Byron Britton previews the imminent coming into force of new legislation aimed at tackling social housing fraud.
The Prevention of Social Housing Fraud Act 2013 is due to be brought into force in late Summer 2013 (accordingly to the DCLG at the time of writing).
The Act makes important changes to both the civil and criminal law in respect of the sub-letting and parting with possession of social housing tenancies.
Security of tenure – assured tenancies
The Act notably brings the assured tenancy regime into line with that of secure tenancies by introducing a provision equivalent to s.93A Housing Act 1985 as section 15A Housing Act 1988 (as amended)
Currently, an assured tenant, who sub-lets or parts with possession of the whole of his property will lose his security of tenure, since he is no longer occupying the property as his only or principal home; but such security of tenure may be resurrected should the tenant re-occupy the property prior to the expiry of any Notice to Quit served.
As from the commencement date, the Act will ensure that assured tenants (who are not shared ownership lessees), will lose their security of tenure once and for all once they have sub-let or parted with possession of the whole of their property, as is currently the case for secure tenants.
Unlawful Profit Orders – civil proceedings
The new Act allows social landlords to seek a money judgment against their tenant in respect of any unlawful profit made as a result of sub-letting their social housing tenancy.
It creates a civil Unlawful Profit Order (“UPO”) which applies to secure tenants and the assured tenants of Private Registered Providers and Registered Social Landlords who, in breach of their tenancy agreement, sub-let or part with possession of the property, and receive money in return.
It does not apply to assured tenancies which are also shared ownership leases (for this, see Richardson v Midland Heart  Ch.D, Jonathan Gaunt QC)
The order is discretionary and the maximum payable is the Defendant's net profit, i.e. the total received from the sub-letting less any rent (including service charges) paid to the landlord during the period the property was sublet.
The Civil UPO will be determined on the civil standard of proof and should be included in any claim for possession commenced as a result of the non-occupation. (Note: If a landlord fails to include it in the possession claim, then it may be arguable that it is an abuse of process for the landlord to raise it in a subsequent stand-alone claim).
The new Act applies to secure and assured tenants of Private Registered Providers and Registered Social Landlords, but assured tenancies which are also shared ownership leases are excluded from its provisions.
The Act creates two new criminal offences.
Offences will be committed when:
- The tenant sublets the whole or part of the property, ceases to occupy the property as an only or principal home and does so knowing that to do so is contrary to the express or implied terms of the tenancy; and/or
- the tenant dishonestly and in breach of an express or implied term of the tenancy sublets or parts with possession of the whole or part of the property and ceases to occupy it as his only or principal home.
The first offence is the lesser offence and only requires proof of knowledge that the subletting is in breach, while the more serious second offence is committed if the act is done dishonestly.
In this regard, the criminal case of R v Ghosh  QB 1053 is likely to be relevant to interpretation of “dishonesty” under the Act. The test is two-stage:
- "Were the person's actions honest according to the standards of reasonable and honest people?" If a jury decides that they were, then the defendant's claim to be honest will be credible. But, if the jury decides that the actions were dishonest, the further question is:
- "Did the person concerned believe that what he did was dishonest at the time?"
This is a question of fact, with a subjective element. It seems likely that evidence of any gains will be highly relevant to which offence is prosecuted.
The lesser offence (but not the more serious offence) is subject to various exceptions which are set out below. There, a tenant will not commit an offence if:
- the tenant’s actions are because of violence or threats of violence made by a person living in the property or in the locality;
- the person occupying the property because of the tenant’s actions is entitled to apply for a right to occupy it, or to have the tenancy transferred to him/her, or a person in respect of whom such an application might be made.
(In practice, this is only likely to include spouses, civil partners, co-habitees and children)
The lesser offence carries a sentence of a fine not exceeding £5,000, but the more serious offence a sentence on summary conviction of up to 6 months’ imprisonment, a fine not exceeding £5,000 or both; and on indictment (in the Crown Court), up to 2 years’ imprisonment, a fine or both.
The summary only offence may be prosecuted within 6 months of the date on which the prosecutor became aware of evidence sufficient to warrant a prosecution, but not later than 3 years after the offence was committed, or the last day on which it was committed if it was a continuing offence. There is no time limit on the greater offence.
Unlawful Profit Orders – criminal
Criminal courts must also consider whether to make a UPO following a Defendant's conviction for unlawful sub-letting or an associated offence and may do so ‘if they consider it appropriate’.
A criminal UPO may be made whether or not a civil UPO has been made (and vice versa) but the Act makes provision to prevent duplication by providing for the amount payable under the latter order to be limited by reference to the former.
Once again the orders are limited to a maximum value which is the defendant's net profit, i.e. the total received from the sub-letting less any rent paid to the landlord during the period the property was sub-let.
Local authorities may prosecute both sub-letting and associated offences such as ‘aiding or abetting’ or ‘conspiracy’, whether or not they are the social landlord or the property is within the Local Authority's area.
Will there by be more prosecutions as a result of the Act? To an extent this depends on how geared up (and how well-financed) local authority prosecution teams may be.
In this regard, it is reported recently by Social Housing Watch that the DCLG has however set aside £20m to help combat this kind of fraud. £8m pounds has been granted to 43 local authorities to fund tenancy fraud investigations and the Chartered Institute of Housing were granted £1m to set up a national housing fraud helpline to advise local authorities. The remainder of the fund is subject to bidding.
It is anticipated that some social landlords may not wish to wait for the local authority’s prosecution teams to prosecute (particularly if arrears are increasing) but may prefer to issue their own claims for possession and seek a civil UPO (with, of course a lower standard of proof).
Since civil proceedings may be stayed pending criminal prosecutions, it is not certain that all social landlords will welcome all such prosecutions in every case as a pure matter of practicality!
The Act gives the Secretary of State and Welsh Ministers in the devolved Government power to make regulations to compel persons to provide information for the purposes of housing fraud investigations, which may include criminalizing a failure to provide such information, which will place it on a par with similar benefit fraud investigations (interviews under caution etc). As at July 2013 the DCLG confirmed that the regulations were still to be drafted. No information has yet been published by the Welsh Government.
The future – getting the message across
The effect of the Act has yet to be seen. Social landlords hope it will provide a significant deterrent to tenants considering sub-letting their social tenancies. I can certainly guarantee it won’t be long before the first case hits the tabloid headlines and the criminal courts.
Social landlords may consider using their usual publicity channels/mailing lists for ensuring that tenants are aware of these new provisions.
Representatives of social tenants can take some comfort in that the Act is not retrospective in effect, and there remain some weeks yet to remedy any such situations!