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.

It’s a thin line between housing suitability and legal homelessness in the scope of Legal Aid

Homelessness and Housing Suitability are closely related concepts. Of course, homelessness in the common parlance means just that – a person without a home – but legal homelessness also includes those who have a home but one it is unreasonable for them to continue to occupy. Section 175(3) of the Housing Act 1996 states that “a person shall not be treated as having accommodation unless it is accommodation which it would be reasonable for him to continue to occupy”. Homelessness is within scope for housing contracts with the Legal Aid Agency pursuant to Section 9(1)(a) and Paragraph 34 of Part 1 of Schedule 1 of the Legal Aid, Sentencing, and Punishment of Offenders (LASPO) Act 2012. Housing suitability is not included as within scope by that Act, but clearly if accommodation is manifestly unsuitable then we enter the territory of legal homelessness, and Arden QC, Bates and Vanhegan in “Homelessness and Allocations” note that the House of Lords “came close to eliding the two concepts” in the joined appeals of Birmingham City Council v Ali and Moran v Manchester City Council (Secretary of State for Communities and Local Government) 2009.

The question of at which point out-of-scope-suitability becomes in-scope-legal-homelessness is one which has been subject to much commentary, debate, and decisions in the courts, and it is too wide a topic for me to address here. I will confine myself to one particular aspect which arose with a new enquiry the other day, and which does not form part of the debate about manifest unsuitability and legal homelessness per se, but about a normal homelessness application (which we may be satisfied met the criteria for homelessness or legal homelessness and for which a council has accepted a duty to house or rehouse).

Paragraph 34 of Schedule 1 of LASPO 2012 describes as within scope:

(1)Civil legal services provided to an individual who is homeless, or threatened with homelessness, in relation to the provision of accommodation and assistance for the individual under—

(a)Part 6 of the Housing Act 1996 (allocation of housing accommodation);

(b)Part 7 of that Act (homelessness).

I shall consider the possible implications of the inclusion of Part VI as within scope in a later post, but for now I wish to address the inclusion of Part VII, and the implications of Sections 202 and 204 of the Housing Act 1996 (both sections of Part VII) on the line between suitability, homelessness, and matters in scope for Legal Aid contracts. Section 202(1)(f, g, h) permits a review of the suitability of accommodation offered by a Local Authority as a discharge of its various duties under Part VII (excluding the interim duty to house under Section 188), and Section 204 allows an appeal to the county court of a Section 202 review decision on a point of law.

What if the unsuitability of the accommodation provided under an accepted Part VII duty to house does not meet the threshold for legal homelessness? Clearly, no new head of action for homelessness can be pursued under Legal Aid, but it is also clear that we may we pursue a Section 202 review or Section 204 appeal under the original homelessness file. The deadline for requesting a Section 202 review is 21 days pursuant to Section 202(3) of the Act. Within the statutory window of time for requesting such a review (and subsequently a 204 appeal) the range of de facto suitability cases that may be funded under Legal Aid is therefore vastly expanded from the types of suitability cases that would ordinarily be in scope as cases of legal homelessness. The exact differences between these types of suitability cases (and the likelihood of success of any cases brought) is something I would like to discuss in a later post. For now, however, I would like to end with the point that suitability in a broad sense may be – where raised as a Section 202 review or within a Section 204 appeal – within scope for Legal Aid funding. To me, as somebody new to this line of work, this has been a fascinating discovery.

Legal Aid Providers and Contract Specifications

Contact details for Hanne & Co. can be found at www.hanne.co.uk and we can be contacted on 020 7228 0017. My blog is not an official Hanne & Co. blog, but we are a great firm! I would also signpost you to an excellent list of Legal Aid providers compiled by my colleague William Flack, accessible through his blog: http://wflack.com/list-of-solicitors-organisations-who-can-help-with-housing-problems/

Furthermore, the Government maintains a very useful list of Legal Aid providers with details of their contract specifications – i.e. the types of Legal Aid work they are able to carry out under their licence. You will have seen from my recent posts that the Standard Civil Contract is a very important aspect of Legal Aid, and I explain the contractual nature of the beast in later posts as well. The Government list can be downloaded here: https://www.gov.uk/government/publications/directory-of-legal-aid-providers – at the time of writing it was last updated on 20th May 2019, so it should be fairly accurate.

A Cautionary Note to Legal Aid Practitioners under a Housing Contract: Possession Cases

For a matter to be within scope for Legal Aid, provision for it must be made under Schedule 1 of Part 1 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (http://www.legislation.gov.uk/ukpga/2012/10/schedule/1). In respect of housing, and specifically in respect of the loss of home criteria, Paragraph 33(1) lays down as in scope:

Civil legal services provided to an individual in relation to—

(a)court orders for sale or possession of the individual’s home, or

(b)the eviction from the individual’s home of the individual or others.

Paragraph 33(2) lays down:

Civil legal services provided to an individual in relation to a bankruptcy order against the individual under Part 9 of the Insolvency Act 1986 where—

(a)the individual’s estate includes the individual’s home, and

(b)the petition for the bankruptcy order is or was presented by a person other than the individual,

including services provided in relation to a statutory demand under that Part of that Act.

It seems clear – if somebody faces the loss of their home due to eviction, or a repossession by a bank, or a court order for sale, or a bankruptcy order, these matters fall within scope for Legal Aid – and so they do. However, it is not necessarily true that a housing lawyer can provide Legal Aid services for these issues under their Legal Aid retainer. Although the issues are all about housing, and clients as well as housing lawyers new to Legal Aid will feel confident that they have the right contract for the job, that is not necessarily the case.

The Legal Aid Agency’s Category Definitions 2018 (https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/738528/2018_Standard_Civil_Contract_Category_Definitions__August_2018_.pdf deals with the housing contract at paragraph 37. The bread and butter of our possession work – evictions – is of course included within the contract, and so are orders for possession of owned homes, although the biggest group in this category – mortgage repossessions – are specifically excluded. Court orders for possession of an individual’s home arising out of failure to make payment due under a mortgage fall under paragraph 27(b) of the Category Definitions, which describes a debt contract, not a housing contract. Also of interest is that any order for sale – not possession – also falls under the debt contract at paragraph 27(a) and not the housing contract, as do bankruptcy orders which threaten loss of home under paragraph 27(c). If you are a lawyer at a firm that has both a housing and a debt contract and you are personally qualified to practise both areas of law, you should ensure that such cases are opened under the debt contract, not the housing contract. If your firm does not have a debt contract, you must refer such matters on.

Domestic Abuse, Loss of Home, and the Standard Civil Contract

This post isn’t going to attempt to discuss all facets of this subject, but only one very specific issue. I hope to write further posts about some of the other facets that are legally engaging, but I shall leave that for another evening.

I have been running a case recently that has led me to investigate domestic abuse, loss of home, the law, and the Legal Aid Agency’s Standard Civil Contract. All Legal Aid solicitors operate under this contract, and the standard terms can be found here: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/738513/2018_Standard_Civil_Contract_Standard_Terms__August_2018_.pdf

The contract governs standards, types of work, payment, supervision, and so on, and a solicitors’ firm in breach of these terms can have their licence to offer Legal Aid services revoked. It is very important that lawyers operate within the rules.

The case in question involves a secure joint tenancy and my client who is being rehoused away from that tenancy because of domestic abuse. The problem is that since the Localism Act 2011 councils have tended to offer flexible tenancies which don’t have the substantive security of tenure of older style tenancies. This is not a stand-alone case, and victims of domestic abuse can often find themselves losing out on security of tenure because they need to be rehoused.

The Secure Tenancies (Victims of Domestic Abuse) Act 2018 received Royal Assent on 10th May 2018. Section 1 amends the 1985 Housing Act by creating a duty to grant an old-style tenancy if the applicant needs a new tenancy after fleeing an old-style tenancy on account of domestic abuse. Unfortunately, Section 2 establishes that Section 1 will only come into force on such day as the Secretary of State may by regulations appoint. No such regulations have been laid down and perhaps we may blame this on the amount of parliamentary and Government time being taken up by Brexit.

There is another provision of law that may help in these circumstances. Under Section 53 of the Family Law Act 1996 it is possible under certain circumstances for the Family Court or the High Court to order that a tenancy be transferred from one name to another, or a joint tenancy to be vested in a sole name, as part of divorce or separation proceedings. The rules surrounding this are partly set out in Schedule VII of the Act and partly in an array of case law. So, our victim of domestic abuse may be able to argue forcefully that she be assigned the tenancy. There are complicating factors which I will not delve into in this post, but this is a powerful piece of statute, although it would not help the victim’s security of tenure should she need to be moved to another property. A judge may also be reluctant to rely on Section 53 if the victim is being rehoused anyway and if the result of such a ruling would be homelessness for the other party, which it almost certainly would in many cases (a single man – particularly one who has committed domestic abuse – is unlikely to be found to be in priority need for rehousing by the council).

When a person has a problem with their housing and their tenancy, such as the domestic abuse victim in the example above, they are likely to contact a housing lawyer. This makes sense, and a housing lawyer should be able to assist somebody with issues surrounding their tenancy. A housing lawyer may not currently be able to assist, however. When the relevant regulations are brought in to activate Section 1 of the Secure Tenancies (Victims of Domestic Abuse) Act 2018 then there will be no problem for a housing lawyer to help under the Standard Civil Contract, as the 2018 Act can simply be interpreted as a satellite piece of legislation to help lawyers deal with homelessness and rehousing – an area that is certainly within scope and certainly within specification for a housing law contract. The difficulty is that currently, the Section 53 alternative does not fall within a housing lawyer’s Legal Aid retainer.

It is important that both practitioners of Legal Aid and legally-aided clients understand the rules of the Standard Civil Contract because these form the basis of what a particular lawyer or firm can do under Legal Aid. When a client comes to a Legal Aid firm, not only must the case they present be within scope, not only must the client themselves be financially eligible, but the firm they approach must also have a contract with the Legal Aid Agency that permits them to deal with that particular area of law. In addition to the Standard Terms, there is the 2018 Standard Civil Contract Specification, which can be found here: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/738514/2018_Standard_Civil_Specification__General_Provisions___August_2018_.pdf

Paragraph 2.29 states that:

All Categories of Work are exclusive under this Contract. You must have Schedule Authorisation in a Category to undertake work in that Category unless it is Miscellaneous Work.

In other words, a law firm will have contracts with the Legal Aid Agency to carry out work in certain fields of law, and one contract does not cover all types of law. Certain types of case are “miscellaneous”, but Section 53 of the Family Law Act 1996 is clearly defined as falling under a family contract. The categories are defined in the Legal Aid Agency’s Category Definitions 2018 (https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/738528/2018_Standard_Civil_Contract_Category_Definitions__August_2018_.pdf), and, setting out the family law category, paragraph 34 includes within that category:

34. Legal Help and all proceedings in relation to matters arising out of a family relationship where the client has been, or is at risk of being, a victim domestic violence (as described by paragraph 12 of Part 1 of Schedule 1 of Part 1 to the Act), including matters under the following enactments:

… (m) section 53 of, and Schedule 7 to, the Family Law Act 1996; …

“The Act” referred to is the Legal Aid, Sentencing, and Punishment of Offenders Act 2012 and is the legislation that sets out the scope of Legal Aid today. All matters that arise from Paragraph 12 of Part 1 of Schedule 1 should be classed as falling under a family law contract, and not a housing contract (unless the matter can also be described as a housing matter within the scope of a housing contract). Currently, should a client come to you with a case similar to that described above, and you are operating under a housing law contract, there are few options left to you than to refer the matter to one of your family law contract colleagues.

This is hardly an ideal state of affairs, and I can only hope that the regulations are brought in as quickly as possible. This will enable lawyers under housing contracts to get involved in this type of matter, and will mean that victims of domestic abuse who come to housing lawyers with concerns over their impending loss of security of tenure are not turned away at the door.

The Homelessness Reduction Act 2017 (and LHA Rates)

I recently attended an evening talk at Doughty Street Chambers (https://www.doughtystreet.co.uk/) on the Homelessness Reduction Act 2017. It was a very useful talk given by some very experienced barristers.

The Doughty Street team began by explaining that the purpose of the Homelessness Reduction Act was, in part at least, to save the Government money. It increased early-intervention duties for local authorities so that people threatened with homelessness would be assisted in order that they do not actually become homeless, and so not need emergency temporary accommodation from the council. Temporary accommodation is the most expensive type of accommodation which the government funds. The idea is that earlier intervention equals lower demand for temporary accommodation equals a saving in the budget. Before people are made homeless, councils are under new duties to assess them and provide them with a Personalised Housing Plan alongside prevention and relief duties for 56 days each. The Government has provided £20 million over three years for these additional duties, but the savings envisioned in respect of the need for temporary accommodation are not materialising and homelessness funding is now facing a £110 million shortfall in London, and this is expected to increase to a £420 million shortfall over the next 5 years. Nationally, the figures I have gathered online suggest shortfalls of £1 billion and £8 billion respectively.

One problem with homelessness alleviation and the homelessness budget – which is not aided by the 2017 Act – is the lack of housing stock and the consequences of this. The lack of housing stock has logistical as well as financial consequences. Where a duty to house is made out, local authorities must sometimes turn to private landlords to take homeless applicants off their hands, for a fee. The amount that local authorities pay private landlords in Housing Benefit is set at Local Housing Allowance (LHA) rates which are decided by the Valuation Office Agency. LHA rates were frozen in April 2015 and will not rise until at least March 2020. Currently, LHA rates in Wandsworth – the borough in which I work – are set at up to £320.74 per week for a two bedroom property depending on the area of the borough and the size of your household. This is £1,282.96 for four weeks. A full break down of rates in that particular borough can be found here: https://www.wandsworth.gov.uk/info/10112/local_housing_allowance/976/local_housing_allowance.

This rate is not enough to incentivise landlords who are typically reluctant to accept Housing Benefit tenants. Local authorities are therefore being forced to pay private landlords a sweetener of as much as £8,700 to take homelessness applicants off their hands. Apparently, London authorities spend about £14 million on these sweeteners every year.

The Homelessness Reduction Act 2017 is a very positive step in attempts to alleviate homelessness. However, the black hole of funding, the housing shortage, and the amount of work that councils face means that they are only managing to fire-fight and must expend some parts of their budget incentivising landlords rather than targeting that money on their new early intervention duties.