Cornwall Council is a unitary authority which inherited the housing functions of the former Restormel and Penwith District Councils. Both authorities had duties to house the unintentionally homeless. In 2002 the Government adopted a target of ending the practice of housing homeless families in bed and breakfast accommodation, except in an emergency and for no longer than six weeks. The housing subsidy provided a financial incentive to local authorities to take leases of accommodation from private sector landlords for use by homeless families for up to 10 years.
Against this background the two authorities entered into leases for 32 properties in 2006 and 2007. These were mostly for 25 year terms at a rent per unit of £120 per week indexed, but with a right to break after 10 years for all but 10 of the houses leased to Penwith for family accommodation. The rents were substantially below the rents charged by the authorities to the occupiers, which were eligible for housing benefit. They were set at a level which also covered the council's other costs.
As a result of housing benefit changes the new unitary authority sought to purchase the freeholds, but negotiations never took place. The council stopped paying the rent and succeeded in defending an action for arrears. This point was won on the basis that the leases were void because the council failed to consider its fiduciary duty to council tax payers in exercising its powers to enter the leases.
It was able to show that its two predecessors had never considered the market rent for the various properties, which was lower than the rents reserved. They failed in their duty to balance their fiduciary duty not to spend money thriftlessly and their duty to house the unintentionally homeless. The council however failed in its restitutionary claim for the recovery of rent and other sums paid to the landlord because of its change of position.
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