What to do when a tenant's in the money

It's coming round again. the old question: should a tenant whose financial position improves so they could afford to pay market rent be allowed to stay on at a subsidised rent or should they be evicted (HT 2 April, page 22)? Should they stay but pay a market rent? Feelings run high, but what's the legal position?

It's not simply a question for charitable registered social landlords, but they are the starting point – particularly as more and more RSLs are switching to charitable status for tax, VAT and balance sheet reasons.

While we await the new Charities Bill, as the law stands charitable RSLs should only provide social housing for people who are "proper" charitable beneficiaries, people who cannot afford to house themselves according to their needs in the open market. The RSL provides relief through rents that are below market rates – considerably so in general needs housing. So, is the charitable RSL acting lawfully if it ignores any change in the tenant's circumstances?

Some lawyers argue that if a tenant qualifies at the outset, they qualify once and for all. But it is difficult to see the legal basis for that argument and it is not the view of the Charity Commission.

The commission's current guidance is that it is inappropriate to means test tenants "with a view to terminating their tenancy should their economic circumstances improve", but RSLs should remind new tenants that they can only be given charitable subsidy as long as their means require it. Also, tenants should tell the RSL if their circumstances "improve substantially so as to throw this into doubt".

This guidance is effectively a decade old and it is a legal and political compromise. It balances the cost of having to carry out regular means testing (given the high percentage of tenants who are on at least partial housing benefit) and the hostility that testing would produce against the strict requirements of charity law.

Agreements and unfair terms
Eviction also presents some practical problems: unless the tenant has lied about their finances when applying, subsequent wealth is not a ground for eviction under a standard RSL tenancy agreement and suitable alternative accommodation would have to be at a similar rent to the current rent. Some tenancy agreements do have power for the landlord unilaterally to change the terms to give the landlord the right to evict a tenant who ceases to be charitable. But most lawyers feel that would fall foul of the Unfair Terms in Consumer Contract Regulations.

For new tenants the affordability criteria and the investigation and appeal process in the agreement would have to be clear and fair for the RSL to be sure of a court giving an order for possession.

Unless the tenant has lied about their finances when applying, subsequent wealth is not a ground for eviction under an RSL agreement

So would the anticipated Charities Bill proposal to make social housing a charitable object, in itself, make any difference?

It is difficult to see why it should. Social housing will have to be defined somehow either in the bill or through the courts and unless it is made clear in the bill that the test is a threshold test, which is unlikely, the same old question will arise. There is, however, pressure from government, regulators and from within RSLs to produce a better rate of return on the RSL's assets, to improve income streams and generate the cash for more new homes.

Hitting them where it hurts
Raising the rent, however, would be possible as neither the Housing Corporation restrictions nor the tenants' charters would preclude a rent rise for a prosperous tenant.

Ironically, rent restrictions in some nomination agreements are all-embracing but tenants are usually excluded from having any rights under them – and which housing authority would support a wealthy tenant?

For board members, the duty is to ensure the RSL uses its assets to secure the objects of the RSL and, whether charitable or not, its main object is the provision of social housing. So if the anecdotal or research evidence suggests there could be a significant number of tenants who could afford to pay more rent, it may have to consider a cost/benefits analysis of increasing their rents.

On the cost side of that analysis, there are the administrative costs of the assessments and increasing and collecting the rents, taking into account tenants approaching retirement, tenants who have gained employment and poverty trap problems (rent arrears, voids) dealing with distress to dependants of the tenant, especially children.

Then, remembering the ODPM and Land Commission target for equal treatment of tenants, should an RSL tenant be in a different position from a council tenant or a large-scale voluntary transfer tenant with their rent guarantee? It would be happy hour for the Human Rights Act lawyers, and the drinks would be on the RSLs.