Social Housing Fraud
Does the criminal law hold the key?
“Be careful what you wish for” is a common maxim, often over used. Back in 2010, the New Local Government Network (‘NLGN’) published a report entitled: ‘Don’t Let On: New measures to tackle unlawful subletting’[1]. Using, amongst other research, the findings from the Audit Commission’s 2009 annual report ‘Protecting the Public Purse’, the NLGN argued that the available remedies under the civil law to tackle unlawful subletting were inadequate and what was needed was the ‘strong arm’ of the criminal law.
Roll forward three years and with the Prevention of Social Housing Fraud Act (2013), have the wishes of the NLGN been fully met?
The Prevention of Social Housing Fraud Act (2013) (‘the Act’)
The Act received Royal Assent on 31 January 2013 but is not yet in force. The most likely commencement date for the Act is sometime this Summer. The data access provisions will require additional regulations which both Houses of Parliament will need to consider and approve. As these regulations are yet to be drafted[2], approval is unlikely to be given until towards the end of 2013.
The new criminal offences
The Act creates two new criminal offences, applicable to assured tenancies granted by private registered providers or registered social landlords (although not shared ownership leases)[3]and secure tenancies. The first offence[4] is committed where a tenant:
(a)in breach of an express or implied tenancy term, sub-lets or parts with possession of the whole of the dwelling-house or part of the dwelling house without the landlord’s written consent,
(b)ceases to occupy the dwelling-house as his only or principal home, and
(c)knows that the conduct in paragraph (a) above is a breach of a tenancy term.
The second offence[5] is committed where a tenant:
(a)dishonestly and in breach of an express or implied tenancy term, sub-lets or parts with possession of the whole of the dwelling-house or part of the dwelling house without the landlord’s written consent, and
(b)ceases to occupy the dwelling-house as the tenant’s only or principal home.
The penalties on conviction
The first offence is a summary[6] only offence, the penalty for which, on conviction, is limited by the Act to a fine not exceeding level 5[7] on the standard scale. A custodial sentence is not available for this offence.
The second offence is triable either way[8] and carries a penalty, on summary conviction, of a maximum of 6 months imprisonment and / or a fine not exceeding the statutory maximum. On conviction on indictment, the second offence carries a penalty of a maximum of 2 years imprisonment and / or a fine.
Defences to the first offence
In respect of the first offence, ie where the tenant knows that the act of sub-letting or parting with possession is a breach of a tenancy term, there are two specific defences. The first[9] is that it will be a defence for the tenant to show that the tenant only ceased to occupy the dwelling-house and sub-let it because of violence or threats of violence by a person residing in the dwelling-house, or in the locality of the dwelling-house, towards:
(a)the tenant, or
(b)a member of the tenant’s family who was residing with the tenant immediately before the tenant ceased to occupy the dwelling-house.
The second[10] defence is available to the tenant where the person who occupies the dwelling-house is a person:
(a)entitled to apply to the court for an order giving that person a right to occupy the dwelling-house or to have the tenancy transferred to that person, or
(b)in respect of whom an application may be made to have the tenancy transferred to that person or to someone else to be held for that person’s benefit.
The above defences appear to be designed, inter alia, to protect the innocent victim of a family breakdown from unwittingly committing a criminal offence by fleeing the dwelling-house as a result, for example, of domestic violence or abuse.
When is an apparently ‘dishonest’ act dishonest?
On the face of it, the two offences appear virtually identical. The key, but perhaps subtle difference[11] between the two offences, is the thorny issue of dishonesty.
Aside from the specific defences to the first offence set out in the Act, it is difficult to envisage how a tenant, knowing that his tenancy prohibits sub-letting, could cease to occupy his property and sub-let it to a third party without considering that such an act was dishonest. Nonetheless, the legislature clearly considers such a possibility exists and in consequence has created the two separate,and distinct, offences.
Given the offence is criminal, we need to consider the authority of R v Ghosh (1982)[12] for assistance on the determination of a tenant’s dishonesty.
In Ghosh, the Court of Appeal considered that the question whether the defendant had acted dishonestly could not be determined objectively by the jury applying their own standards of honesty. This was because, for the purposes of section 1(1) of the Theft Act (1968), dishonesty is not a course of conduct by the defendant, but rather the defendant’s state of mind. As such it is not something which can be established independently of the knowledge and belief of the defendant.
The Court went on in Ghosh to lay down the test to determine whether a defendant had acted dishonestly. The Ghosh test remains the appropriate test of dishonesty in all criminal cases in which that element arises. Offences under the Act will be no exception to that rule. The test is a two part test comprising an objective and subjective element as follows:
(1)are the defendant’s actions dishonest according to the ordinary standards of reasonable and honest people, and if so
(2)did the defendant realise that his actions were, according to those standards, dishonest.
This means that even if the defendant genuinely believes that he was morally justified in acting as he did, this will be no defence if he knew that ordinary people would consider such conduct to be dishonest.
Applying the Ghosh test, where a tenant receives payment from a third party for the occupation of the dwelling-house, and that payment exceeds the rent payable by the tenant, it is difficult to see how the tenant’s act could be anything other than dishonest. In such cases the appropriate charge would be for an offence under section 1(2) or section 2(2) of the Act, depending on whether the tenancy was secure or assured. In practice, it may well be that tenants are charged with both offences initially, paving the way for plea bargains.
Prosecution of Offences
Section 3(1) of the Act confirms that, as is the case for the majority of summary only crimes, offences under sections 1(1) and 2(1) of the Act must be brought within 6 months of the date on which sufficient evidence to warrant the prosecution came to the prosecutor’s knowledge. However there is a long-stop to that provision in that no such proceedings can be brought more than 3 years:
(a)after the commission of the offence, or
(b)in the case of continuous contravention, after the last date on which the offence was committed.
There is no time limit in law for commencing proceedings for an either way offence. This means that prosecutions for offences under sections 1(2) and 2(2), ie the offences involving dishonesty, can be prosecuted at any time. However the court does have discretion to dismiss a summons on the grounds of abuse of process, and unjustified delay would, in all likelihood, amount to such an abuse.
The most likely prosecuting authority for the offences under the Act will be the local authority. Specific provision is made in section 3(5) of the Act for a local authority to prosecute an offence irrespective of whether the local authority is or was the landlord and whether or not the dwelling-house is located in the local authority’s area. However it will be open to the Police, via the Crown Prosecution Service, to prosecute such offences. Whether or not they do will probably largely depend on whether or not the defendant has committed any additional crimes which would warrant prosecution. It seems unlikely, given the resources that have been made, and are being made, available to local authorities to tackle social housing fraud[13], coupled with the resourcing issues facing the Police, that the Police would take the prosecuting lead in isolated cases. However this is a possibility under the Act and is likely to depend on the pro-activity and co-operation of the particular Police Authority.
Unlawful Profit Orders
The Act also introduces two new powers enabling the courts to penalise the offender and reimburse the landlord for its losses. These powers are unlawful profit orders.
Section 4(2) of the Act requires the convicting criminal court to consider making an order that the defendant pays the landlord an appropriate amount in compensation for its losses. This amount equates to the profit made by the tenant through unlawfully sub-letting the property but is subject to the considerations of the court having regard to the evidence and any representations made by the defendant or the prosecutor[14]. The court may, if it considers appropriate, impose a fine as well as an unlawful profit order. However when considering the imposition of both financial penalties in circumstances where the defendant has insufficient means to pay both, the court must give priority to the imposition of an unlawful profit order over and above any fine[15].
Unlawful profit orders are not just the preserve of the convicting criminal court however. Section 5 of the Act provides for the county court or the High Court to make them on the application of the landlord[16]. The conditions that must be met for an order to be made depend on whether the tenancy is secure or assured. If secure, the conditions[17] are that the tenant has:
(a)sub-let or parted with possession of the dwelling-house, or part of the dwelling-house without the landlord’s written consent, in breach of an express or implied term of the tenancy,
(b)ceased to occupy the dwelling-house as his only or principal home, and
(c)received money as a result of the conduct described in paragraph (a).
If assured, the conditions[18] are largely the same as for secure, provided the landlord is:
(a)a private registered provider of social housing or a registered social landlord, and
(b)the tenancy is not a shared ownership lease.
As for the amount of any unlawful profit order, the calculation is essentially the same as for orders made under section 4 of the Act. Provision is also made for any unlawful profit orders to take account of such orders made in separate proceedings so that it is not possible for the landlord to receive more than it would have received under the jurisdiction of section 4 or section 5 of the Act respectively[19].
Whether or not such orders have any effect in practice remains to be seen. You cannot get blood from a stone, and so whilst unlawful profit orders may be made, whether and how much compensation landlords actually receive is very much open to question.
Loss of assured tenancy status
Under the provisions of the Housing Act 1985[20], a secure tenant who unlawfully sub-lets the whole of his property loses his secure status and cannot regain it even if he returns to the property. Until the commencement of the Act, there is no equivalent provision for assured tenancies. This makes recovering possession of properties let on assured tenancies less straightforward than properties let on secure tenancies since an assured tenant can return to the property and regain his assured status with all the statutory protection that affords.
Under section 6 of the Act however, a new section 15A is inserted into the Housing Act 1988. This new section provides that if an assured tenant (though not the lessee of a shared ownership property) of a private registered provider of social housing or a registered social landlord sub-lets the whole of his dwelling-house or parts with possession of it, the tenancy ceases to be assured and cannot subsequently become an assured tenancy.
In these circumstances the landlord can terminate the residual contractual tenancy by service of a common law Notice to Quit (‘NTQ’) and on expiry of the NTQ, the landlord will be entitled to a mandatory possession order subject only to the limited restrictions of section 89 of the Housing Act 1980[21].
Data Access Provisions
One of the key obstacles highlighted by the NLGN in its report was the block on investigations imposed by the provisions of the Data Protection Act (1998) (‘DPA’). Data controllers have interpreted the provisions of section 35 of the DPA as being discretionary and regularly refuse to comply with requests for information under that section, presumably for fear of prosecution by the Information Commissioner. Such refusals have restricted the ability of landlords to gain sufficient cogent evidence to enable them to properly tackle unlawful subletting and social housing fraud generally.
Section 7 of the Act contains provisions that enable the Secretary of State (for England) and the Welsh Ministers (for Wales) to introduce regulations which will require the provision of information to enable social housing fraud to be properly investigated. Under section 8 of the Act, regulations will also provide for the commission of an offence if a person refuses or fails to comply with the regulations introduced under section 7.
As stated earlier in this article, the regulations are yet to be drafted and in all likelihood will not be available until towards the end of 2013.
Conclusion
Will the Act have any impact on the rise of Social Housing Fraud? The latest figures, if true, are staggering. The Audit Commission[22] estimates that 98,000 homes in England are subject to some form of tenancy fraud. Other research,reported in the national and trade press[23], puts the figure significantly higher.
Critics of the Act level the complaint that criminalisation is not the answer as landlords already have sufficient powers to tackle the problem by recovering possession of the fraudster’s home. How effective the Act will be in practice remains to be seen. Only when it is in force, coupled with the regulations necessary to give landlords enforceable access to relevant information and data, will we be able to determine its impact. On paper however, the measures introduced by the Act must operate as more of a deterrent given that currently, the only penalty revolves around the loss of the tenant’s home. If the fraudulent tenant does not live there, is that such a loss?
Tim Crook
Principal Solicitor
housing law services
[1] Authored by Tom Symons, the report is available to download from
[2] As at 10 July 2013
[3] Section 2(3) of the Act.
[4] Section 1(1) and section 2(1) of the Act
[5] Section 1(2) and section 2(2) of the Act
[6] Summary offences are triable only in the Magistrates Court.
[7] Under section 37 of the Criminal Justice Act 1982, the Standard Scale applies to fines for Summary offences. Level 5 is currently set at £5,000.
[8] Either Way offences are triable in the Magistrates Court or Crown Court.
[9] Section 1(3) and section 2(4) of the Act for secure and assured tenancies respectively.
[10] Section 1(4) and section 2(5) of the Act for secure and assured tenancies respectively.
[11] As Annette Cafferkey, Barrister with Arden Chambers put it in her Practice Comment on the Act published in the JHL (2013) 53, the distinction is ‘somewhat elusive’.
[12] 2 All ER 689
[13]
[14] Section 4(5) of the Act.
[15]Sections 4(8) and (9) of the Act.
[16] Section 5(1) of the Act.
[17] Section 5(3) of the Act.
[18] Section 5(4) of the Act.
[19] Section 4(7) and section 5(7) of the Act.
[20] Section 93(2) of the Housing Act 1985
[21] Under section 89(1) of the Housing Act 1980, as this type of case doesn’t fal within one of the exceptions listed in section 89(2), the court must make a possession order taking effect in 14 days unless the tenant can show exceptional hardship, in which case the maximum period of postponement allowed is 6 weeks.
[22] Protecting the public purse 2012: Fighting fraud against local government, November 2012.
[23] See, for example, Inside Housing (03/05/2013), or The Telegraph (21/01/12).