator is also required to maintain insurance, to cover any shortfall if the landlord does not cooperate. There are authorised schemes of both types.

The tenancy deposit provisions came fully into force on 6 April 2007. They have been the subject of much subsequent litigation. Two Court of Appeal decisions substantially reduced the effect of the protective measures. First, in Tiensia v Vision Enterprises Ltd (t/a Universal Estates) [2010] EWCA Civ 1224; [2012] 1 W.L.R. 94; [2011] H.L.R. 10, the Court of Appeal held that where a landlord has failed to comply with the initial requirements of an authorised scheme, he will not be liable to pay the statutory penalty if the deposit is protected before a county court hears the application under s.214. Secondly, in Gladehurst Properties Ltd v Hashemi [2011] EWCA Civ 604; [2011] H.L.R. 36, it was held that a county court could not order a landlord to pay the statutory penalty if the tenancy had come to an end.

Parliament sought to reverse the effects of both decisions through amendments in Localism Act 2011. The time for complying with the initial requirements of a scheme and for serving the prescribed information was extended from 14 days to 30 days. If the landlord fails to comply within that 30 day period, the county court can award a statutory penalty even if the landlord does subsequently comply. This has the effect of reversing Tiensia. Amendments were also made allowing a tenant to make an application under s.214 after the tenancy had come to an end, thus reversing Hashemi. The statutory penalty was itself amended, however, to give county courts a discretion as to how much to order the landlord to pay to the tenant (within a range of one to three times the deposit).

Litigation around the 2004 Act has not abated. In Superstrike Ltd v Rodgrigues [2013] EWCA Civ 669; [2013] 1 W.L.R. 3848; [2013] H.L.R. 42, the parties had entered into a tenancy on 8 January 2007 (i.e. before the provisions of the 2004 Act came into force) for a term of 364 days. A deposit had been paid by the tenant. In January 2008 (i.e. after the provisions came into force), the fixed term came to an end and a statutory periodic tenancy arose under Housing Act 1988, s.5. The landlords retained the deposit. The Court of Appeal held that this amounted to a new tenancy and that the tenant was to be treated as having paid a deposit at that time. As the landlords had failed to take any steps to comply with the tenancy deposit scheme provisions, they were prevented from relying on a s.21 notice.

Left unclear was what would happen where a fixed term tenancy was entered into after the 2004 Act came into force, and the provisions were properly complied with: did the commencement of the statutory periodic tenancy comprise a new tenancy with the result that the provisions had to be complied with afresh?

As a response, the Government is now bringing forward further amendments to the tenancy deposit schemes legislation, which have been introduced to the Deregulation Bill currently progressing through Parliament.

The Deregulation Bill

At first glance, the Deregulation Bill may seem an odd vehicle for amending the tenancy deposit legislation. That may be so but the long title of the Bill says that it is designed to make “provision for the reduction of burdens resulting from legislation for businesses or other organisations or for individuals.” Those in the business of being landlords will hope that the amendments do relieve them of the considerable burden that Superstrike threw their way.

In its current form, cl.31 of the Bill would introduce four new sections into the 2004 Act, as 215A-215D.

Importantly, the new s.215A provides that the requirements in s.213 will apply to any AST where a deposit was received before 6 April 2007 and a statutory periodic tenancy has arisen on or after that date: that adopts Superstrike. Time for compliance in those circumstances is, however, extended to 90 days from the commencement date of these amendments, during which there is a period of grace the effect of which is that the reversal of Tiensia does not apply, i.e. if the landlord complies within this period, there will – in these Superstrike cases – be no penalty.

The new s.215B will also reduce a landlord’s burdens. It provides that where a deposit has been received in relation to a fixed-term AST and has been dealt with properly, there is no need for the landlord to re-comply where a statutory periodic tenancy arises. The new s.215C makes similar provision where a new fixed-term or contractual period tenancy is entered into.

A wider problem?

It is just over seven years since the tenancy deposit schemes provisions in the 2004 Act came into force. In that time, Parliament has already had to use the Localism Act 2011 to amend the legislation once. The second set of amendments, contained in the Deregulation Bill, are likely to become law soon. These changes have not been caused by some change in policy. The changes have been brought forward because the original legislation was not working as it had been intended to. Having realised this, Parliament attempted to fix the problem in 2011. It is clear from the need for further amendment that this was not successful.

Our intention here is not to criticise the policy – we could argue that it should go further (Shelter’s suggestion, in response to the 2002 consultation, of a single, national custodial scheme which directly collects and holds all deposits has much going for it), but the general thrust of the policy is in the right direction.

The lesson that we would like to see learned from of all of this is that although it is all very well consulting on policy options, it is not enough to ensure good legislation. Housing law is complex. The technical application of the law is, in practice, at least as important as the policy. As we have already noted, there was no consultation on the wording of the tenancy deposit scheme provisions. Hindsight is, of course, 20/20. Nonetheless, we are confident that at least some of the problems that have befallen the tenancy deposit schemes legislation could have been avoided if draft legislation had been made available for public consultation.

It is unfortunate that the Law Commission was not asked to become involved as by the time that it produced the draft Rented Homes Bill in 2006, it was already too late. In any event, while the Law Commission’s involvement would surely have been beneficial, this is not necessarily the type of work that it is designed for. While the Law Commission’s functions include law reform projects, these are invariably substantial, over-arching projects (such as “Renting Homes”). The tenancy deposit legislation called for something a bit different.

What would have been useful in the summer of 2004 is a consultative and advisory body that can focus on specific, discrete legislative topics while remaining able to consider them in the wider context. Perhaps the time has come for a Housing Law Commission? If the Government decides to proceed with legislation tackling retaliatory eviction, it will certainly be necessary to ensure that the legislation is both understandable and effective. Equally, we have previously suggested some areas of possible reform, such as licensing of landlords and letting agents and lettings to students.

You never know, if someone asks nicely we may even be persuaded to participate…

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