[2009] UKUT 19 (AAC) (29 January 2009)

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Upper Tribunal (Administrative Appeals Chamber)

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URL: http://www.bailii.org/uk/cases/UKUT/AAC/2009/19.html
Cite as: [2009] UKUT 19 (AAC)

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IN THE UPPER TRIBUNAL Appeal No. CH/1487/2008

ADMINISTRATIVE APPEALS CHAMBER

Before Deputy Judge Ovey

Decision: The decision of the appeal tribunal given on 8^th January 2008 contained errors of law. In exercise of the powers given by section 12 of the Tribunals, Courts and Enforcement Act 2007, the decision is set aside and the matter is remitted for reconsideration by a new tribunal in accordance with the directions given in paragraphs 54 to 57 below.

REASONS FOR DECISION

This is an appeal by the claimant from the decision of the Birmingham Appeal Tribunal made on 8^th January 2008. By that decision the tribunal dismissed the claimant's appeal against the decision of the decision maker made on 14^th March 2006 that she was not entitled to housing benefit. The claimant's appeal against the tribunal's decision was made to the Social Security Commissioners, but those proceedings were transferred to the new Upper Tribunal on 3^rd November 2008 under the Transfer of Tribunal Functions Order 2008, S.I. 2008 No. 2833. The transfer does not affect the substance of the appeal. My decision is set out above. The reasons for it are as follows.

The material facts are straightforward. By an assured shorthold tenancy agreement dated 15^th January 2006 three people let a property in High Wycombe ("the flat") to the claimant for 364 days at the rent of £600 per calendar month. The claimant moved to the flat on 27^th January 2006 and applied for housing benefit by a form dated 22^nd February 2006. She had made a claim for income support on 20^th February 2006 and asked for her housing benefit to be backdated to that date. She was then expecting her first child and was single.

The claimant filled in the claim form carefully and comprehensively, pointing out that the landlords were in fact her parents and her sister and that the flat was registered in the names of the landlords but beneficially owned as to 69.5 per cent by her sister, as to 15 per cent by her parents and as to the remaining 15.5 per cent by the claimant herself. She said that the flat had been acquired in 1999 as a buy-to-let investment and had been let for most of the time between then and January 2006. The previous tenant had left at the end of November 2005 and had been paying £600 per month. The claimant also produced evidence that her estimated likely income from the flat was £81.50 per month.

By a letter dated 14^th March 2006 the local authority refused the claim, stating:

"A claimant is not eligible for Housing Benefit if the agreement under which he or she occupies the dwelling is not on a commercial basis. What constitutes a commercial basis is not defined in the regulations but the authority must have regard to whether the agreement contains terms which are not enforceable at law in determining whether or not it is a commercial one.

As you part own the above property, you have the right to occupy this, and so Housing Benefit cannot be obtained under such circumstances."

The claimant queried this response by letter dated 17^th March 2006. In its reply dated 19^th April 2006 the local authority said that the original decision was based on regulation 7(1)(a) of the Housing Benefit (General) Regulations 1987, S.I. 1987 No. 1971. That decision had, however, been revised because the decision maker was of the opinion that the tenancy was on a commercial basis. The revised decision was that the claimant was not entitled to housing benefit by virtue of regulation 10(2)(c), because she was a part owner of the property. The claimant was notified of her right to appeal.

Under regulation 10:

"(1) Subject to the following provisions of this regulation, the payments in respect of which housing benefit is payable in the form of a rent rebate or allowance are the following periodical payments which a person is liable to make in respect of the dwelling which he occupies as his home –

(a) payments of, or by way of, rent;

…

(2) A rent rebate or, as the case may be, a rent allowance shall not be payable in respect of the following periodical payments –

(a) payments under a long tenancy …

…

(c) payments by an owner;

…"

By regulation 2(1):

" 'owner' means –

(a) in relation to a dwelling in England and Wales, the person who, otherwise than as a mortgagee in possession, is for the time being entitled to dispose of the fee simple, whether or not with the consent of other joint owners".

The question at the heart of this appeal is whether the claimant falls within the definition of "owner" set out above.

The local authority's letter dated 19^th April 2006 led in due course to a letter from the claimant's father which someone has dated 18^th August 2006. He explained that he had asked his daughter to allow him to investigate why she had been refused housing benefit and that, having considered the provisions of regulation 10, he suggested as a possible interpretation that ownership should be limited to the percentage of the relevant part share, so that only the rent attributable to that part share should be excluded.

The next letter in the bundle is a letter from the local authority dated 10^th October 2006. It refers to the claimant's "recent letter requesting backdated benefit", sets out regulation 7(1)(a) and then says:

"Although you have reduced your share in the ownership of this flat, you are still not liable for Housing Benefit.

Therefore, I have given this matter careful consideration, and unfortunately, your benefit will not be backdated, as good cause has not been shown."

This does suggest an unfortunate degree of muddle on the part of the local authority and it is not surprising that the claimant responded with a letter of appeal, dated 3^rd November 2006. Although the appeal was late, it was in due course accepted for hearing.

There was then some delay, for reasons which are not clear. The claimant's father took over the conduct of the appeal and set out the basis of the case in a letter dated 3^rd November 2007. He explained the he was a retired lawyer who had practised in property law and was not familiar with the housing benefit legislation. Having had his attention drawn to the definition of "owner" in regulation 2 by the local authority's submission on the appeal, he contended:

"At no time did [the claimant] ever remotely come within that definition. I do not therefore see how the Council can successfully argue the appeal.

The purpose of this very narrow definition of owner in Regulation 2 is because it is only the owner of the fee simple (or in layman's language the owner of the freehold) or in the case of a flat such as 11 Westgate Court, the owner of the long leasehold interest, who has the ability to mortgage the property. [The claimant's] interest was an equitable interest only as opposed to a legal estate (or in layman's language a beneficial interest). An equitable interest is not mortgageable. The practical significance of this in the context of the Regulations is that the owner of a freehold or long leasehold interest cannot claim housing benefit but if he has a mortgage on his property and falls on hard times he can claim financial assistance through job allowance. I have relied for this information on para. 2.23 of Shelter's publication "Guide to Housing Benefit and Council Tax Benefit 2005-2006" from which I quote:

"Owner-Occupiers and Long Leaseholders

2.23 Owner-occupiers and long leaseholders (leaseholders whose lease was for more than 21 years) are not eligible for HB … This also applies to those who have the right to sell the freehold only with the consent of other joint owners."

Against para. 2.23 there is a direct reference to Regulation 10(2)(a) & (c)."

By a further letter dated 1^st December 2007 the claimant's father said that as the only point at issue was the interpretation of "owner" for the purposes of the Regulations he and the claimant were content for there to be a paper hearing. Enclosed with that letter was a short submission stating that the freehold title to the flat was vested at all material times in a Mr. Westwell and a Mr. Ludgate and that the long leasehold interest was registered in the names of the claimant's parents and sister. The claimant herself was never a person entitled to dispose of the fee simple of the flat or indeed of the long leasehold interest.

In those circumstances, the hearing on 8^th January 2008 was a paper hearing. The decision notice issued by the tribunal made three points:

(1) the claimant's interest in the flat was not under a rental purchase agreement;

(2) even if the claimant's interest was an equitable interest rather than a legal one, it was capable of defeating her claim, in the light of Fairbank v. Lambeth Magistrates' Court [2003] HLR 62;

(3) in any event, the claimant would face the problem of her interest in the flat exceeding the capital threshold.

Her interest was held to disentitle her to housing benefit.

The claimant's father wrote to The Tribunals Service on 2^nd February 2008 asking whether the decision notice constituted the statement of the tribunal's reasons and saying that if it did not, he wished to receive a statement of reasons. (He said that he had made an earlier request which appears to have gone astray.) He objected to the introduction of grounds for rejecting the appeal additional to the issue which he had understood was before the tribunal, which he described as a breach of the rules of natural justice. He contended that the fact that the tenancy agreement was not a rental purchase agreement was irrelevant and that the value of the claimant's interest in the flat fell to be disregarded by para. 1 of Schedule 5 to the Regulations because the flat was occupied by the claimant as her house. He took issue with the tribunal on the effect of the decision in Fairbank and drew attention to the earlier decision in R. v. Sheffield City Council Housing Benefit Review Board ex p. Smith [(1996) 28 H.L.R. 36.

Following that letter, the tribunal produced a statement of reasons which included the following material paragraphs:

"11. …[Regulation 7(1)(e)] provides that a person is treated as not liable to make payments in respect of a dwelling where his liability under the agreement is to inter alia a Trust of which he is a Trustee or a beneficiary. There is a proviso to this which is that it will not apply in a case where the person with the liability satisfies the appropriate authority that the liability was not intended to be a means of taking advantage of the housing benefit scheme. In this case the tribunal was not provided with any documents relating to the setting up of the Trust but on her father's account, [the claimant] had a beneficial interest and held the property on Trust together with the other beneficial owners. The situation here is somewhat odd because both she and her father in correspondence indicate an expectation that [the claimant] herself would get back a proportionate part of the rental income due. This is a very unusual provision. It is difficult to see why if [the claimant] was to remain entitled to receive a proportionate part of the rent that this should not have been used to reduce the rent in respect of which she was seeking housing benefit from the local authority. It seems to me that this is taking advantage of the Housing Benefit scheme, whether consciously intended in this way or not. Housing Benefit is a means tested benefit intended to meet in whole or in part housing costs for those who qualify, not meet those costs and in addition provide an income to the tenant.

…

13. …The definition of "owner" in Regulation 2 avoids arguments about beneficial ownership, but does it exclude from consideration as an "owner" a person beneficially entitled to all or part of the property? It clearly includes a person who is legal owner and might have no beneficial interest. Can it include a beneficial owner who is not registered as proprietor of a legal interest?

14. In Burton v. New Forest District Council [2004] EWCA Civ 1510, the Court of Appeal in paragraph 37 of its decision stated

… it seems to me quite impossible to construe the term "owner" in Regulation 2(1) as meaning, exclusively, a beneficial owner …

This implies that in the view of Wall L.J., who gave the leading judgment, that :owner" includes beneficial owner.

15. Although at paragraph 40 Wall L.J. said that it by no means followed that where a Trustee applied for housing benefit in respect of payments of rent to a Trust of which he was a Trustee or beneficiary that that would be sufficient to make him an owner, he went on to say in paragraph 41 that the proposition that the construction of "owner" within Regulation 2(1) is not restricted to beneficial ownership is supported by the authorities, a number of which were then analysed…

16. It seems to me that [the claimant] is more than "a person whose only interest in the dwelling is as a beneficiary under a trust". The trust at issue here is simply a resulting trust – she purchased an interest in the dwelling and the registered proprietors hold her interest on trust. She is not a "beneficiary" of the trust.

17. Views on whether a person in [the claimant's] position is an "owner" have been mixed, and there is case law authority for restricting the definition in the way argued by [the claimant's father]. I prefer the view expressed by Wall L.J. set out above. However, lest I am wrong in this, and in the views expressed in paragraph 11 above, I have considered whether there are any other reasons why [the claimant's] claim might fail.

18. Regulation [7(1)(a)] provides that where a tenancy is not on a commercial basis, the claimant is treated as not liable to pay rent. In deciding this question, the adjudicating authority shall have regard to whether the terms upon which the person occupies the dwelling include terms which are not enforceable at law: Regulation [7(1A)]. A hidden term in the agreement at issue here is that some of the rental income would be paid back to [the claimant]. I think this is sufficient to render the agreement not commercial in character.

19. I note that the agreement is between three trustees as landlord with the fourth as tenant. Not having seen the trust documents or legal title, it is not possible to express a view as to whether the agreement is otherwise unenforceable."

The tribunal accepted that the value of the claimant's interest in the flat would be disregarded as capital for as long as she normally occupied the flat.

In the light of that statement of reasons the claimant's father applied for permission to appeal, which was granted by the district chairman on the ground that the law relating to the concept of "owner" was not straightforward.

At the time the claimant's appeal form was received at the Social Security Commissioners' Office, the claimant's father was uncertain, as explained in his letter dated 28^th April 2008, whether the tribunal had power to go beyond the point of law apparently in dispute between the claimant and the local authority, and in that sense the grounds of appeal were not fully formulated. Mr. Commissioner Pacey (as he then was) therefore directed the claimant's representative to provide a formal submission setting out the basis on which it was contended that the tribunal erred in law, with provision for the local authority to reply.

In response to that direction, the claimant's father produced a careful and detailed submission dated 1^st July 2008. The grounds of appeal were stated to be:

(1) the claimant was not an owner of the flat within the definition in regulation 2;

(2) the tribunal should have confined its reasons to the ownership issue and the other issues were irrelevant; alternatively, they were not legally sustainable grounds on which to reject the appeal.

In support of the first ground, the claimant's father repeated his previous submissions and relied on the Burton and Fairbank cases. In support of the second ground, the claimant's father drew attention to the perceived breach of natural justice arising from the introduction of new grounds for refusing his daughter's claim with which she had no opportunity of dealing. He also said that the first and third points raised in the decision notice appeared not to be relied on.

As to regulation 7(1)(e), which the claimant's father had not previously had to consider, he said first that since the local authority had not relied on that provision his daughter was entitled to assume that it was satisfied that the liability under the tenancy agreement was not intended to be a means of taking advantage of the housing benefit scheme. He contended that there was nothing unusual about the arrangement and pointed out that the claimant's rental income would have been taken into account in assessing her entitlement to benefit like any other income. He also submitted that the claimant was indeed a beneficiary under a trust and that a person could not unconsciously intend to take advantage of the housing benefit scheme. The suggestion that there was a hidden term of the tenancy agreement was not understood.

The local authority apparently intended originally to make no further submission, but was directed to do so by Mr. Commissioner Pacey on 20^th August 2008 and a submission was duly received on 9^th October 2008. Unfortunately, the submission appears to be rather confused. It includes the following:

"3.3 The Appellant has declared on her claim for Housing Benefit and has maintained throughout the proceedings, that she has a legal interest totalling 15.5% in the dwelling."

"3.5 It has been established that the legal interest in which she has a share of equity from a long lease, the premises being a flat."

"3.9 The Authority request the Commissioner to in particular consider whether any claimant with a percentage interest in a long lease could be eligible to claim Housing Benefit.

3.10 The Appellant in this has maintained that she is excluded from the definition of the term owner or leaseholder on the basis that she merely has "small" beneficiary interest in the property and that she has not been registered as such."

"4.3 The Authority's understanding is that ownership is a term derived by the common law 'equity' regime. It means the person, who is entitled to enjoy the economic rights stemming from the ownership, although the ownership has been registered in the name of someone else (the legal owner), who holds the object in his/her own name but on behalf of the beneficial owner."

This does not reflect the claimant's case, which is that she does not have a legal interest and that she does not fall within the definition of "owner" as the person who is "entitled to dispose of the fee simple", whether with or without the consent of others. The local authority relies, however, on the contention that housing benefit was not intended to be paid to claimants in this claimant's position. It also relies on the decision of Mr. Commissioner Turnbull, as he then was, in CH/4373/2006, which is now reported as R(H) 8/07. The local authority did not address the issues of regulation 7(1)(a) (tenancy not on commercial terms) and (e) (liability of beneficiary to the trustees).

The claimant's father was given an opportunity to respond to that submission and did so by a further submission dated 12^th November 2008. Not surprisingly, he drew attention to the inaccurate statement of the claimant's case. He also expressed the view that the local authority had not taken legal advice before producing its submission and expressed surprise that if, as is suggested, this is an area in which there has been uncertainty for some time, the local authority should not have done so previously. Given the terms of the local authority's submission, I share the doubts of the claimant's father as to whether legal advice was sought before the submission was prepared and, if it was not, his surprise that that was the case.

It is clear that the ground on which the claimant was refused housing benefit by what appears to me to have been the operative decision, that of 19^th April 2006, which was expressed to revise the earlier decision of 14^th March 2006, was that she was an "owner" as defined in regulation 2 for the purposes of regulation 10(2)(c).

It is also clear that that decision was wrong in law. Leaving aside for the time being the distinction between legal and equitable interests, none of the claimant, her parents and her sister had any right at any time to dispose of the fee simple, to which they had no title. It is plainly accepted by the local authority that the item of property in which the claimant, her parents and her sister were interested, whether legally or equitably, was the long leasehold interest. The fee simple was vested in two people who are entire strangers for the purpose of this claim. The definition of "owner" has nothing whatsoever to do with persons with interests in long leasehold property.

This point is covered by authority. In the Sheffield case referred to by the claimant's father, the local authority was dealing with a situation in which the property in question was owned by the Jesus Fellowship Community Trust. The claimants were all members and beneficiaries of the Trust but were not trustees. The review board concluded that the claimants were "owners" for the purposes of regulation 2. It was contended on behalf of the claimants on their application for judicial review that "owner" meant the person in whom the legal estate is vested or the person with some specific power to dispose of the fee simple, not a beneficiary who was not a trustee. On behalf of the review board it was contended that "owner" included (so far as material) all those who were beneficially interested in the property provided that they were of full age and entitled to have the whole fund applied to them or for their benefit. In other words, the rival contentions were substantially those adopted here on behalf of the claimant and on behalf of the local authority. As the judge, Blackburne J., explained, however:

"By chance it emerged at or shortly before the start of the hearing before me that, contrary to everyone's understanding of the position, the interest of the Trust in … the relevant dwelling was not in fee simple at all but was leasehold… The result of this discovery, it is common ground between [counsel], is that the claimants cannot, on any view, be described as the owners as, of course, they are not entitled to dispose of the fee simple in the dwelling, whether one construes the meaning of 'owner' widely … or narrowly…"

It seems clear that the judge shared counsel's view. A similar view was expressed by Mr. Commissioner Mesher in R(H) 6/04 at paragraph 29, although on the evidence the case was one in which the relevant property was freehold, so that it was not essential to the decision.

The point was considered again in R(H) 8/07, the case on which the local authority relies. In that case, the claimant was the registered proprietor of the fee simple (the freehold) interest in certain property. The property consisted of three flats, each of which the claimant had let on a 99 year lease. The ground floor flat was let to Miss B, who had in turn entered into an agreement with the claimant under which he occupied the flat in return for payment of a substantial weekly rent. Mr. Commissioner Turnbull said:

"10. It is true that, for most practical purposes, Miss B, rather than the claimant, would be regarded as the 'owner' of the flat. She has a lease of it at rent which is little more than nominal, and the lease still has some 71 years to run. However, as I have said, 'owner' is defined by reference to the ability to dispose of the fee simple in the dwelling, and not by reference to the ability to dispose of any long leasehold interest in it which may have been granted. The definitions in regulation 2(1) of the 1987 Regulations apply 'unless the context otherwise requires'. However, it is not in my judgment possible to conclude that the context of regulation 10(2)(c) requires that, where a long leasehold interest has been granted at a low rent, the person with the ability to dispose of that leasehold interest, rather than the person who is entitled to dispose of the freehold, is the owner. Long leasehold interests are of course very common, and indeed regulation 10(2)(a) refers to payments under a long tenancy, which is defined by regulation 2(1) as a tenancy for a term of years certain of more than 21 years. The draftsman of the 1987 Regulations therefore clearly had the possible existence of long leases in mind, and yet the definition of 'owner' was framed solely by reference to the ability to transfer the fee simple."

Although the tribunal was aware from the submission made by the claimant's father that the property interests in the flat with which she was concerned related to a long leasehold interest and not to the fee simple, she did not deal with this point. That is very understandable, since the claimant's father did not rely on it, no doubt because his submission was framed with reference to the Shelter guide to housing benefit. Nevertheless, now that the point is identified, it is plain that the tribunal's decision was wrong in law. If one re-reads the passage from the guide in the light of the decisions I have referred to, it is obvious that what the guide says about long leasehold interests is derived from the exclusionary provision in regulation 10(2)(a) and not that in regulation 10(2)(c).

Lest it be thought that the substance of the present dispute is simply to be transferred to the long leasehold interest in the property, I point out that regulation 10(2)(a) does not exclude payments by the person or persons entitled to dispose of the leasehold interest under a long lease, which would be a formulation similar to that of regulation 10(2)(c). It excludes payments "under a long tenancy". The rent payable by the claimant was payable under an assured shorthold tenancy and not under the long leasehold interest in which she had a share together with her parents and sister.

That is sufficient to dispose of this appeal. In view of the state of confusion which appears to exist, however, I shall say something further about the authorities referred to. I must also deal with the additional points made by the tribunal, since the tribunal found other grounds on which the claimant was not entitled to housing benefit in addition to the one relied on by the local authority.

The decision in R(H) 8/07 does point to a curious anomaly in the treatment of two very similar economic interests, as Mr. Commissioner Turnbull effectively recognised. One is therefore tempted to try to limit the meaning of "payment by an owner" in regulation 10(2)(c) by reference to some criterion such as whether the payments were made in the capacity of owner. That would mean that the two paragraphs would produce a much more closely similar result. Also as Mr. Commissioner Turnbull recognised, however, a judge of the Upper Tribunal who reached such a conclusion would be departing from the decision of the Court of Appeal in Burton v. New Forest District Council [2004] EWCA Civ 1510, R(H) 7/05. In that case the claimant was, at the time his claim to housing benefit was made, the sole registered proprietor of the relevant property. Well before the claim was made, the claimant transferred his beneficial interest in the property to himself and his mother as tenants in common to hold as trustees for a certain trust. Although the purposes of the trust were to assist statutory bodies to make provision for the claimant's care, he being severely disabled, the trust deed expressly provided that no part of the income or capital of the trust should be paid to him or for his benefit. Wall L.J. therefore proceeded on the basis that the claimant held the legal estate in the property on trust for the relevant trust and had no beneficial interest in it: see paragraph 19. Gage L.J. seems to have proceeded on a similar basis (see paragraph 54) and Holman J. agreed with both Wall and Gage L.JJ. The claimant's liability to make periodic payments arose in his capacity as tenant of the trust: see paragraph 22. Nevertheless he was held not to be entitled to housing benefit because regulation 10(2)(c) applied.

Burton is thus a clear authority that the owner of a legal estate is caught even if he has no beneficial interest, as the tribunal in the present case rightly recognised. This case, however, was thought to raise precisely the opposite question: is the owner of a beneficial interest caught even if he is not the owner, or one of the owners, of the legal estate? The tribunal relied on Burton in support of the conclusion that such a person is within regulation 10(2)(c).

In my view, Burton does not offer any real support for that conclusion. The essence of the claimant's argument, as identified by Wall L.J., was that "owner" had to be construed as beneficial owner. It was submitted that the claimant's position as trustee limited his entitlement, if not his power, to dispose of the property. Wall L.J. did not accept that submission and referred to section 20(1) of the Land Registration Act 1925, which provided that the registered proprietor of a freehold estate who disposed of the registered land would transfer to the transferee an estate in fee simple free from all other estates and interests. He went on to say:

"37. In these circumstances, it seems to me quite impossible to construe the term 'owner' in regulation 2(1) as meaning, exclusively, a beneficial owner. The position in law, in my judgment, is that, on the facts as I have outlined them, and because his name remained on the title at the Land Registry as sole owner with title absolute, the appellant was, as a matter of law, entitled to dispose of the fee simple at any point up until the date the register was rectified."

The tribunal in the present case understandably regarded the first sentence quoted above as implying that Wall L.J. regarded "owner" as including a beneficial owner

Wall L.J. went on, however, as the tribunal noted, to consider previous authorities which he said supported the proposition that "the construction of 'owner' … is not restricted to beneficial ownership". The first authority which he discussed was the Sheffield Housing Benefit Review Board case already referred to. Having dealt with the Smith application on the basis I have explained, Blackburne J. continued:

"Having said that, it might be of some interest if I express a view on the point in issue although, in the circumstances, my view will necessarily be obiter. In my judgment the meaning of the expression 'owner' as appearing in regulation 2(1) is much more closely confined than the meaning for which [counsel for the local authority] contends. Whilst I do not consider that that expression is confined to a person in whom, whether alone or with others, the legal estate to the freehold dwelling is presently vested, I do not consider that the expression extends to a person whose only interest in the dwelling is as a beneficiary entitled, if and when the trusts affecting it should be fully executed, to share in the ultimate net proceeds of sale (assuming there are any).

In particular, I do not consider that the rule in Saunders v. Vautier, upon which the review board relied, is of any relevance. The fact that a person, whose only interest in the dwelling is as just described, can, provided he and all the other beneficiaries (all of them being sui juris) agree, put an end to the trusts affecting the dwelling and compel those in whom the freehold interest is vested to dispose of it, does not justify describing that person as someone who 'is, for the time being, entitled to dispose of the fee simple …'. The review board's approach was to equate 'owner' with anyone possessing a beneficial interest in the dwelling. If that had been the intention, the regulation could easily have so provided. It does not."

This is a clear expression of opinion by a judge of the Chancery Division that a person whose only interest in the property is as a beneficial owner and not also as a trustee in whom the legal estate is vested does not have rights capable of falling within the description of rights making him for the time being entitled to dispose of the fee simple, even if, in conjunction with others, he could take steps which would ultimately produce that result. Most of the passage set out above, including the last three sentences, was cited by Wall L.J. without any suggestion that he disapproved the statements there made.

The second of the other authorities referred to by Wall L.J. is the Fairbank case which again I have already mentioned. It concerned a claimant who had been convicted of making a false statement in an application form by failing to disclose his ownership of a house. His case was that he was a trustee of the property for his father, or possibly both his parents, who had provided the purchase money and held the beneficial interest under a resulting trust, and so did not fall within regulation 2(1). The Divisional Court dismissed an appeal against conviction on a number of grounds. In the course of his judgment Kennedy L.J. cited an extract from the passage in the Sheffield case set out in paragraph 30 and said:

"17. In my judgment neither Weadon nor Smith [the Sheffield case] is of much assistance in relation to the problems with which we are concerned in this case. For my part I am satisfied that even if the appellant was a trustee, and even if the definition of 'owner' in Regulation 2 could be applied to the word 'own' in Part 10 of the form, he would still fall within it because he was the person who was for the time being entitled to dispose of the fee simple. No one else had that right, and although he had to consult beneficiaries they were, I accept, not co-owners, and he did not require their consent."

The last sentence of that paragraph is only consistent with an acceptance by Kennedy L.J. that the dicta in the Sheffield case were correct and that the beneficial owner or owners was or were not entitled to dispose of the fee simple within the meaning of regulation 2(1). It should also be noted that counsel for the appellant submitted to the court that it was established practice in social security cases to decide claims by reference to the beneficial interest and that the possible need to change that practice was a ground on which leave to appeal should be given. Leave was refused, but the present case suggests that the practice may have continued unaltered despite the significance of paragraph 17 of the judgment.

The third authority considered by Wall L.J. was CH/1278/2002, a decision of Mr. Commissioner Mesher. That case concerned a claimant who had been one of the administrators of the estate of her late mother, who had owned the property in question. Mr. Commissioner Mesher referred with approval to the dicta in the Sheffield case and Fairbank to the effect that it is only the trustees who are entitled to dispose of the fee simple interest. He was not, however, concerned to determine whether or not a person who had a beneficial interest alone might be within the definition of "owner" in regulation 2(1). Nor did he determine finally whether an interest as administrator brought the claimant within the definition. The decision was based on the fact that at some point within the five year period for which ownership was relevant the administrators had executed a form of assent to the property which had the effect that the property became vested in the claimant and her two sisters as trustees upon trust for themselves as beneficial joint tenants: see paragraph 21. The claimant was clearly within the definition of "owner" after the execution of the assent.

In those circumstances, it seems to me that whatever is to be implied from what Wall L.J. said at paragraph 37 of his judgment in Burton, that passage cannot fairly be taken to imply that in Wall L.J.'s view a person whose only interest in a property is as a beneficiary under a trust falls within the definition of "owner".

The tribunal in the present case was well aware of the important obiter dicta in the Sheffield case, which are cited in part in paragraph 15 of the statement of reasons. Indeed, it appears that the tribunal accepted that statement of the law as correct, because in paragraph 16 the tribunal went on to say that the claimant was more than a person whose only interest was as a beneficiary under a trust. At that point, I part company with the tribunal's reasoning. The tribunal appears to have thought that because the claimant had purchased her beneficial interest and the flat was therefore held by the trustees as to part on resulting trust for her, she was not a beneficiary under the trust. That is not the case. As Mr. Commissioner Mesher explained, where there is a trust of land, the trustees hold the legal title to the land, but they do so on behalf of the person or persons for whose benefit the trust has been established and who are therefore entitled to benefit from the use and occupation of, or the income derived from, the land, or to share in the proceeds of sale. Those persons may or may not be the same as, or include, the trustees. It is immaterial whether the trust has been created expressly or is implied as a matter of law and whether the circumstances giving rise to its creation involve any kind of payment for the beneficial interest arising under the trust.

In support of what I have said in the previous paragraph, I draw attention to the fact that it is clear that the trust considered by Kennedy L.J. in Fairbank was a resulting trust arising from the provision of the purchase money, just like the present case.

It is, of course, true to say that in one sense the claimant was something more than a beneficiary under a trust. She was a tenant under an assured shorthold tenancy. It cannot be suggested, however, that her status as tenant would have given her any right to dispose of the fee simple if the flat had been a freehold property; her rights as a tenant would have had no relevance at all to whether the trustees, exclusively of the claimant, had the right to dispose of the bundle of rights constituted by the hypothetical fee simple interest. On this ground also, in my view, the tribunal fell into error.

There remains the question of the additional grounds for refusal of the claim given by the tribunal. Under paragraph 6(9)(a) of Schedule 7 to the Human Rights Act 1998, a tribunal hearing a housing benefit appeal "need not consider any issue that is not raised by the appeal". A similar provision applies to tribunals hearing social security appeals generally by virtue of section 12(8)(a) of the Social Security Act 1998. This clearly implies that the tribunal has a discretion to consider issues which are not expressly raised. The existence of that discretion was recognised by Mr. Commissioner Jacobs in CI/531/2000, in which it was also pointed out that the discretion must be exercised judicially, which will not be the case if the exercise involves a breach of natural justice.

Some further light was cast on the position in CH/2673/2003 (incidentally, another case in which the fee simple point arose and was dealt with as I have dealt with the point in this case). Mr. Commissioner Turnbull there stated that in general appeals are concerned with the question whether or not a claimant is entitled to a benefit and not to determinations of fact on particular issues arising in the course of reaching a decision. He expressed the view that it was the duty of a tribunal considering an appeal against a refusal of housing benefit based on the definition of "owner" to decide not simply whether that ground of disentitlement applied but whether the claimant was or was not entitled to housing benefit. He was of the opinion that the tribunal would undoubtedly have had jurisdiction to decide other issues such as whether a tenancy was on a commercial basis.

The effect of section 12(8)(a) and the decision in CH/2673/2003 were recently considered by a Tribunal of Commissioners in R(IS) 2/08. The Tribunal did not accept the approach that the duty of a tribunal is always to reach an outcome decision. The Tribunal said:

"47. Section 12(8)(a) of the 1998 Act does not provide a complete answer. It provides that, in deciding an appeal, a tribunal need not consider any issue that is not raised by the appeal. The implication is that a tribunal must consider every issue that is raised by the appeal and, as a tribunal has an inquisitorial or investigative function, that includes any issue that is "clearly apparent from the evidence" … therefore, what a tribunal must not do is ignore an issue that is clearly apparent from the evidence. However, it does not follow that the tribunal must make a decision on every issue raised by the appeal if there is a more appropriate way of dealing with one or more issues.

48. … When an appeal against an outcome decision raises one issue on which the appeal is allowed but it is necessary to deal with a further issue before another outcome decision is substituted, a tribunal may set aside the original outcome decision without substituting another outcome decision, provided that it deals with the original issue raised by the appeal and substitutes a decision on that issue. The Secretary of State must then consider the new issue and decide what outcome decision to give. In that outcome decision, he must give effect to the tribunal's decision on the original issue unless, at the time he makes the outcome decision, he is satisfies that there are grounds on which to supersede the tribunal's decision … Because his decision is an outcome decision, the claimant will have a right of appeal against it."

In the light of these authorities, it seems to me clear that in principle the tribunal had jurisdiction to decide other issues relevant to the claimant's entitlement to housing benefit which were raised by the evidence but not specifically addressed in the submissions before her, but:

(1) the tribunal was under no obligation to do so;

(2) if the tribunal exercised her discretion to do so, she was obliged to exercise that discretion in a way which was consistent with the principles of natural justice.

In my view the claimant's father is right in the contention that the course which the tribunal in fact adopted amounted to a breach of the rules of natural justice, however understandable the tribunal's desire to reach a final decision on the claimant's entitlement may have been. Looking separately at the various issues considered by the tribunal in addition to the ownership issue:

(1) the tribunal asked herself the question whether the claimant's obligation arose under a rental purchase agreement and noted that it did not. There was no breach of natural justice in not giving the claimant the opportunity to deal with that point, since it has never been suggested by the claimant, and apparently never could be suggested by her, that she was paying rent under such an agreement;

(2) the brief reasons given by the tribunal in the decision notice suggest that the tribunal thought the claimant's interest would give her capital of a level sufficient to defeat any claim to housing benefit. In the statement of reasons, however, the tribunal made clear that it was accepted that that capital was to be disregarded, so again there was no breach of natural justice in that respect;

(3) in the statement of reasons, although not in the decision notice, the tribunal considered whether the claimant fell to be treated as not legally liable to pay the rent because of the provisions of regulation 7(1)(e), which, as already mentioned, relates to payments inter alia by a beneficiary to trustees. The tribunal noted that that provision did not apply if the claimant satisfied the authority that the liability was not intended to be a means of taking advantage of the housing benefit scheme. In paragraph 11 of the statement of reasons the tribunal in effect determined that the claimant had not so satisfied the authority or the tribunal. The claimant had had no opportunity to adduce any evidence she might have thought relevant or to make submissions on the point. In that respect, in my view the tribunal was in breach of the rules of natural justice;

(4) also in the statement of reasons, the tribunal returned to the question whether or not the tenancy was on a commercial basis and reversed the local authority's decision as given in its notice dated 19^th April 2006. Again the claimant had had no opportunity to adduce evidence or to make submissions. In my view that was a further breach of the rules of natural justice.

It follows from what I have said that the decision of the tribunal on the alternative grounds for refusal also contained errors of law.

The question then arises what course I should now adopt. My powers are set out in section 12(2) of the Tribunal, Courts and Enforcement Act 2007, which allows, but does not oblige, me to set aside the tribunal's decision and requires me, if I do so, to remit the case with directions for reconsideration or to re-make the decision. I have no hesitation in setting aside the tribunal's decision and I have already made clear that the claimant is not excluded from entitlement to housing benefit by regulation 10(2)(c). Equally, however, I have made clear that neither party has had the opportunity at the level of what is now the First-tier Tribunal to address the applicability of regulation 7(1)(a) and (e), although the claimant's father has made submissions on those aspects to me.

In those circumstances, I take the view that the best course is for me to remit the matter to be heard by a new tribunal having regard to what I have said about the law and the further comments in the next paragraphs, and in accordance with my directions.

The local authority has already accepted once that the tenancy under which the claimant occupied the flat at the material time was on a commercial basis, and the local authority may therefore well decide that it does not wish to reopen that issue despite what was said by the tribunal in the statement of reasons. The tribunal relied, in paragraph 18 of the statement, on what was described as a "hidden term in the agreement" that some of the rental income would be paid back to the claimant. As a matter of law, there is no such term in the agreement. It is true that as a consequence of the claimant's beneficial interest she was entitled to receive proper accounts of the rental income and payment of 15.5 per cent of the net profits after appropriate provision for the expenses incurred by the landlords. That, however, had nothing to do with the terms of the tenancy agreement itself and cannot, in my view, render that agreement non-commercial in character. The income received by the claimant would of course be taken into account in determining her entitlement to benefits.

In the claimant's favour on this aspect of the case are the facts that the flat was originally acquired as a buy-to-let property and had been tenanted for several years by what appears to have been an arm's length tenant; that that tenant had occupied on the same terms as to rent as the claimant; that letting agents were involved in the previous lettings; that the landlords appear to have used a standard commercial form of tenancy agreement; and that actual payment of a commercial rent was required to enable the claimant's sister to meet her mortgage payments in respect of the flat. I do not suggest that this is necessarily an exhaustive list of relevant points, although they appear to me to be ones to be taken into consideration. It may also be that, for example, it was necessary to obtain the consent of the mortgagee to the letting and that the terms on which or the policy by which the mortgagee gave any necessary consent are relevant.

The tribunal additionally expressed concern, not having seen the trust documents or legal title, that it was possible that the agreement was otherwise unenforceable, apparently because the agreement "is between three trustees as landlord with the fourth as tenant". This shows a misunderstanding of the apparent factual position. The claimant's case is clear that there are only three trustees, all of whom were parties to the tenancy agreement as landlords. She is not a trustee and was party to the agreement in the entirely distinct capacity of tenant. The claimant will no doubt be able to produce evidence of the title to the property at the relevant time, if the local authority so requires. Assuming that it shows, as the claimant says, that there were three registered proprietors not including her, no reason occurs to me why the agreement should be unenforceable because of the trustee and beneficiary capacities of the parties.

Under regulation 7(1)(e) a claimant is treated as not liable to make payments if his liability is, inter alia, to a trustee of a trust of which he is a beneficiary, subject to the provisions of regulation 7(1B). There is no obvious basis for contending that the claimant's liability under the tenancy agreement was not to a trustee (or, strictly, the trustees) of a trust of which she was a beneficiary. The argument which it seems that the claimant wishes to run is that she comes within regulation 7(1B): that is to say, that on the facts the local authority must be satisfied that the liability was not intended to be a means of taking advantage of the housing benefit scheme.

The question what conduct is covered by the concept of taking advantage of the housing benefit scheme was considered by the Court of Appeal in R. v. Stratford-upon-Avon District Council Housing Benefit Review Board ex p. White (1998) 31 H.L.R. 126. The court was there dealing with the phrase "created to take advantage of the housing benefit scheme" in what became regulation 7(1)(l). Otton L.J. said:

"In my judgement the precise language of sub para [(l)] indicates that there must have been some purposive conduct on the part of those seeking benefit, the liability must appear "to have been created to take advantage". This connotes that something has been contrived or devised for the purpose of taking advantage of or exploiting the scheme. There is no evidence to suggest that [the claimant] (and, I would add, the landlord) has behaved in such a manner or been motivated by dubious ingenuity to create the liability. Thus the Council could not reasonably have concluded that the liability had been created to take advantage of the scheme."

Similarly, Peter Gibson L.J. said:

I have little difficulty in finding in the language of paragraph [(l)] the connotation of an abuse of the housing benefit scheme. To my mind it cannot be supposed that the paragraph was intended to exclude from benefit the ordinary case of a tenancy being agreed at arm's length and on proper terms in the knowledge that the tenant needs housing benefit to pay the rent. Whilst in one sense the liability to pay the rent is created to take advantage of the scheme, I cannot believe that it was intended that housing benefit should be denied on that ground. The answer, in my opinion, lies in giving to the words "take advantage" its common meaning of avail oneself unfairly or improperly."

On that basis, the question is whether the local authority is, or cannot properly not be, satisfied that when the claimant entered into the tenancy agreement with her parents and sister she did not do so with the intention of availing herself of the housing benefit system in a way which was unfair or improper. This is not something which the local authority itself has as yet suggested, but the tribunal seems to have regarded the claimant as disentitled to benefit by virtue of regulation 7(1)(e). The tribunal did not, however, consider the White case or any other authority on the meaning of "take advantage". Instead she reached her conclusion on the basis that the claimant would be entitled to part of the rent and that that was taking advantage, "whether consciously intended or not".

The last phrase is a little difficult to follow in connection with a test based on whether or not something was intended. I think the tribunal must have been contemplating the possibility that the claimant consciously intended to claim housing benefit, but did not consciously intend to do something which might amount to availing herself unfairly or improperly of the system, although objectively speaking what she was doing might be regarded as leading to a claim for housing benefit in circumstances in which that was unfair or improper. The tribunal's own view seems to have been that there was something unfair or improper in claiming housing benefit in circumstances in which the claimant would receive back part of the rent wearing her hat as beneficiary.

While the new tribunal will no doubt have regard to that view, it must be considered bearing in mind what would have happened if the claimant had moved to another flat of similar size in a similar location. The likelihood seems to me to be as follows, although I do not seek to decide the issue. The flat with which this appeal is concerned would have been re-let elsewhere and the claimant would have received her 15.5 per cent of the net profits, as already discussed. She would have claimed housing benefit for the property which she would have occupied and, consistently with what she in fact did, she would have declared her income as beneficial owner of the flat. She would have been awarded such amount of housing benefit, if any, as would have been appropriate having regard to her income. It is difficult to see why the fact that what she actually did was to occupy the flat in which she had a beneficial interest should have brought her any kind of advantage which meant that there was something unfair or improper about her claim to housing benefit. The claimant's father says that in fact she did receive housing benefit in respect of the property she had to move to and that that was more expensive for the local authority. That is plausible, given the evidence to the effect that the rent the claimant was paying was slightly less than the market rent.

In addition, it is to be remembered that the reason for the claimant's move to the flat was her need to be nearer her parents for help and support in the later stages of her pregnancy and as a new mother. Her primary purpose appears to have been to obtain suitable accommodation for herself and her unborn child in an appropriate location.

In my view, it would be helpful for the parties if, as is common, the member or members of the First-tier Tribunal chosen to reconsider this case are not the same as, or do not include, the tribunal who heard it initially, and I so direct.

I further direct that the First-Tier Tribunal must give the local authority an opportunity to state whether it wishes to continue to refuse the claimant's claim for housing benefit, bearing in mind what is said above as to the applicable law, and if it does so, to make a further submission setting out the grounds on which it now relies to support the refusal of housing benefit.

I also direct that if the local authority does continue to refuse the claimant's claim for housing benefit, the claimant must be given a fair opportunity to respond to the submission to be made by the local authority, producing such further evidence and taking such further legal advice as she may think appropriate.

In reconsidering the case, the new tribunal will of course bear in mind what has been said in this decision.

It will in any event be open to the local authority to revise its decision of 19^th April 2006 under regulation 4(2) of the Housing Benefit and Council Tax Benefit (Decisions and Appeals) Regulations 2001, S.I. 2001 No. 1002, on the ground of official error in that either the local authority was in error in believing that the flat was a freehold property or it was in error in believing, despite earlier decisions to the contrary effect, that regulation 10(2)(c) was capable of applying to the leaseholders of a long leasehold property. If it does so, it will be free to substitute whatever revised decision it may think appropriate in the light of what I have said. This might be a helpful course for the local authority to adopt, since it will give the local authority the opportunity in effect to start afresh and will give the claimant fresh appeal rights if the decision is adverse to her.

Finally, I should make clear that it does not appear to me that housing benefit will be paid to persons for whom it is not intended if a person occupying under a tenancy agreement on commercial terms who happens also to have a beneficial interest in the freehold of the property he or she occupies does not fall within regulation 10(2)(c). If the tenancy was granted by the trustees, he or she will be paying rent in circumstances which appear to fall within regulation 7(1)(e), so that if there is any element of abuse of the housing benefit system, the local authority will be entitled to refuse the claim on that ground. As already noted, to the extent that the person concerned is entitled to receive any part of the rent paid as income, it will be taken into account.

(Signed on the original) E. Ovey

Deputy Judge of the Upper Tribunal

29^th January 2009

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You are here: BAILII >> Databases >> Upper Tribunal (Administrative Appeals Chamber) >> [2009] UKUT 19 (AAC) (29 January 2009) URL: http://www.bailii.org/uk/cases/UKUT/AAC/2009/19.html Cite as: [2009] UKUT 19 (AAC)