Practical Law

Private landlords and letting agents frequently advertise their properties stating that they will not rent to housing benefit tenants (for some outdated reason, still often referred to as “DSS” tenants).

This causes real difficulties to such tenants whose housing choices are restricted.

This blog considers the legality of such refusals under Part 3 of the Equality Act 2010 (EqA 2010) which deals with discrimination, harassment and victimisation in the context of services and public functions.

Reasons for the refusal

In the online chatrooms of private landlords, many are infuriated with the suggestion that they are in any way unreasonable for refusing to accept benefits tenants. “We are not prejudiced” is a common refrain. “It’s not the tenants themselves that are the problem – it’s the local authorities.”

Complaints about local authorities who are paying benefits such as Universal Credit to tenants include:

• Councils change the allowances to tenants with no warning, leaving tenants with horrendous problems in dealing with the payments shortfall as they move from one system to another and consequently leaving landlords in arrears.
• Councils backdating enormous and at times erroneous overpayments which the tenant has no hope of paying.
• Councils starting and stopping payments as they wish, with no regard for the landlord’s contract with tenants.
• Councils insist on paying in 4-week cycles instead of per calendar month like everyone else.

Whether all these complaints are justified or not, perceptions of difficulties with local authorities often prevents the acceptance of benefits tenants. I want to focus not upon this issue however, but on a different rationale put forward by landlords – that such a bar is imposed upon them, by their own mortgage providers and insurers.

Landlords insure their properties for their own and their tenants’ benefit. Some policies charge far higher premiums if tenants are on benefits. Other policies bar such tenants altogether.

Likewise, many buy-to-let mortgage providers prohibit benefits tenants – a staggering 1 in 2 landlords recently reported this bar. Refusal of such terms could lead to either increased interest payments or, in a worst case scenario, foreclosure by the mortgage company. Of course such outcomes will not assist tenants let alone landlords.

How the above translates into potential unlawful action prohibited by the goods and services provisions under the EqA 2010 is as yet untested. The recent settled case of Keogh v Nicholas George Ltd did not address this issue or how landlords’ actions could be lawfully justified. There, a single mother received a £2,000 payout for sex discrimination from a lettings agency that refused to consider her as a tenant because she was on state benefits. She was able to show that blanket bans on benefits claimants indirectly discriminated against women, especially single women, since they are proportionately more likely to be claiming housing benefit than single men.

So how would the courts treat refusals based on prohibitions imposed by mortgage providers and insurers?

What claim could be brought?

This area involves section 29 of the EqA 2010 which prohibits unlawful treatment in the field of goods and services. But what is the unlawful behaviour involved?

Many tenants and landlords assert that there is no unlawful discrimination involved in such bars as the EqA 2010 does not name “being on benefits” as a protected characteristic. Thus there could be no direct discrimination claim pursuant to section 13. However, as in the Keogh complaint, such cases are aptly brought as indirect discrimination claims under section 19, asserting a disparate impact by the said bar upon protected characteristics such as gender, disability or ethnicity. Very often what is being argued is actually direct discrimination on grounds of socio-economic status, but section 1 of the EqA 2010, which imposes a public sector duty regarding socio-economic inequalities, is not in force.

Examples of such indirect discrimination claims are where there exists a policy criteria or practice (PCP) of refusing to accept men and women in receipt of housing benefits which allegedly puts, or would put, women at a particular disadvantage when compared with men. If the statistical evidence relating to the percentage proportions of men and women who are, and were, in receipt of housing benefit, showed women were over-represented compared to men, the burden to objectively justify such a disparate impact would pass to the service or facilities provider: here, the landlord or letting agent.

What defences are available?

When it comes to the kind of objective justification that landlords or letting agents are able to rely upon, a key issue which arises is the extent to which reliance can be placed on difficulties caused by the local authority rather than the tenant.

However, the most challenging legal question is whether tenants’ claims can be defeated through arguments that complying with a bar imposed by insurers or mortgage providers amounts to an objective justification.

The defence of objective justification within section 19(2)(d) of the EqA 2010 was described by Lady Hale in Homer v Chief Constable of West Yorkshire Police [2012] UKSC 15 where she said:

”The approach to justification of what would otherwise be indirect discrimination is well settled. A provision criterion or practice is justified if the employer can show that it is a proportionate means of achieving a legitimate aim. The range of aims which can justify indirect discrimination on any ground is wider than the aims which can, in the case of age discrimination, justify direct discrimination … [and] can encompass a real need on the part of the employer’s business.”

When considering whether an aim articulated by a landlord could correspond to a real need and if a bar is an appropriate measure to achieve the objective – and indeed be necessary to that end – it should be remembered that, as was confirmed by the Supreme Court in Seldon v Clarkson Wright and Jakes [2012] ICR 716, it is not necessary that the aim was either articulated or even realised at the time; ex post facto rationalisation is permissible.

One likely aim which landlords might rely on is ensuring that tenants pay their rent promptly and to avoid the likelihood of spiralling arrears. This might well be found to be a legitimate aim, as the rental property market exists to generate revenue through gathering rent.

Whether barring benefits tenants is a proportionate means of achieving such an aim would depend on what the landlord had done in any given case and what their experience was shown to be of renting properties to benefits claimants.

To fulfil the burden of showing proportionality, a landlord or letting agent would probably have to show that they had attempted to locate providers and insurers which permit such tenants for a cost they could manage (beware “costs” versus “costs plus” argument). If attempts were made, to no avail, to what extent is it a defence to argue “I was forced to discriminate or I would have acted unlawfully myself (under the terms of my mortgage or insurance policy)”? The repercussions of this are clearly significant.

Where a landlord is simply saying they wish to avoid paying the extra insurance premium which follows accepting benefits tenants, this may not be sufficient on its own.

In terms of delays and administrative inconvenience arising from local authorities’ bureaucracy, rather than any fault of the tenants themselves, one would imagine the landlord would have to produce evidence of the problems they had actually experienced by the acts or omissions of a specific local authority, rather than relying on generalised complaints like those set out at the beginning of this blog.

While there have been calls for Central Government to tackle mortgage companies about the imposition of such terms and to challenge the insurance industry to explain why inflated premiums are justified, such messages do not shed light on the burden placed upon landlords to demonstrate objective justification.

But the fact remains that some landlords do rent to benefits tenants. Presumably those landlords have mortgages which do not contain terms barring benefits tenants, and insurance policies that do not bar them.  Why are those providers not better known to all in this field?  If all landlords knew who they were, perhaps this particular reason for turning away benefits tenants would disappear.

Scope for change

A change in this stalemate would be best approached from three angles:

• Firstly, a legal decision that it was only proportionate for landlords to impose this kind of bar if they had demonstrated a search for such a provider.
• Secondly, organisations like the RLA and ARLA (The Association of Residential Letting Agents – the UK professional body for individuals working in residential property lettings and management) publicising lists of such providers and insurers.
• Thirdly, action by Central Government challenging discrimination by questing the insurance industry as to whether high premiums are justified by claims records. Note also the related new initiative from the Scottish Government which will allow the housing element of the benefit to be paid direct to landlords; preventing people on Universal Credit from falling into arrears.

Press action can also be very effective: in 2012 the buy-to-let lender, The Mortgage Works, stated that no new mortgages would be advanced to landlords whose tenants received benefits. They later withdrew the condition after significant negative press coverage.

Such action would surely lead to a reduction in this kind of goods and services discrimination.

But a key answer is for landlords to have no blanket prohibitions. Until they do, tenants need better information on how to obtain advice so that there can be a clear precedent created as to what is and is not a lawful defence to this form of discrimination.