The refusal by some landlords to rent to tenants on benefits is not new, but with the introduction of Universal Credit, plus the pressure on the private rented sector to let to more people on lower incomes, there are growing calls to reverse this apparent inequality. In this article, we consider: ‘can landlords legally refuse a prospective tenant on benefits’?
Why do landlords say no?
There are many reasons given for why landlords and letting agents choose not to let to a person on benefits. There is fear of anti-social behaviour, damage to property and/or financial or legal issues. However, there are probably three main reasons why landlords say no.
Firstly, some insurance companies make it a condition of cover that the policyholder will not let to tenants on benefits.
Secondly, a percentage of lenders place similar restrictions on buy-to-let mortgages.
The third justification is simply fear that the rent will not be paid – that if arrears accrue, a person on a lower income is less likely to be able to catch up. In a worst-case scenario, a landlord may be unable to meet their commitments and this could lead to a sale of the property and everyone loses out.
Delay of payments
A persistent issue is the delay in payment processing since Universal Credit (UC) started its national roll-out. In many cases, these changes have also resulted in late rent payments or in the tenant failing to pay the rent altogether now that the housing benefit element is part of UC and not in a separate ‘pot’ paid directly to the agent.
Change of circumstances can cause further delay to rent payments, which are made worse by the landlord or agent not being informed about the problems, as they are not the claimant.
Payment in arrears
The norm in the private rented sector is for the rent to be paid, by contractual agreement, at the beginning of the week or month in which it is due. This means if the tenant is late paying, then the landlord is aware sooner and can act. Benefits are paid in arrears meaning delays.
Obviously, tenants claiming benefits are not likely to have a lot of spare money so often look to the local authority to fund their deposit. This process is inevitably slower than a tenant who can withdraw the money from their bank account and pay a deposit. Although there are some schemes which will pay the deposit for the tenant (or hold it as a bond), and some issue a written promise to pay, the agent will still have to wait until the council agrees to deductions before receiving the money.
People’s views are divided between those who feel benefit claimants may be poor payers and those who see direct payment as a secure source of income. Top-up payments can be troublesome and take a disproportionate amount of time compared to the work involved in collecting them.
Some agents also believe benefit claimants are less likely to honour their rent payments and that they will not care for the property.
However right or wrong these perceptions are, it should not be about benefits but about the individuals.
DSS was (is) an acronym for the then Department of Social Security. The department was dissolved in 2001 and replaced by the DWP. The term ‘no DSS’ became widely used by landlords and letting agents, referring to the fact that they would not let to a prospective tenant in receipt of housing benefit. It was a short and ‘convenient’ phrase to use when advertising property to let as it prevented spending admin time on applicants that were not considered suitable in the first place.
The rolling out of this benefit system, which now incorporates the housing benefit, Local Housing Allowance (LHA), has been fraught with difficulty for both landlords and tenants.
Some existing tenants have had to wait up to six weeks or more for their claim to be processed, resulting in long delays in landlords being paid. Claims for new tenants are now processed slightly quicker but in almost every case, Universal Credit is paid calendar monthly in arrears direct to the claimant.
For people who are working and claiming, there can be problems when their income fluctuates because the claim can be interrupted or stopped – an issue for people on zero hours contracts.
Restrictions on the level of LHA paid to claimants were introduced in April 2011 – these changes led various housing bodies, including representative bodies of private landlords, to argue that housing benefit claimants were being priced out of the market. Further restrictions have been added: for example, LHA rates have been frozen since April 2016 and will remain so until April 2020.
This has added to landlords’ concerns about the gap between LHA and market rent levels, which has been increasing over much of the country. Evidence of disparities between actual rent levels and LHA rates payable submitted to the Communities and Local Government Select Committee’s inquiry into homelessness (2016) led the Committee to recommend that: “Local Housing Allowances levels should also be reviewed so that they more closely reflect market rents”.
Extent of the problem
Ever since its introduction, LHA and its impact for renters and landlords has been debated regularly in Parliament and various government committees.
In 2012, the Department for Work and Pensions (DWP) estimated that of all landlords who let to benefit claimants, 30% let exclusively to people in receipt of housing benefit.
During a debate in the Work and Pensions Committee in 2013, the Government acknowledged that “there are different sources of information on the proportion of the PRS that is in receipt of housing benefit. None of these gives a definitively accurate figure”.
It also referred to the 2011 census, which showed that about 34% of households in the private rented sector were in receipt of housing benefit. This figure did not however consider that, within a household, more than one person could be in receipt of housing benefit.
Reluctance to let
A YouGov poll commissioned by Who Benefits? (2014) found that 16% of claimants had been turned away by landlords or letting agents when seeking to rent a property.
According to a Shelter survey, 60% of respondents found it difficult to find landlords who were willing to let to LHA claimants.
DWP’s research on the impact of the LHA reforms concluded that 62% of claimants living in London reported that landlords were generally unwilling to let their accommodation to tenants in receipt of housing benefit. The figure was 47% in other parts of the country.
In a report to the Work and Pensions Secretary, the Government confirmed it has commissioned a new survey due to be published later this year.
Is refusal acceptable?
There is no direct law in England and Wales that prevents a landlord from refusing to let to a tenant on benefits. Nor is it unlawful for insurance and lending institutions to place prohibitions on landlords who want to let to benefit claimants.
There are discrimination laws that protect against discrimination on certain grounds; such as race, religion, gender, sexuality and nationality. Income or employment status is not a protected ground.
Anti DSS discrimination
However, our anti-discrimination legislation protects people from both direct and indirect discrimination. Indirect discrimination occurs where a policy, which is not discriminatory in itself, is likely to impact disproportionately on people who are protected under equality laws.
It could be argued that refusing to let to tenants on benefits could be seen as indirect discrimination if, for example, benefit claimants were predominantly female or predominantly from an ethnic minority group. However, this type of discriminatory practice can be legal if it can be reasonably justified. A landlord whose mortgage lender or insurance company imposed these conditions on him or her would therefore be justified in adopting this refusal.
A successful claim
Last year there was wide-spread publicity surrounding a case where it was held that refusal to let to a person on benefits was discrimination and therefore unlawful.
Ms Keogh brought a claim against the agents, Nicholas George, for indirect sex discrimination. The case rested on the assertion that women were more likely to work part time and have recourse to benefits and that a blanket ban by the agent not to let to anyone on benefits, affected, especially single, women disproportionately. Therefore the discrimination was gender related and only indirectly related to benefits.
The BBC reported that Ms Keogh had lived in her present rented property for 11 years and never missed a rent payment. She wanted to move to a different area and the agent she was in contact with regarding a specific property was not willing to proceed with her application until he had looked into her individual circumstances or assessed how reliable a tenant she would be.
Ms Keogh became upset and angry by what she referred to as “such inequitable practice” and said it made her feel like a “second-class citizen”.
Actually, the case was settled before judgment, with the letting agent paying £2,000 in compensation.
The case represents a typical set of circumstances and whilst interesting, is not a legal precedent that can be relied on in itself.
While claims of indirect discrimination in such a blanket ban are valid and are clearly arguable, a defence is possible under section 19(2)(d) of The Equality Act 20107 by submitting that the practice is “a proportionate means of achieving a legitimate aim”. Until that defence is tested in court, the issue is still unsettled.
It is perhaps surprising that there have been so few claims of indirect discrimination in such situations. Ms Keogh’s case is understandable but it also suggests that indirect discrimination could present a stronger case for a prospective tenant who is disabled and in receipt of benefits.
Historically, people with mental health or intellectual disabilities have found it tough to rent in the PRS. It could be argued that a blanket ban is indirect discrimination for benefit claimants who are disabled.
It is clear that landlords and agents that apply a simple ‘blanket letting policy’ should consider very carefully whether or not this is indirect discrimination. By refusing to allow a prospective tenant claiming benefits to view and apply for a property without any enquiry as to whether or not they would be a suitable tenant is, on the face of it, indirect discrimination. This would be the case where a tenant can assert one or more of the nine protected characteristics contained in the Equality Act.
Where a landlord has a mortgage condition or restriction on letting to tenants on benefits, he ought to be upfront about this when advertising the property, because he cannot let to a tenant on benefits – unless the institution changes its mind. Some of these institutions are changing their policy following pressure from government and lobbying groups.
Where there is no such restriction, it is always advisable to place ‘no restrictions’ in the advertising so that both the landlord and agent cannot be successfully accused of discrimination.
It is better for all prospective tenants to be treated in an equal way. If a person is claiming benefits, it is a factor which the agent and the landlord should take into account. This is about deciding the suitability of the person for the property, whether the property is affordable and whether or not the person has satisfactory references and a valid benefit claim. It is not about an arbitrary judgment based on the person’s position but instead their individual circumstances and ability to be a satisfactory tenant. An informed decision can be made in both a fair and transparent way that does not place the person at an immediate disadvantage because of their need to claim benefits.
An agent stating that it will not take applications from anyone on benefits for all or a significant part of their portfolio, is clearly adopting a blanket ban and nowadays is at risk of a claim for damages for indirect discrimination.
During the tenancy
The situation is slightly different during a tenancy. Any tenant may have a change of circumstances during the letting and find themselves in receipt of benefits for a shorter or longer time.
This is not a breach of tenancy which permits a landlord to seek possession unless there are any other grounds such as rent arrears or substantive breaches. The landlord may of course seek possession under section 21, but if the sole reason is the tenant’s change of circumstances, the landlord may face a claim for indirect discrimination. He will still be entitled to possession but the tenant may be able to recover his losses in a county court action.
When there is a mortgage or insurance restriction, the landlord or agent will need to inform the provider that the tenant’s circumstances have changed and seek instructions. The institution is not likely to require action if there are no tenancy breaches, but the landlord will need to be assured that insurance cover remains valid and that he is not in breach of mortgage conditions. The provider may request that the tenancy is not renewed when it ends, but if the tenant has a good record, the landlord or agent ought to ask for reconsideration so the tenant can remain.
Not all mortgage providers or insurance companies impose this restriction and it might be worth changing insurance to avoid this issue. Re-mortgaging is more troublesome of course, but the lender may reconsider if the mortgage account is handled well and the tenant has proved sound over a period.
Expect more cases
The case by Ms Keogh is likely to be the first of many, unless or until Parliament clarifies this matter. The Government’s policy with Universal Credit is to encourage more people back into work and to help people on lower incomes to top up their wages with benefits, now rolled into one claim.
There has been huge pressure on social housing providers who are unable to meet the demands for housing and ever more people are looking to the PRS for longer-term housing solutions. More and more people will be affected if these blanket bans continue.
Even in 2018, agents and landlords still advertise properties with the tag: “NO DSS”. This is odd because the ‘DSS’ ceased to exist in 2001. Perhaps this aberration is an indication of how the private rented sector has become stuck on this issue and has failed to move on with the changes and the pressures in the housing market.