LHA increases – temporary respite but what plan for the future?

On 18 March 2020 the government announced “a radical package of measures to protect renters and landlords affected by coronavirus. As a result, no renter in either social or private accommodation will be forced out of their home during this difficult time”.

This was a bold initiative but when the measures were revealed in the Coronavirus Act 2020 all that they did was to require that 3 month’s notice be given of intention to start proceedings for possession in the case of most residential tenancies in place of the place of the existing periods. The Act did not affect proceedings that had already been brought or notices that had already been served. However, that gap was filled by Practice Direction 51Z which stays all proceedings for possession, including enforcement, for 90 days from 27 March 2020.

There has been less fanfare over the Social Security (Coronavirus)(Further Measures) Regulations 2020/371 but they are equally significant and perhaps more so. The Regulations came into force on 30 March 2020 and they make important changes to method of calculation for LHA (Local Housing Allowance). This goes some way to tackling the problem that awaits when the emergency period and the stays all come to an end – that is the backlog of cases and arrears that will inevitably have been built up as tenants struggle to pay the rent on reduced income.

LHA sets a maximum amount for Housing Benefit or for the housing element of Universal Credit applicable to most claimants in private rented accommodation. It was introduced in 2008 and was initially set a cap at the 50th percentile of rents in each BRMA (Broad Rental Market Area). In 2011 the cap was reduced to the 30th percentile but even at this level it did not keep pace with increases in rental costs. The levels were frozen for a year then increased by CPI only (which was lower than rent increases). Levels were then frozen for four years from 2016. Although some differential increases were  made for the areas worst affected the position by 2019-20 was that there was a shortfall between LHA and actual rents at the 30th percentile in 97% of areas in England and Wales (https://england.shelter.org.uk/__data/assets/pdf_file/0012/1801101/LHA_and_homelessness.pdf). In 32% of areas LHA did not cover the bottom 10% of the market and even this was an overestimate because other factors reduced the properties that were actually available for letting to claimants. A study for NHF found that the median level of affordability within a BRMA was 5.9%. Shared accommodation was the least affordable with only 2.75% of properties being within LHA rates (https://www.housing.org.uk/globalassets/files/resource-files/20190719lhaaffordabilitybriefing.pdf).

In anticipation of the end of the freeze in April the government made the Rent Officers (Housing Benefit and Universal Credit Functions) (Amendment) Order 2020/27. These came into force on 30 January 2020 and increased the previous determinations by 1.7% (the CPI level). The maximum LHA was the lowest of (a) the actual 30th percentile in the BRMA (b) the last determination plus 1.7% or (c) maxima set out in the following table: 

This small increase of 1.7% did little to make up the difference for the years of nil or low increases. Shelter calculated that since the freeze started rents had increased by 15% (https://blog.shelter.org.uk/2020/01/governments-plan-to-raise-lha-in-line-with-inflation-is-nowhere-near-good-enough/).

The new Regulations will, for so long as they remain in force, substantially restore the position to what it was in 2011. LHA will be the lowest of the 30th percentile of rents in each BRMA or maxima in this table:

There corresponding monthly maxima for Universal Credit claimants are:

According to the Explanatory Memorandum (https://www.legislation.gov.uk/uksi/2020/371/pdfs/uksiem_20200371_en.pdf)  the maxima are based on “the maximum LHA rates for outer London, plus an additional 20%”. The effect is that maxima only apply to London. This is not express in the Order itself but follows from the figures. 

These changes are welcome and in part answer calls that were being made for the January reforms to go much further than they did. However, it is unclear how long these rates will remain in place. The other parts of the Further Measures Regulations are time-limited and will expire either at the end of the current tax year or on 12 November 2020 (Reg 10). Reg 4 has no similar end date but the explanation for that is that “the legislation is usually linked to the rent officer order which lasts a year and will need amendment in the Autumn for the year beginning April 2021” (Explanatory Memorandum para 3.8). It seems therefore that the issue will be revisited later this year. In the meantime recipients of LHA will have some protection against accruing rent arrears that could otherwise be used against them when the stay of proceedings is lifted.

No such assistance is granted to people who are not in receipt of LHA and those who do receive it may still have a shortfall between it and their actual rent. They may be safe from eviction or a notice to quit in the immediate future but not when the emergency measures come to an end. In that time they may have accrued arrears and may make them vulnerable to a possession claim where they have no defence. They may be over the ground 8 threshold or arrears may cause a landlord under a shorthold to seek to recover the property. Where the court has a discretion whether or not to order possession then there is a clear need for firm guidance to address cases where financial pressures caused by the pandemic mean that occupiers are in difficulty meeting their rent or clearing arrears. Equally there is an urgent need to consider emergency legislation to give the courts some discretion to refuse possession where none currently exists. Otherwise the current stay on proceedings will simply push the problem to a later date.