The Disposable Income Test: Legal Aid eligibility and the payment of rent

In assessing financial eligibility for Legal Aid, three tests must be passed. Firstly, the client must not have capital holdings greater than £8,000 in value. Secondly, the client must not have a gross income exceeding £2,657 per calendar month. Thirdly, the client must not have disposable income exceeding £733 per calendar month. These tests have many interesting and intricate rules and variations that must or may be applied, and I have produced a back-to-basics A to Z guide for understanding and applying these rules which I may post at a later date. There are also some Legal Aid eligibility calculators which you can use without understanding the rules just by inputting the data, and while this is efficient I do think that as thorough an understanding as possible of the intricacies is actually a very useful thing to invest time in acquiring.

One question that has recently been put to me is how exactly the rules work surrounding rental payments. To get from the gross income test to the disposable income test you make certain deductions from gross income, and very broadly speaking, rental payments may be deducted. As an aside, if a person is actually homeless and therefore has no rental payments to make, he may fail the disposable income test as a result of his homelessness – my colleague William Flack has written about this issue at http://wflack.com/how-the-legal-aid-means-test-excludes-people-with-no-accommodation-from-receiving-free-advice-and-assistance/ , and this position has been confirmed by the Legal Aid Agency as a “hard edge” to the rules. The subject of this current post, however, and the question that was recently posed to me, is whether we may deduct the full rental obligation as per the tenancy agreement, or only the amount of rent actually paid by the client within the assessment period (one month for Legal Help and three months for a certificate). It should be noted that the details of the rules are actually that rental payments may only be deducted up to a maximum of £545 unless the client has dependant children, in which case the full rent may be deducted.

I present here the argument largely as I presented it when first posed the question. The Legal Aid Agency has since confirmed my position. In short, we should deduct the rental obligation as per the tenancy agreement, not merely that portion of it which actually is being paid. This is the position, although there are some nuances which I will explore. I have, however, been informed by my colleague William that on a particular certificated possession matter the Legal Aid Agency did ask for proof that the client’s rent was actually being paid – I argue that the Legal Aid Agency have no reasonable basis for making such a request for such a case, though they might for other types of case.

Deduction of Rent for the purposes of the Disposable Income Test

For the purposes of this post, I shall put aside the rules surrounding the £545 cap on rental deductions. The question at hand is: do we deduct the full contractual obligation or merely that portion of it which is actually being paid?

Under Section 4 of the Legal Aid, Sentencing, and Punishment of Offenders Act 2012, guidance published by the Lord Chancellor must be given regard to by the Director of Legal Aid Casework , and any directions are binding.

The Lord Chancellor has published guidance on means assessments, here: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/793459/Guide_to_determining_controlled_work_.pdf

Under Section 6.4 of this guidance, with the heading “Housing Costs”, paragraph 1 states that rent should be deducted as “the amount payable as per the tenancy agreement minus the amount met by housing benefit”. This is further clarified by paragraph 3 which states:

“The amount to be allowed in the determination is the monthly rent or mortgage payable…”

The same paragraph goes further to address the incidence of a client paying extra towards rental arrears, which is a different and separate type of payment, and the rules surrounding such payments clarify by contrast the rules for payment of the rent itself. Paragraph 3 states that “if the client has already come to an arrangement to pay off arrears by increasing their monthly rent or mortgage payment, then, provided those increased payments are actually being paid by the client, that increased rent or mortgage payment can be treated as the monthly rent or mortgage payable in the determination”.

Thus, the guidance is clear: the full rental obligation is deductible, whether paid or not, and payments towards rental arrears (pursuant to some agreement) are deductible but only as far as actually paid.

As you are reading this, I suspect you are crying out for something more fundamental than merely the Lord Chancellor’s guidance – you want the rules that are the lynchpins of this guidance. It is a reasonable demand – and it is at this point that this topic starts to get really interesting.

Statute and Caselaw

For us now, the key scroll of vellum is the one inscribed with the Civil Legal Aid (Financial Resources and Payment for Services) Regulations 2013. The introduction to these Regulations explains that:

“The Lord Chancellor makes the following Regulations in exercise of the powers conferred by sections 5(4), 21(2) to (8), 23(1), (2)(a) and (b), (4) to (8), (9)(a) to (c), (11)(a), and 41(1)(a) and (b), (2)(a) and (b) and (3)(a) of the Legal Aid, Sentencing and Punishment of Offenders Act 2012(1).”

Regulation 28(2)(a) states that “the net rent payable by the individual in respect of their main or only dwelling must be deducted”. The key word is “payable”, not “paid”, and this distinction is underlined in what follows. There is indeed discretion available to the Legal Aid Agency, and Regulation 28(4) states that:

Where the amount of net rent paid by the individual is less than the amount of net rent payable [my emphasis], the Director may deduct the lesser amount where the Director considers it is reasonable to do so in the circumstances, having regard to—

(a) the likelihood that the individual will recommence payment of the full contractual amount in the future;

(b) the relationship of the individual with the landlord; and

(c) any agreement with the landlord or mortgagee for payment deferral.”

If a client is paying less than the contractual obligation but intends to pay that full amount again in the future, and has a professional legal relationship with the landlord (rather than being a family member in a “casual” tenancy arrangement, for example), and is not benefitting from any agreement with the landlord to pay less than the full rent for a certain period of time (as in the High Trees case, for example), then it is reasonable to deduct the full rent payable, not the lessor amount actually paid, in all cases that we assess.

We may be confident, therefore, that there are circumstances in which the Legal Aid Agency may use their discretion to only allow deductions up to the amount actually paid rather than the amount due. Theoretically, this applies to both controlled casework as well as to certificated work. However, so long as a Legal Help provider is able to justify his position to the auditor in accordance with the regulations (and I explore further and summarise my position below), there should not be any circumstances in which his Legal Help work is not paid out by the Legal Aid Agency on account of the rental deduction question. And when it comes to certificated work, it is open to the Legal Aid Agency to ask questions about the assessment prior to issuing a substantive certificate, so the lawyer at work ought to have a heads up as to any potential difficulties with his funding arrangements and can react – and hold back on doing work – accordingly. Although I am here confirming the Legal Aid Agency’s scope for discretion in this matter, you will recall that I stated in an earlier paragraph that the Legal Aid Agency has no business in asking for proof of actual payment of rent in a possession case. This is because of Regulation 28(5), which states that although the Legal Aid Agency’s discretion may apply (where reasonable) to clients generally, it does not apply to matters of possession:

“Paragraph (4) does not apply where the individual makes an application in respect of a matter described in paragraph 33 (loss of home) of Part 1 of Schedule 1 [of the LASPO Act 2012], to the extent that—

(a)the matter concerns possession of the individual’s home; and

(b)the individual is resisting a court order for such possession.”

It is unclear from just the regulations whether the court order actually has to have been made already, or merely applied for by the landlord. However, this was settled in R (Southwark Law Centre) v Legal Services; R (Dennis) v Legal Services Commission (2007), a joint appeal (http://www.bailii.org/ew/cases/EWHC/Admin/2007/1715.html ) . Mr Justice Collins found that whether an Order for Possession has been granted or a Claim for Possession has simply been filed (cf. para. 2), the rent to be deducted for assessment should be the amount payable not just the amount paid. We may as a matter of common sense approve of this decision – from the moment any Notice to Quit is served, indeed, the individual is resisting a future court order for possession.

Thus, in general, the rent to be deducted is the full amount payable, but the Legal Aid Agency may limit this to the amount actually paid in some cases where reasonable having regard to likelihood of the client paying the full rent in the future, the relationship between the tenant and the landlord, and any agreement between the two that the tenant should pay less than the amount due. This discretion does not apply, however, where the tenant is facing the loss of his home in respect of a claim for possession.

To summarise the position for lawyers acting under a housing contract, I would summarise as follows:

Type of Case What to deduct?
Possession Proceedings where an Order for Possession has been made Deduct full contractual obligation
Possession proceedings where a Claim for Possession has been made Deduct full contractual obligation
Possession proceedings where a Notice to Quit (etc.) has been served Deduct full contractual obligation
Possession “proceedings” where service of a Notice to Quit has been threatened Deduct full contractual obligation IF you are persuaded that client intends to pay full obligation in future AND there is no agreement that client only pay a reduced rent. The fact that possession proceedings are threatened must satisfy the second of the two considerations in Regulation 28(4) (essentially that there should be some legal relationship between tenant and landlord)
Street (etc.) homeless No deductions possible
Legally homeless This is the most unclear type of case in respect of this question. The Legal Aid Agency may use its discretion to only allow a deduction of the amount of rent actually paid, but this decision must be reasonable as per the three considerations. We may easily be satisfied that the client is in a legal relationship with his landlord and that there is no agreement for him to pay a reduced rent. However, if a homelessness application is being made because the current accommodation is so manifestly unsuitable, how can it be reasonably suggested that the tenant intends or is likely to pay the full rent to the landlord in the future? The whole purpose of the case is that the tenant cannot live in that accommodation any longer.
Housing disrepair Deduct full contractual obligation IF you are persuaded that client intends to pay full obligation in future (presumably when the housing disrepair dispute is resolved) AND there is some legal relationship between tenant and landlord, AND there is no agreement that client only pay a reduced rent.

I should like to finish with a few words of clarification on the above table where it suggests the types of cases for which a housing contract lawyer may wish to deduct only the amount actually paid (i.e. entries 4, 6, and 7). It is important to note that the three considerations for making a reasonable decision under Regulation 28(4) are just that – considerations to have regard to, not tests. The Legal Aid Agency should not exercise its discretion in such cases just because one of the three considerations might be a little fuzzy if on the whole it would be unreasonable for them to do so. So long as we can justify our position even in such cases then – under Legal Help at least – we should feel confident in deducting the full rental obligation, and even in applications for a certificate we should do the same although we should steel ourselves for questions to be asked in respect of cases of threats of a notice seeking possession, legal homelessness, and housing disrepair. When it comes to actual possession proceedings, the Legal Aid Agency has no business asking for proof that the rental obligation is actually being paid.

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