Think twice before banning tenants

Landlords and letting agents must make sure that they don’t discriminate against benefit claimants. Emma Lunn explains.

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"No DSS" may be discriminatory

Landlords and letting agents must make sure that they don't discriminate against benefit claimants.

Landlords who refuse to rent to tenants in receipt of benefits may have to reconsider this as a blanket policy after a tenant recently gained compensation from a letting agent who wouldn't let to her because she claimed housing benefit.

The case actually revolved around discrimination based on gender rather than towards people who claim benefits. This is because discrimination in housing only applies if you are treated unfairly due to the "protected characteristics" set out in the Equality Act 2010. These include race, age, disability and sex but not class or income. The tenant, however, argued that an outright ban on tenants on benefits indirectly discriminated against women, especially single women.

Her case held water because, according to the Department for Work and Pensions (DWP), women are more likely than men to claim housing benefit, as they are more likely to be caring for children. In the end, the letting agent chose to settle out of court, awarding the tenant £2,000 in compensation.

This is potentially a big issue. A quick look at property website Rightmove shows that adverts for rental properties frequently state "no DSS" (the acronym is commonly used even though the Department of Social Security was replaced by the DWP 17 years ago). According to homelessness charity Shelter, almost half of all private landlords have an outright ban on letting to people on benefits. The widespread practice means it's virtually impossible for low-income groups to rent in certain areas of the UK, including large parts of London.

There are a few factors that may prompt landlords and letting agents to refuse tenants on benefits. Alongside a perceived higher risk of property damage or rent arrears, landlords point to issues with insurance, buy-to-let mortgages and council bureaucracy. Landlords generally face higher insurance premiums if they let to tenants on benefits, and may also struggle to get rent-guarantee insurance at a competitive rate.

Meanwhile, a survey by the Residential Landlords Association (RLA) last year found that two-thirds of the largest buy-to-let mortgage lenders forbid landlords to rent to tenants receiving housing benefit.

Another potential issue for landlords is that, unlike housing benefit, which could be paid directly to the landlord universal credit (which includes a housing element replacing housing benefit) is in most circumstances paid directly to the tenant, who is responsible for paying their own rent. As a result, landlords have lost some of their previous certainty they will receive their rent on time.

Of course, the outcome of this court case does not set a legal precedent, as it was settled out of court. However, it's a valuable reminder to landlords and letting agents that they need to be careful that any blanket policy they operate in their selection of tenants does not inadvertently discriminate against certain groups.

It's also worth knowing that, for those whose mortgage companies don't exclude tenants on benefits, measures can be put in place to ensure prompt payment of rent. In some circumstances, the DWP can set up an "alternative payment arrangement" (APA), which allows for a tenant's rent to be paid directly to the landlord. Previously, the tenant's consent was always needed for an APA to be put in place, but a recent rule change means that, if landlords can prove the tenant is two months or more in rent arrears, they can apply for an APA without the need to get consent first.

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