Non-commercial tenancy?

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  • #285122
    barryb
    Participant

    I have a case that I would appreciate some opinions on. A tenant has been claiming HB at an address for a number of years. Her father is her landlord and has a mortgage of about £1000 pcm but is charging his daughter £700, even though they reckon they could charge £1000 pcm on the open market. It has recently come to our attention that she has been in financial difficulty for pretty much the whole length of her tenancy, which has meant that pretty much every month she’s been paying, often by several hundred pounds, less than the rent being charged according to the tenancy agreement.

    The landlord has not chased up arrears, in fact he considers that she isn’t in arrears. He has otherwise been supporting her financially and considers accepting what she can afford to pay as part of that support as a father. We have asked why he hasn’t reduced the rent to what she can afford. He responded that what he’d like to do is get the HB paid to himself. It was pointed out that this would mean that rather than accept less than the £700 he’d now have to pay her the equivalent to continue to support her financially.

    I don’t believe this tenancy is contrived and it may well be that the tenancy started off as being commercial. However, my gut instinct is that this isn’t a commercial tenancy.

    #285125
    nick dearnley
    Participant

    The rent level on its own isn’t enough for a non-commercial finding. Maybe he would let it for more to someone else, but has decided not to increase his daughter’s rent. That’s a financial decision for him.

    Of more concern is that he’s not been getting even the lower rent, as that must mean there are arrears. If as you say she had been underpaying by £100s every single month for years, those arrears must be huge. What is the LL’s assessment of arrears, and what does he intend to do about it? Nothing.

    The central question is, is this an arrangement that you or I could walk into off the street? Of course not. we would be expected to pay the £700/m, with or without HB. The caselaw on commerciality does give some latitude for ‘family’ arrangements and recognises that they may not be so closely implemented as non-family arrangements. It’s a question of degree, as much as anything else. Is it an ‘arms-length’ arrangement? Almost certainly not.

    I suspect there will be an element – pretty large in the LL’s vision – of not wanting to see his daughter evicted, and that is a valid motivation in being more lenient. But there’s a limit, and I think this case may have passed it.

    #285137
    barryb
    Participant

    Thanks Nick, that’s kinda what I was thinking. However, in my experience we ultimately end up deciding in the claimant’s favour. Not sure we’ve ever actually made a non-commercial decision! Do you think I would be correct in understanding that if we did decide it was non commercial that we’d need to find out the effective date and it wouldn’t just be a matter of ending HB from now?

    #285138
    pbirks
    Participant

    look at it afresh- – do a review of the rent/commerciality and ask for the gas/electrical safetly certs for the property etc – these are a legal requirement. when were those checks done? annual gas safelty certificates?
    List of rent payments made and arrears owed ( a rent statement )

    as has been saids may times, the gas/electrical safety certs being missing/only being provided once we ask for them alone dont show a tenancy isnt commercial, but when put along side the rent not being paid , but having no arrears, not facing any contractual penalities ( being evicted!”) for not meeting the rent payments, plus the lack of legally required docs re the gas/electricity safety of the property – that all helps build a picture

    You need to ask these questiond and be clear in your decision making because if you make a decision now that HB is no longer payable because the you feel the tenancy is no longer on a commercial basis, they will almost certainly appeal.

    #285139
    nick dearnley
    Participant

    @barryb – yes, you must pick a date. You could decide it’s never been commercial, but that then lays you open to being asked why you didn’t look into it originally. I would suggest either the date that you became aware that the LL was not enforcing the agreement, or another date from which you can evidence that that was the case. You could go from the ‘paid to’ date – effectively, we don’t think we should pay any more HB, but that would be open to question as to why you picked it.

    Either way, as pbirks has said, they will almost certainly appeal, and you will need to set out your reasoning clearly. In my experience a tribunal will not shy away from asking some very awkward questions of appellants in commerciality cases, quite rightly, but they will obviously expect you to have your case in order.

    Commerciality is a ‘compound decision’, so it’s the overall picture that matters much more than any one thing on its own and you need to be very wary of hanging a decision on one single factor. CH/4610/2014 is a good (fairly) recent UT decision on the subject.

    #285147
    Shankers
    Participant

    Personally I think that this is not a commercial tenancy. Agree with most comments above.

    Would add that renting to a tenant who wants to look after the property and may want to stay there on a longer term basis in exchange for less than market rent may still make good business sense so could be commercial.

    What concerns me with reference to the Original Post is that if father is also directly supporting the daughter financially with volountary payments as well as charging less rent than they could get which does not even meet the mortgage, than hard to see what is commercial about the overall arrangement. The whole operation appears to be running at a loss.

    I think that it would be extremely difficult to go back to terminate HB and raise an overpayment in these circumstancs : My instinct would be to terminate claim from paid up to date. Could now be argued that new information which has not been previously available has emerged to show that not a commercial tenancy.

    Regards

    Shankers

    #285177
    barryb
    Participant

    Further, as Mr. Commissioner Jacobs stated in CH/296/2004, at the end of para.26

    “There are many landlords who are prepared to accept the rent that can be obtained rather than insist on the full contractual rent and others who are prepared to be patient while the claim and appeal process is in process.”
    34.

    In R(H) 1/03, at paragraph 18.6, Mr. Commissioner Jacobs held that the test that must be applied is one of dominant purpose of the arrangement. To find that arrangement was not on a commercial basis, the tribunal must be satisfied that on the balance of probabilities the principal basis on which the arrangement was made was not a commercial one.

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