What are housing associations and local authorities’ legal options for dealing with rent arrears in light of the Welfare Reform Act 2012? Kane Kirkbride explains.
Housing associations and local authorities have been working hard for some time to prepare for the likely impact of the Welfare Benefit reforms, to be introduced from April 2013 onwards, on their businesses and on their customers.
In terms of the likely legal implications of these reforms, these range from reviewing your policies to looking at new ways to reduce your rent arrears, and recover possession, where the latter is necessary.
In Part 1 of this update, we look at rent arrears possession cases, as these will need to be looked at more closely in view of the potential adverse financial impact on cash flow for housing associations and local authorities. Although local authorities cannot seek to rely on a mandatory rent arrears possession ground, unlike housing associations, we still think that it is worth revising your existing approach to rent arrears possession cases, in view of the changes coming over the horizon.
In Part 2 of this update, we will look at recovering possession due to under-occupation.
Rent arrears possession cases
- Traditional use of Ground 10 (Ground 1 – local authorities) - until now, most housing associations have tended to use the discretionary rent arrears ground contained in Ground 10 of Schedule 2 to the Housing Act 1988, following guidance issued by their Regulator some years previously.
- Increasing use of Ground 8 - however, in view of the potential increase in rent arrears that may be faced by them from April 2013 onwards, many housing associations are considering, or have already implemented, a new rent arrears policy that includes the use of Ground 8 instead of and/or in addition to Ground 10.
- Legal basis of Ground 8 - in contrast to Ground 10, Ground 8 is a mandatory ground, which normally means that provided the landlord is able to prove that, both at the date of service of the NSP (Notice of Seeking Possession) and at the date of Possession Hearing that at least eight weeks rent is unpaid, the court has to grant a final Possession Order, in contrast to Ground 10 when it has statutory discretion to stay or suspend any such Order on terms it sees fit.
- Check your LSVT Transfer Agreement - if a housing association was created by way of LSVT Transfer, then their standard Tenancy Agreement may prevent them from relying on Ground 8 and this needs to be checked. Whilst there still may be potential legal arguments open to them to try to overcome this, they are by no means clear cut and instead housing associations may need to revisit their existing approach to Ground 10 claims; see further below.
- Check your NSPs - even before the Welfare Benefit changes come into effect, there have been a number of reported cases making it clear that landlords must take care drafting their NSPs. In particular they must give the full text of each ground relied on in the NSP (see Mountain v Hastings) and must give particulars of the ground relied on (Torridge District Council v Jones), otherwise the NSP may be invalid. We also suspect that future NSPs served in Ground 8 claims may be looked at more closely both by tenants’ lawyers and the courts.
- Tactics – in most cases it would be sensible to include Grounds 8 and 10 in your NSP, otherwise, if you only include Ground 8 and the arrears are reduced to less than eight weeks at the hearing – or housing benefit is reinstated – you will not be able to obtain a Possession Order at the hearing.
- Effect of obtaining final a Possession Order under Ground 8 - if a landlord obtains a final Possession Order under this Ground, the court has no power to stay or suspend it, in contrast to a claim brought under Ground 10. The only power that the court has in making a Possession Order on the basis of Ground 8 is to allow between 14 to 42 days for the Order to take effect, depending on any exceptional hardship the tenant is able to prove.
- Effect of obtaining suspended Possession Order under Ground 8 - instead, a landlord may decide to agree to a suspended Possession Order under Ground 8. If it does so however, it cannot subsequently argue that there is no power to suspend.
- Review your approach to Ground 10 (Ground 1 – local authorities) - Whilst the court’s primary objective is to deal with cases justly in accordance with the overriding objectives set out in the Civil Procedure Rules, there are some practical things that landlords can do to increase the likelihood that a court will not suspend the Warrant of Execution, including preparing a witness statement showing the amount of times and events that have taken place if the Warrant was suspended, and also highlighting the tenant’s failure to engage or show any change in circumstances since the Possession Order was first made.
- Impact of public law and human rights defences - although public law defences are only likely to assist a tenant in exceptional and human rights cases in rent arrears claims, they can happen particularly where a landlord fails to follow its own policies and procedures, as shown by the Court of Appeal’s decision in Barber v Croydon LBC. As to Human Rights Act defences, it is likely that a proportionality defence will only assist a tenant in defending a rent arrears possession claim in exceptional circumstances, although it has succeeded in at least one case (Southwark LBC v Hyacienth) in the past year.