22/01/2011

A comedy of errors

Following on from David’s sort of disrepair related post below, here is another one – not directly a disrepair matter but bearing on terms of settlement. It is either quite significant or something of a farce of bad drafting, bad decisions and windfall chasing. As will become clear, I lean towards the second option…

RH v North Tyneside Council v Secretary of State for Work and Pensions (HB) [2010] UKUT 462 (AAC)

This was a housing benefit appeal, indeed the second HB appeal related to this matter. The tale is best told chronologically.

RH was a tenant of a landlord (LL) between 24 November 2006 to 18 January 2008 under what appears to have been a sale and rent back agreement (although the arrangement was with a business partner – LL). RH had owned the property before. RH made 3 rent payments then claimed HB in November 2006, when he was already 8 weeks in arrears. He was initially refused HB under regulation 9(1)(h) of the Housing Benefit (Persons who have attained the qualifying age for state pension credit) Regulations 2006 [which I’m not going into]. This decision was eventually overturned by the first tier tribunal.

However, in the meantime  LL made a claim for possession based on rent arrears. RH apparently counterclaimed over some matters in the terms in which he had sold the property including an accusation that LL had reneged on a buy-back agreement. No further detail is in the judgment.

This litigation was settled by way of a Tomlin Order. Crucially, the details of the Tomlin aren’t given in the judgment – this is all there is:

The formal part of the order records the parties’ agreement (i) that the landlord be given possession of the property, (ii) that the defence and counterclaim by the appellant be dismissed (iii) that on the appellant’s vacating the property, all of the landlord’s claims against the appellant under the tenancy of 8/8/05 be dismissed, and that (iv) the proceedings were stayed on the terms set out except for the purpose of carrying out those terms. The Schedule set out more detailed terms agreed by the party, including an undertaking by the appellant to pay the landlord £1.00 on vacating the premises, in full and final settlement of all claims against the tenant under the tenancy including all arrears of rent.

There is a frustrating lack of detail here, to which I’ll return.

RH left the property on 18/01/2008 (but maintained he didn’t pay the £1 !).

Following the first tier tribunal decision, the local authority came to assess housing benefit for the period since RH’s claim. They took the view that the Tomlin meant that the rent liability was £1 and made that award to RH.

RH appealed to the first tier tribunal. The tribunal held that:

despite the terms of the settlement, someone (be it the appellant or his landlord) was entitled to periodical payments representing the rent which had been determined by the rent officer.  The tribunal judge remitted the appeal to the Authority to calculate the HB to be paid and to decide to whom the arrears would be paid.

There was no appeal of this decision.

So, the HB based on the original rent amount was calculated by the authority. Someone was getting a windfall…

The authority then took the view that, as there had been more than 8 weeks of rent arrears, the HB should be paid to the LL under regulation 76(1)(b) Housing Benefit (Persons who have attained the qualifying age for state pension credit) Regulations 2006, which stated that payment shall be made directly to the landlord where “the person is in arrears of an amount equivalent to 8 weeks or more of the amount he is liable to pay his landlord as rent, except where it is in the overriding interest of the claimant not to make direct payments to the landlord.”

RH appealed. The first tier tribunal dismissed the appeal. RH went to the upper tribunal, which is this decision. The Secretary of State was joined as a party due to ‘complex procedural questions’.

RH appealed on the basis that:

i) he hadn’t paid the £1 so the Tomlin Order was invalid – this was simply dismissed. He could not rely on his own wrongdoing under ordinary contractual principles.

ii) The LL still owed him money from the house purchase – dismissed as an attempt to reopen matters dealt with in the Tomlin Order

iii) The parties had some agreement that the HB was to be paid to RH – held there was no evidence as to this and in any event, did not affect the application of the regulations.

The key decision of the first tier tribunal on the regulation contained no error in law. Appeal dismissed. LL got the windfall.

Along the way, the Judge S M Lane made a number of observations and findings. Most significantly for our purposes, he disagreed, strongly, with the previous first tribunal decision that ‘someone’ was entitled to the periodic rent:

I consider that the previous tribunal’s decision was wrong in law.  The correct question for the tribunal to ask was whether, at the date of decision, the tenant had any obligation to pay rent under the definition of reg. 12.  He did not.  The liability to pay rent throughout the entire period had been replaced by an undertaking to pay £1.00 in respect of all claims under the tenancy.

He could however do nothing to change that previous decision as it was not part of the present appeal.

This is the upper tribunal, so a court of record.

The reader who pointed me to this case was concerned about the potential wider effects. They took the view that the judgment meant that a Tomlin Order settling, for instance, a disrepair counterclaim to a rent arrears possession claim, or indeed a disrepair claim where a rent arrears counterclaim was made, would mean that the tenant’s rent liability for the relevant period was extinguished.

So where there was an outstanding claim for backdated HB, or an HB appeal, for the relevant period,  the tenant would lose that HB payment. If so, that would indeed be an issue in a number of cases and would make any set-off against arrears potentially problematic for the tenant. On first view, I could see that concern about this decision.

But, after an exchange of emails, and a bit of thought, I don’t agree – or at least not on the basis of the limited detail contained in the judgment. The distinction is between liability for rent and rent paid. I strongly suspect that the terms of the Tomlin as drafted were the cause of the problem.

For instance, the typical phrasing I’d use in a rent arrears set off situation in the Schedule to a Tomlin (shorn of irrrelevant bits) would be:

L to pay T £X by:
i) paying £(amount of current arrears) to T’s rent account
ii) paying £(balance) to T’s solicitors

What this makes clear is that T’s rent liability remains, but that a payment has been made to the rent account as part of the settlement. Just as T’s payments to the rent account wouldn’t extinguish T’s liability for rent for that period (and hence HB entitlement) neither would a payment to the rent account by anyone else, including L.

In RH’s case, the open order dismissed the claim for possession and rent arrears, as well as RH’s counterclaim (rather raising the question of what proceedings were then in existence to be stayed). But the key bit is that the Schedule apparently stated as a standalone term:

‘RH to pay LL £1.00 on vacating the premises, in full and final settlement of all claims against the tenant under the tenancy including all arrears of rent.’

Unless there were any interlinked terms in the Schedule, and from the judgment it does not appear that this was the case, it seems that the contractual valuation of the arrears in the Tomlin was therefore £1 (or possibly less, depending on the other ‘claims under the tenancy’). Thus, given that RH had paid no rent during the relevant period, the rent liability for that time was indeed £1, as Judge Lane would have decided, given the chance.

If that term in the Schedule had instead stated something like  ‘In full and final settlement of rent arrears of £(rent under tenancy agreement not paid), RH to vacate property and pay £1’, then, in my view at least, the rent liability would not have been extinguished in the way Judge Lane considered. The rent liability would remain but some other form of consideration would have been accepted in payment of it.

So the lesson, if there is one, is to be careful with drafting a Tomlin order and schedule, and most certainly if your client may potentially get an HB backpayment. Make sure you aren’t accidentally wiping out rent liability, but rather expressly setting off a payment – or at least some form of  consideration – against the full  amount of rent arrears (or as much of it as the claim/counterclaim covers).

Of course, in this particular example of drawing room farce, the HB was paid anyway, by an order Judge Lane clearly made through gritted teeth, and LL did rather better out of the settlement than s/he may have expected. On a properly drafted Tomlin, in my view,  LL would have accepted consideration in satisfaction of the actual arrears, the rent liability would have persisted and RH would have got the HB.

But I could well be wrong. The judgment doesn’t give enough detail of the Tomlin to be sure. Suffice it to say that if a client is refused an HB backpayment on the basis that one of my Tomlins has extinguished their rent liability, that looks like an appeal as far up the line as it takes.

Giles Peaker is a solicitor and partner in the Housing and Public Law team at Anthony Gold Solicitors in South London. You can find him on Linkedin and on Twitter. Known as NL round these parts.

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