On 15 October 2013, the Prevention of Social Housing Fraud Act 2013 (the Act) came into force. The Act creates new provisions to assist Registered Providers and local authorities combat illegal sub-letting. It is important to note that the Act will not apply to shared ownership lessees who are also assured tenants.

Below are a few of the key changes and some initial guidance.

Security of tenure – assured tenancies

The Act creates a new section 15A of the Housing Act 1988.

The current position is that an assured tenant who sub-lets or parts with possession of the whole of his property will lose his security of tenure. This is because the assured tenant is no longer occupying the property as his only or principal home.

However, the tenant’s security of tenure may be resurrected if the tenant re-occupies the property prior to the expiry of any Notice to Quit that has been served.

The Act changes this position and will ensure that assured tenants will lose their security of tenure once and for all when they have sub-let or parted with possession of the whole of their property, as is currently the case for secure tenants.

Unlawful Profit Orders – civil proceedings

The Act creates a civil Unlawful Profit Order (UPO). This will allow Registered Providers to seek a money judgement against their secure and assured tenants in respect of any unlawful profit made as a result of sub-letting their social housing tenancy.

A judge will have a discretion as to whether to award the UPO and the maximum payable is the defendant's net profit, ie the total received from the sub-letting less any rent (including service charges) paid to the landlord during the period the property was sublet.

It is recommended that, if a landlord is commencing court proceedings on the basis of its secure or assured tenants having illegally sub-let or parted with possession of the whole of the property, a claim for a UPO be included in the claim for possession.

The reason for this is that it is arguable that it is an abuse of process for a landlord to raise the UPO as a stand-alone claim.

Criminal offences

The Act creates two new criminal offences:

  • the tenant sublets the whole or part of the property, ceases to occupy the property as an only or principal home and does so knowing that to do so is contrary to the express or implied terms of the tenancy (the lesser offence); and/or
  • the tenant dishonestly and in breach of an express or implied term of the tenancy sublets or parts with possession of the whole or part of the property and ceases to occupy it as his only or principal home (the more serious offence).

The lesser offence is subject to various exceptions which are set out below. A tenant will not commit an offence if:

  • the tenant’s actions are because of violence or threats of violence made by a person living in the property or in the locality
  • the person occupying the property because of the tenant’s actions is entitled to apply for a right to occupy it, or to have the tenancy transferred to him/her, or a person in respect of whom such an application might be made.

In practice, this is only likely to include spouses, civil partners, co-habitees and children.

The exceptions above do not apply to the more serious offence. The more serious offence is committed if the act is done dishonestly.

Penalties

The lesser offence carries a sentence of a fine not exceeding £5,000.

The more serious offence carries a sentence on summary conviction of up to six months’ imprisonment, a fine not exceeding £5,000, or both; and, on indictment in the Crown Court, up to two years’ imprisonment, a fine or both.

Time limit

The lesser offence may be prosecuted within six months of the date on which the prosecutor became aware of evidence sufficient to warrant a prosecution but not later than three years after the offence was committed, or the last day on which it was committed if it was a continuing offence.

There is no time limit on the more serious offence.

Unlawful Profit Orders – criminal

Criminal courts must also consider whether to make a UPO following a defendant's conviction for unlawful sub-letting or an associated offence and may do so ‘if they consider it appropriate’.

A criminal UPO may be made whether or not a civil UPO has been made (and vice versa) but the Act makes provision to prevent duplication by providing for the amount payable under the latter order to be limited by reference to the former.

Once again the orders are limited to a maximum value which is the defendant's net profit, ie the total received from the sub-letting less any rent paid to the landlord during the period the property was sub-let.

Prosecution

Local authorities may prosecute both sub-letting and associated offences such as ‘aiding or abetting’ or ‘conspiracy’, whether or not they are the landlord or the property is within the Local Authority's area.

Civil proceedings may be stayed pending criminal prosecutions.

Regulations

The Act gives the Secretary of State power to make regulations to compel persons to provide information for the purposes of housing fraud investigations.

Conclusion

It remains unclear whether the Act will, in fact, assist Registered Providers and local authorities in combating tenancy fraud and only time will tell how District Judges will deal with applications of this nature. We will keep you updated on how the courts are grappling with these matters in future issues.