Universal Credit decisions on contrived tenancies

Universal Credit may refuse a claim for help to pay a person’s housing costs if  

• they think that a tenancy is not a genuine commercial relationship between a landlord and a tenant or  
• they believe the tenancy was created to take advantage of the benefit system.  

It’s important to get advice quickly if this happens to you or to your clients. Submitting a well-argued mandatory reconsideration request can help to prevent homelessness.  

Commercial or non-commercial basis 

Regulation 26(3) of the Universal Credit Regulations (NI) 2016 holds that the housing costs element is payable where a person has a liability to make payments on the dwelling that is “on a commercial basis”.  Part 2 of Schedule 2 of the 2016 Regulations goes on to specify certain circumstances under which a person is not treated as having a liability to make payments on a commercial basis.  These provisions largely mirror Regulation 9 of the Housing Benefit (Northern Ireland) Regulations 2016, albeit with some changes.  

The first hurdle an applicant has to meet is proving that their responsibility to pay rent has a commercial basis.  But, the claim can still be refused if the decision-maker believes the commercial agreement was entered into in order to take advantage of the benefits system. This is known as a “contrived tenancy”.  

What is a contrived tenancy? 

Paragraph 10 of Schedule 2 of The Universal Credit (NI) Regulations 2016 explains what a contrived tenancy is.  

10.—(1) A claimant is to be treated as not liable to make payments where the Department is satisfied that the liability to make the payments was contrived in order to secure the inclusion of the housing costs element in an award of universal credit or to increase the amount of that element. 

Paragraphs F2147-2160 of the Department for Communities’ Advice for Decision Making provide decision-makers with further guidance. It states “(t)here must be something about the arrangements that indicates it seeks to abuse the housing costs element of Universal Credit”. The burden of proof is on the Department to show that abuse is involved.  

Each case must be decided on its own merits. The Department cannot take a blanket approach and decide that any tenancy between relatives is contrived.  

Arrangements that can suggest contrivance 

The Department will often look suspiciously at a claim where  

• an occupant is suddenly required to pay rent despite having previously lived at the property rent-free, or 
• the landlord is related to the claimant.  

A tenancy can change from being on a commercial basis to not being on this basis and vice versa (CH/3008/2002). This demonstrates the importance of considering the facts of the arrangement at the time an application for the benefit is made. A non-commercial letting may become commercial if the landlord suddenly begins charging rent because a change in their own circumstances means they must begin gaining an income from the property. Consideration must be given to the motives of all of the parties involved and to the potential consequences if the rent is not paid.  

The fact that a tenant is a relative of their landlord does not, by itself, show that the tenancy was created in order to abuse the benefits system. There may be a genuine need for accommodation and a genuine need for payment for such accommodation. Again, the burden of proof is on the decision-maker to show that there is something “improper” about the arrangement.  

There are 2 elements to challenging a decision not to award benefit because the liability is seen to be “contrived”: 

1. You must demonstrate that the letting is on a commercial basis, and 
2. You must show that the intention behind the letting was not purely to claim benefits or increase the amount of benefits the tenant is receiving 

Showing a letting is on a commercial basis 

It can help to demonstrate a genuine commercial arrangement if the landlord has complied with all statutory obligations, such as  

• registering as a landlord,  
• protecting any deposit,  
• getting the necessary certificates for the property.  

It can also help if the landlord has a history of renting out property and is charging the tenant a realistic market rent.  However, case law is clear that the test is not whether a landlord is a “commercial landlord”; rather it is a test of whether the occupation agreement under consideration is on a commercial basis, ([2020] UKUT 240 (AAC)). 

The Housing Benefit regulations specify that the inclusion of non-enforceable terms in a tenancy agreement can raise questions about the commerciality of a tenancy agreement.  

Decision-makers often give considerable weight to the question of eviction and to whether the landlord will evict the tenant if the rent is not paid. While that can be a valid consideration, case law suggests that a reluctance to evict is not, by itself, indicative that the liability is not on a commercial basis. The landlord may be placing faith in the appeals system and may be dependent on a back payment of rent arrears that have already accrued. In fact, the landlord may be financially dependent on the applicant successfully pursuing the appeal (CH/3497/2005, CH/296/2004).   

Intention behind the letting 

The circumstances and intentions of both parties to the agreement are relevant in determining if the liability was created to take advantage of the benefits system.  

A decision-maker should only decide that a tenancy is contrived if they are satisfied that the agreement was created in order to take advantage of the benefits system (R v Solihull MBC BHRB ex p Simpson (1995) 27 H.L.R. 41; (1995) 1 FLR 140 CA).  

The tenant may become entitled to benefits or may receive more benefits because of the change in tenancy, but the decision maker should only decide that the tenancy is contrived if this was the sole or primary reason for creating the liability. Where a person has legitimate housing needs that have been met by the tenancy, it can be argued that the increased benefit entitlement was not the dominant driver behind the decision to enter into the agreement. There must be some element of “improper conduct” in the arrangement for the department to determine that the tenancy is taking advantage of the Universal Credit scheme.   

Challenging a Universal Credit decision 

The first step in challenging a Universal Credit decision is to request a mandatory reconsideration. If the decision does not contain clear reasons for the Department’s actions, ask for a written statement of the reasons behind the decision.  

There are strict time limits for requesting a mandatory reconsideration of a Universal Credit decision. These are the later of 

• one month from the date of the decision, or 
• 14 days from the date on which the written statement of reasons was received.  

When you request a mandatory reconsideration you should indicate that you intend to provide written submissions to support your request.  

The mandatory reconsideration process can end with the Department revising or upholding its decision. If the Department upholds its decision that housing costs cannot be paid, the applicant will have to appeal. It can take months, and even years, for a case to get to a tribunal, by which stage the applicant will likely owe the landlord thousands of pounds.  

Get expert help now 

We’d strongly recommend getting expert help from ourselves, or another specialist benefits agency, if you want to challenge a decision about liability for housing costs. Getting expert help is the fastest way of getting your housing costs into payment and safeguarding your tenancy.  Recently we've dealt with a number of cases where applicants had submitted the mandatory reconsideration without any advice. Without specialist knowledge to support their claim, these reviews have all upheld the department's original decision. While we can assist with an appeal, it takes an incredibly long time for the appeal to be heard and this long delay can cause significant difficulty for both tenants and landlords. 

Call our helpline if your claim for help to pay our rent has been refused or if you are helping someone in this situation.