Letting Handbook 3

Back to contents Housing BenefitAdministration of housing benefit by landlords and agents The administration of housing benefit claimants by landlords and agents is becoming increasingly problematic for a number of reasons: • Risk of recovery of overpayments from the landlord or agent • Restrictions in the level of housing benefit paid (especially for the under-35s) • Poor administration of housing benefit by many local authorities It is vital that the landlord or agent who wishes to accept housing benefit claimants as tenants is well-briefed as to the risks and how to avoid or reduce them. These issues even affect those landlords and agents who normally would not choose to deal with housing benefit claimants; the tenant may involuntarily become a housing benefit claimant if he loses his regular employment. Also, in some cases, a tenant will not volunteer the information and a landlord may not be aware that a particular tenant is receiving housing benefit until some later stage. Claim Procedure Since housing benefit and other social security benefits are administered by the local authority, or by a private sector contractor on behalf of the local authority, the general claims procedures can vary between local authorities. It can be useful to contact your local authority in order to understand how benefit claims will be processed, which forms and other information tenants will require, and how long it will typically take to process the claim. Most local authorities will also have a housing benefit information section on their website and landlords should be aware of the local LHA rent levels when setting rents for claimants. Bear in mind that the housing benefit department will not generally discuss a claimant’s claim with the landlord or agent for data protection reasons unless a data protection consent form has been signed by the claimant. Speed and accuracy are important factors to all parties when the applicant prepares his housing benefit claim; the right to payment on account only commences once a valid claim together with all the required information has been lodged. According to statistics released by the DWP; on average, over 60% of all housing benefit claim forms are defective. Evidence required The housing benefit application will generally require the tenant to furnish certain evidence in support of his claim. Typically, this might include evidence of the rent and it may be necessary to supply the tenant with a copy of the tenancy agreement or rent book. Management Agreement Where the letting is managed by an agent, the agent is advised to include a suitable clause in the management agreement or terms of business making provision for recovery of overpayment of housing benefit from the landlord, in situations where recovery is being sought from or imposed on the agent. Since a claim for repayment may occur up to six years after the date of the original housing benefit payment, it is important that this recovery provision or clause ‘survives’ the termination of the original management agreement.The Letting Handbook 15-17 © The Letting Centre 05/2017

Back to contents Housing BenefitRisk Reduction There are several steps that the landlord and agent can take when renting to housing benefit claimants: 1) TENANT SELECTION. Like any other letting, tenants on housing benefit need to be carefully vetted. Despite being on low income, it is important that the tenant is considered to be sufficiently trustworthy that rent payments will be received on time, that the property will be well cared for, and that the general obligations of the tenancy agreement will be honoured. Insurance policies covering the property and rents received will normally have stipulations with regard to tenant vetting (often with additional provisions for housing benefit applicants) and these stipulations need to be carefully read and followed. Tenants with County Court Judgements - CCJs (Sheriff Court Judgements - SCJs in Scotland) entered on the CCJ (SCJ) register are to be treated with extreme caution since this suggests a poor payment history. 2) DIRECT PAYMENTS OF HOUSING BENEFIT. Many landlords of housing benefit claimants automatically request that payments are made directly to the landlord from the housing benefit office. However, as discussed above (Risk - recovery of overpayments), this policy can turn out to be a mixed blessing. Landlords risk substantial recoveries of overpayments for claimant fraud of which they are often totally unaware. Many advisers (including the National Landlords Association) are now recommending that direct payment of housing benefit from a local authority is to be avoided (except as a temporary expedient). Tenants should be relied upon to make their contractual rent payments from the housing benefit received, or other tenants selected who are a better credit risk. An example situation where it might be advisable to accept direct payments is when the rent falls into arrears. Direct payment provides a method for the landlord to obtain payment but this method should be regarded merely as a temporary expedient. If the landlord continues to accept direct payments as a long term arrangement, the financial risks posed by the housing benefit recovery provisions will increase accordingly. 3) DEPOSITS. Due to the incidence of tenants simply disappearing (often leaving rent arrears) or moving without notice, landlords should carry sufficient deposit to balance this risk. One landlord association recommends the landlord should consider asking for a deposit from housing benefit claimants equivalent to at least six weeks’ rent17. 4) GUARANTOR AGREEMENT. Many landlords now insist that the housing benefit claimant provides a guarantor to underwrite the rent and the other obligations under the tenancy agreement due to the difficulty of recovery of any such outstanding balances at the end of the tenancy. The dilapidation deposit is often not sufficient to cover these balances. A guarantor or surety with a good financial history is used to underpin the tenant’s financial obligations. As a last resort, debts can then be recovered from the guarantor by legal action if necessary. Most bona fide tenants are able to find a suitable person (normally a relative or close friend) who is willing to stand as guarantor. The guarantor agreement should be carefully drafted to include any extensions or renewal of the tenancy. The agreement should also contain a clause allowing the landlord or agent to recover any overpayments of housing benefit, either during the currency of the tenancy or up to six years thereafter. The financial obligations should be carefully explained to the guarantor. 5) INSURANCE. Alternatively, the landlord can take out appropriate insurance which can guarantee the rent payments should the tenant default. Read any policy terms carefully.The Letting Handbook 15-18 © The Letting Centre 05/2017

Back to contents Housing BenefitProtecting Against ‘Clawback’ Although most of the housing benefit regulations are felt to be fair and equitable, it is widely acknowledged that the powers of a local authority to demand repayment of overpayments often make unfair demands on landlords and agents in situations where the tenant is clearly responsible for the overpayments (by not notifying the local authority of a change in circumstances). It is therefore entirely justifiable in such situations that landlords and agents will seek means to protect themselves against abuse of these powers by the local authority and some possible solutions are discussed below. These measures are protective and not to be confused with other creative solutions designed to deceive or defraud a local authority into making false benefit payments. The following measures are suggested: • Avoid direct payments altogether (i.e. tenants receive housing benefit) • Set up a separate limited company purely to receive, process and then pay out again rent payments from housing benefit claimants. In the event of a receiving a significantly high repayment claim from the local authority, the company, having no significant assets would be unable to pay and could be wound up at minimal loss to the parties concerned. The local authority would be obliged to pursue the claimant for the arrears. • Use a trustworthy third party to receive the rent (e.g. a grandparent or the tenant’s guarantor). The local authority may, instead of making payments to the claimant, make the payments instead to a person assigned for this purpose by the claimant. • In the case of an agent, the agent could reduce his liability by arranging to have all direct payments to be paid directly to the landlord. In this case, it would be necessary to explain the risk of clawback to the landlord.The Letting Handbook 15-19 © The Letting Centre 05/2017

Back to contents Housing BenefitCommon Problems and Solutions Delays in receiving housing benefit One of the most frequent problems is the delay in getting the housing benefit claims processed and receiving the payments. Though the delays are typically less with LHA than RA, both can be affected. The delay can be caused by many different problems: • Defective housing benefit claims. Nationally, on average, 60% of housing benefit claims are defective (i.e. forms incomplete, local authority does not have the required information to process the claim etc.) • General inefficiency and delay in administration by the local authority. Solutions: • If necessary, assist the tenant to complete the housing benefit form and check the completed application and supporting paperwork before the claim is lodged. The landlord or agent then profits by understanding better the tenant’s circumstances and knowing that the application was properly completed. • Maintain close contact with your housing benefit office. If necessary, follow up the application periodically. • Insist on an interim payment on account within 14 days of lodging a complete and valid claim (see previous section entitled ‘Housing Benefit Payments’). Tenant’s circumstances change A change in the tenant’s circumstances can, in some cases, alter the tenant’s eligibility to receive housing benefit. The first that the landlord or agent may know of this is when the housing benefit payments stop arriving. Furthermore, landlords are under a legal duty to report change of circumstances that may affect their claimant’s entitlement in writing to the local authority. Solutions: Landlords must be extremely vigilant and aware of their tenant’s circumstances so as to avoid any liability under these provisions. The revised wording of Regulation 101 should remove the problem of the landlord not wanting to report fraud for fear of a recovery action. Now if there are grounds for fraud and the landlord was not involved it is unlikely they can approach the landlord even if payments were made directly to the landlord. Disclosure of information regarding the tenant’s claim Frustrating though it may be, the local authority will not normally discuss the housing benefit claim without the written authority of the claimant. Solutions: The solution is straightforward; prepare a separate form of authority, signed in advance by the tenant which authorises the local authority to discuss details of the specified individual’s benefit claim with the landlord or agent. Alternatively, such a provision can be included as a clause within the tenancy agreement.The Letting Handbook 15-20 © The Letting Centre 05/2017