Why the Fife bedroom tax judgments are even better news for landlords and councils than for tenants!

The 4 successful bedroom tax appeals are great news for tenants, yet here I argue they are even better news for social landlords and local councils. This paper looks at the recent successful bedroom tax appeal cases in the First Tier Tribunals (FTT) in Kirkcaldy in Fife and the implications of them and concludes:

1. Landlords should be delighted that the FTT ruled the overcrowding room size standards of the 1985 Housing Act apply
2. Landlords should be encouraging and lobbying councils to ‘rule’ that any room under 70 square feet in floor size is not a bedroom
3. Landlords will not see the HB amounts fall where a former bedroom becomes a mere room (e.g. a 3 bed becomes a 2.5 bed property for bedroom tax purposes)
4. Landlords will not see a reduction in their asset value when councils rule a bedroom has to be a minimum 70 square feet
5. Landlords will not see their fears of a 3 bed parlour house being designated as a 4 bedroom property for bedroom tax purposes
6. Landlords should pay for a tenants appeal if a new FTT ruling disagrees with the Fife verdict and rules the 1985 Act and its space standards do not apply
7. Councils have everything to gain from ruling 70 square feet is the minimum size for a bedroom
8. Councils will not get reduced HB subsidy funding from central government if they do ‘rule’ on the 70 square feet issue
9. Tenants, landlords and councils all benefit from ruling 70 square feet is the minimum bedroom size for bedroom tax purposes

The arguments below all support the claims above and are direct consequences from the first two Fife cases, those of AHG and DN, which I have reported on here and here so please read on.

Is the tenancy agreement not worth the paper it is written on?

Yes it is meaningless as the 4 recent bedroom tax tribunals in Fife have proved.  In these 4 succesful cases we see 3 properties ‘officially’ stated to be 3 bedrooms in number by social landlord yet have become in law a 1 bed property and two become 2 bed properties or in fact 2.5 bed properties (2 bedrooms plus a boxroom).  In the other case an ‘officially’ described 2 bed property is a 1 bed property in law, or a 1.5 bed property.

Note that in order for the bedroom tax to be applied a tenant has to under occupy by 1.0 bedrooms or more and so a household with a 2 bed need will not be subject to the bedroom tax deduction at all is they live in a 2.5 bed property as they under occupy by 0.5 bedrooms which is less than one or 1.0 bedrooms.

Far more importantly we see in the DN case that the judge said that in order to be a ‘bedroom’ a room must be at least 70 square feet in floor size and this is a principle or a definition by size of one factor that constitutes a ‘bedroom.’

If that ‘size principle’ was replicated across the country then I would estimate 20 – 25% of properties have been mis-described by landlords in the tenancy agreements and for bedroom tax purposes as 20 -25% of social properties have rooms of less than 70 square feet stated to be a ‘bedroom.’  In figures this would mean 165,000 properties hit by the bedroom tax are wrongly affected and across all social properties it would be 900,000 properties with tenancy agreements that are wrong in fact and in law.

And you thought PPI was missold!!

Before I continue with this I do accept correctly that the bedroom tax appeal cases which were at First Tier Tribunals (FTT) are not legally binding. Yet the definitive nature of the DN case in particular when it said that a bedroom has to be a minimum of 70 square feet because the 1987 Housing (Scotland) Act defines (the same as the 1985 Housing Act for England & Wales) in this regard is compelling.

Other FTTs / bedroom tax appeals in Liverpool and Cardiff (ie England & Wales) will have to give due regard to the Fife cases and that is significant.  The Fife cases were some of the first bedroom tax appeals and so other FTTs will look to them and especially to the ‘principles’ they contain and not just room size but room usage etc. They will note the opening remarks of the judge in this case who said that he will have to decide what a bedroom is in the absence of any definition or guidance.  And Simon Collins QC the judge in these cases did precisely that – define – in terms of room size and room usage and gave reasons why the overcrowding size standards in the 1985 and 1987 Acts apply.

Other FTTs in England & Wales will look to these cases and will agree and rule in the same way.

Yet what if say a tribunal in Liverpool disagrees and says a bedroom does not have to be 70 square feet and/or the 1985 Act does not apply? I would imagine there will be scores of lawyers queuing up to offer pro bono work to challenge in the Upper Tribunal and the decisions in the UT ARE legally binding and set a legal precedent.  It only takes one case to be proven there and the bedroom tax policy on room size is a legal precedent  and the policy is in tatters on the minimum room size issue.

This would still mean that 900,000 or so tenancy agreements of social landlords are wrong in law or not worth the paper they are written on in terms of bedroom number or indeed in terms of occupancy number.

The problem is one of social landlords being trusted to define bedroom number which is what happened with the bedroom tax decisions yet it is not what happens with private landlord tenancies.  And bear in mind here the constant coalition mantra that their bedroom tax and HB for social tenants is only what Labour introduced with LHA in the private sector for the private tenant.  It is not and the bedroom tax is very different.  A private landlord will have his property inspected by the independent Rent Officer service to establish the number of bedrooms (amongst other things) BEFORE housing benefit is paid on that property.  The VOA who operates the Rent Officer service does 219,000 such inspections each year.

The independent Rent Officer service was able to inspect social housing properties if the councils thought a property was too large for the tenants need (surely the essence of the bedroom tax) or if the rent was set unreasonably high (extremely rare and unlikely) as part of HB regulations.  Yet the coalition took this power away from local councils and by policy direction and intent made local councils believe the word of social landlords in determining the number of bedrooms for bedroom tax purposes.

Taking away that referral to the independent Rent Officer service which the coalition did in April 2013 has three main issues.  Firstly, it reveals that social landlords should be trusted yet private landlords are not – a blatant discrimination.  Secondly, it means that social tenants have been FORCED to go to the courts to get their bedroom tax decisions correct – at a huge cost to the public purse.  Thirdly, when the courts rule as in the Fife cases that a 3 bed is now a 2 bed it severely limits the councils from reducing the HB levels paid for these properties.

Councils who administer housing benefit for the government can only restrict the HB level IF the rent is ‘unreasonably’ high and that is the only way a council can reduce the HB that they pay for social properties.  So if and when the FTTs rule that a 3 bed property is now only a 2 bed property what happens to the amount of HB paid for that property?  That is the key issue with the bedroom tax for social landlords and I would strongly argue that it has to remain exactly the same and does not reduce and because the rent level cannot be said to be ‘unreasonably’ high and so councils cannot restrict the amount they pay.

Note well – the FTTs do NOT rule that a former 3 bed property is now a 2 bed property. They rule, in effect, that a 3 bed property only has 2 functional bedrooms as was mutually agreed without court involvement for the Janet Bell case I was involved with and reported here.

So why doesn’t a 3 bed property deemed to have only 2 functional bedrooms have its HB amount reduced – why is that HB amount not ‘unreasonably’ high?

Firstly, it seems logical that a 3 bed now 2 bed property should be paid the 2 bed rate of HB.  Yet it is not a 2 bed property it is in essence a 2.5 bed property and more than a straight 2 bed property.  It is bigger than a straight 2 bed and so logically should attract a higher rent and higher HB amount than a straight 2 bed property.

Secondly, the average rent level difference in social housing nationally between a straight 2 bed and a straight 3 bed is £5.90 per week according to the Homes and Community Agency (HCA) the official regulator of social housing.  It is ‘unreasonable’ for a 2.5 bed property to be worth in rent and HB amount £5.90 per week more than a 2 bed property?  No it is not ‘unreasonable’ at all.

Thirdly, Councils would have to show legally that it is reasonable not to pay £5.90 per week more for a 2.5 bed property than for a straight 2 bed.  What that also assumes is that all 2 bed and 3 bed properties in each council area have the same rent level too, and they do not.  There is a wide range of social housing rent levels in all areas which can see a 2 bed rent and HB level already being higher than some 3 bed rents.

To emphasise that point below is a list of properties on the choice based lettings site for Liverpool and the rent range and differentials will be much the same anywhere in the country.

1. a 1 bed flat L8                         £78.52
2. a 1 bed flat L8                         £99.85
3. a 1 bed flat L14                       £83.81
4. a 2 bed house L14                   £74.65
5.  a 2 bed house L4                 £77.69
6. a 2 bed house L14                   £84.96
7. a 2 bed house L14 (AR)           £101.59
8. a 2 bed house L9                    £74.54
9. a 3 bed house L14                  £73.93
10. a 3 bed house L9                    £88.33
11. a 3 bed house L8                    £84.18
12. 12.  a 3 bed house L4          £75.63

Take the L4 postcode area and we see a 2 bed house at £77.69 and a 3 bed house at £75.63 – the two emboldened above at (5) and (12).  These are in the same street yet the 2 bed is a higher rent than the 3 bed house and both receive full HB.

So we see huge rent differentials even in the same street and so if say the 3 bed property with a £75.63 pw rent and HB level was ruled to be a 2.5 bed then it would be clearly unreasonable to reduce the HB amount when a straight 2 bed in the same street is paid £2.06 per week more at £77.69.

Fourthly, note that number (7) above is a 2 bed house in L14 but is set at what is called (but misnamed) an ‘affordable’ rent of £101.59 per week and all of this is paid in HB.

Yet look at number (9) which is a 3 bed house in L14 and the rent and HB paid is £73.93 per week.  So we have a smaller property receiving £27.66 more in HB per week than another (which is less than 100 yards away from it!) Then also note point (3) which is a 1 bed flat again less than 100 yards away receiving £83.81 in HB per week which is £9.88 more per week than a 3 bed house!!!  Note too the 1 bed flat is not a sheltered property or has any service charges in the rent level either.

In summary on this point rent levels even within the same immediate area and the housing benefit payments they get vary dramatically.  So the average 3 bed social housing property that becomes a 2.5 bed property will still have its rent met in full by HB as it is not unreasonably high compare with straight 2 bed properties in any area.

The fact that as the so-called ‘affordable’ rent properties are increasing in number also means the average rent of all properties will increase too.  Hence any property which is ruled to be a 2.5 bed and not a 3 bed will be an existing property and not an ‘affordable rent’ property by definition.  Such a property that is now a 2.5 bed could have a HB level that is less than the local 2 bed level in any case so how it would be deemed ‘reasonable’ for Liverpool City Council to restrict and reduce the HB level is a legal fiction and nonsense.

The relevance of the fact that the HB level will still be deemed to be reasonable if a 3 bed becomes a 2.5 bed is of great significance.  It will still be a 3 bedroom property yet with only 2 functional bedrooms.  That overcomes the 2 main fears of social landlords.

• Firstly as the rental income is the same then social landlords have nothing to fear and it won’t affect their income.
• Secondly, it will still have the same asset value because of this and so lenders to social landlords will not be seeking to increase interest rates because the asset value has not reduced.

In addition to this of course when the existing tenant leaves a property then that property even if a 2.5 bed property can be relet at an ‘affordable’ (sic) rent level which is coalition policy and so social landlords will increase their income by increasing the 2.5 bed rent level, and HB level, to the new higher rate.

It is therefore in social landlord’s interest if all councils rule that a bedroom has to be 70 square feet or more for bedroom tax purposes – the Fife ruling and principle – as this would take so many existing bedroom tax cases out of the bedroom tax and landlord’s arrears and financial exposure reduces significantly.

It is in tenants interest for obvious reasons.

That leaves the councils themselves and such a universal ruling is very much in their interests too.  Firstly, the risk of homeless costs which councils will have to pay from homeless assessment costs through to very costly temporary accommodation provision is significantly reduced. Second, this means that existing DHP budgets can go much further as there is less need for bedroom tax cases.  Third, there is more money in the local economy which is also beneficial to the council and I could go on.  However, far more importantly, because councils cannot rule that the newly reduced in bedroom size properties, the 3 beds which become 2.5 beds, cannot have their HB levels restricted, it means that the HB subsidy level they receive from central government cannot be reduced as in the Lord Freud threat.

Lord Freud threatened to reduce the HB subsidy level if councils did not restrict and reduce the HB they paid.  This threat has seen landlords worried about themselves reclassifying properties yet note that Nottingham has said they will not reduce the HB level and Leeds City Council has taken legal advice which says Freud cannot do this too.  However, please note this all concerns social landlords reclassifying properties themselves and not if a council rules that 70 square feet is a minimum size for a bedroom – These are two entirely separate matters!

Landlord reclassification – is where many social landlords have said former 3 bed properties are now, in their eyes, 2 bed properties.  This has been done with properties that are difficult to let such as high rise flats which has become impossible to let due to bedroom tax implications.  In doing so landlords hope they at least get some income rather than nothing at all.  These are economic reclassifications.

Yet a council ruling that it accepts the Fife FTT principle that a minimum bedroom size has to be 70 square feet is NOT a reclassification.  It is a simple and lawful housing benefit decision.

And as I have explained above councils do not have the powers to reduce the HB levels in payment and so central government cannot reduce the HB subsidy they pay to local councils and the Freud threat can only occur if landlords voluntarily reclassify but not to council rulings on minimum size.

Therefore it is in social landlords best interests to have councils rule that a bedroom has to be a minimum size of 70 square feet.  Landlords will not lose out financially and councils will not lose out financially by such a ruling.  It is only each council forming a definition and working definition of what is a bedroom which they have to decide to impose the bedroom tax and frankly what they should have done in the first place.

It is in social landlord’s interest therefore to lobby councils to make such a ruling on minimum bedroom size and it is mutually beneficial for tenant, landlord and council to make such a ruling. So lobbying councils to make such a ruling is what social landlords should be doing and vigorously and quickly lobby them too!

I do wish social landlords would get their heads out of their backsides and for once think straight on these issues.  What all the above shows is that the prevailing position of social landlords was wrong and for me ill considered and overly cautious.  The HB levels won’t reduce and the asset values won’t fall so the two main concerns are without any foundation.  The other ‘concern’ social landlords have has always for me been a non-issue.

Social landlords and CIH and NHF have always had worries over room size issues from the 1985 Housing Act and stated that properties could be increased in bedroom number.  This is easily explained in the 3 bed parlour house – a property with 3 bedrooms and 2 living or sitting rooms and the concern is that one of these living rooms is deemed a bedroom making it a 4 bed property.  That would increase the bedroom tax percentage paid from 14 – 25% in some existing cases and also increase the number of households affected with new cases.

However that cannot happen as for that to happen the tenant would have to appeal that the 3 bed is a 2 bed firstly, and then secondly the council would have to say and submit to the tribunal that it is a 4 bed.  If they do not submit that argument then the judge will not rule on that issue.  Yet if a council argue at appeal it is a 4 bed after previously agreeing it is a 3 bed then the world has gone mad! I am also of the view that the councils could not have the powers to submit such a position to the tribunal in any case and especially if they are not the landlord.

The Fife rulings have surprised the social housing sector that was adamant that the 1985 Housing Act could not and would not apply. They gave very short shrift to those that said it may apply and frankly dismissed the argument as a huge myth. Landlords and housing umbrella groups and many housing legal specialists said the 1985 Act does not apply and they were adamant it would and does not. Now they need to rethink their respective positions and the arguments I make above all hold strongly.

If 25% or so of social housing properties have purported bedrooms of less than 70 square feet then extrapolating this takes 165,000 households out of the bedroom tax.  That is why councils should ‘rule’ – as this is their definition of a bedroom which they can lawfully make – that all rooms of less than 70 square feet are not bedrooms.  And it only takes one council to do that and the rest will follow such are the benefits of ruling in this way.

Or the avoidance of doubt here is what the judge said in the DN case SC108/13/01362:

At paragraph 23 regarding a room of 66 square feet which I have broken into the 5 separate sentences for effect:

“…I would accept that the disputed room is of a size that would normally be regarded as too small to be used as an adult bedroom.

I accept that the thrust of Mr Sutherland’s submission here, namely that under-occupancy can be seen as the flip side of overcrowding, and that it is relevant to have regard to statutory space standards. 

These indicate that a room of this size is appropriate for use as sleeping accommodation by a young child but not an adult. 

It is in effect regarded by section 137 of the 1987 Act as only half a room.  

I also accept, having regard to Circular A4/2012, that paragraph B13(5) generally presupposes that to be classified as a bedroom a room should be large enough to be appropriate for use as a bedroom by an adult – or by two children.”

The above 5 sentences of paragraph 23 are the most significant issue yet as far as the challenge to the pernicious bedroom tax policy. It is hugely significant and it is time landlords and councils re-thought the matter fully and they will see as I have outlined above that the Fife judgments are hugely to their benefit and not just to the tenants.