Housing fraud has been an endemic problem in the UK for a number of years. With house prices on the rise again and the cost of renting increasing, fraud in the rental sector is likely to be a growth area, particularly as people struggle to meet increasing financial burdens.
Prosecutions have traditionally been brought under the Fraud Act 2006, where it can be demonstrated that tenants have dishonestly made representations to landlords that they know might be untrue or misleading or where they have dishonestly failed to disclose something which they are legally required to disclose. In the recent case of R –v- Chimuka at Croydon Crown Court, a private tenant was prosecuted for fraud after she obtained tenancies on the basis that she would be living in the properties with her family and thereafter sublet them to multiple occupants. Ms Chimuka received a sentence of 4 years and 3 months imprisonment having been found guilty of 11 counts of fraud by false representation. This amply demonstrates the seriousness with which offences such as these are viewed by the Courts.
The demand for social housing has never been higher. It is a market which has been abused for years by those who unlawfully sublet these properties, depriving those who desperately need them and forcing those on waiting lists to live in temporary accommodation whilst profits are made at their expense. It has been estimated by Experian that the cost to the public purse of social housing fraud, and in particular subletting is in the region of £5 billion a year.
Successful prosecutions have already been brought for unlawful subletting under the Fraud Act 2006 in relation to social housing, however new offences specifically targeted at this offending were brought into force on the 15th October 2013 by the Prevention of Social Housing Fraud Act 2013. This new Act seeks to tackle subletting by creating two new tailor made offences relating to the unlawful subletting of properties let under Secure Tenancies and Assured Tenancies. These tenancies are typically granted by Local Authorities and Housing Associations and provide tenants with greater security of tenure than those tenancies normally provided in the private rented sector.
Two new offences in respect of each type of tenancy are created by the Act, which can be prosecuted by Local Authorities or Housing Associations using a private prosecution:
a. Firstly, a summary only offence that requires proof that in breach of an express or implied term of their tenancy agreement, the tenant sublet or parted with possession of the whole or part of the property which they know is a breach of the tenancy agreement. This offence will be punishable with a sentence of up to 6 months imprisonment and/or a fine of up to £5,000. It will be a defence if a tenant is able to demonstrate that they have ceased to occupy the property as a result of violence or threats toward them or their family by a person living in or in the locality of the property or if the person who is now occupying the property is entitled to apply to a Court to have the tenancy transferred to them (such as a spouse, former spouse or a child).
b. Secondly, an offence that includes the same elements as the basic offence, with the additional element of dishonesty. This offence is more serious, attracting a sentence of up to 2 years imprisonment and/or an unlimited fine. Dishonesty can be judged according to the standards of reasonable and ordinary people. Would a reasonable and ordinary person think that subletting social housing at market rent and making a substantial profit at the expense of others was honest? It is of note that the defences available in relation to the summary only offence are not available in relation to this offence.
The Act also creates a new form of financial penalty aimed at depriving persons convicted of these offences of the proceeds of their crime, Unlawful Profit Orders. These orders, which can be imposed on conviction instead of or in addition to any other punishment, requires the rogue tenant to pay the profits they have obtained from unlawful subletting to the landlord. This will be a powerful tool in recovering the costs of fraud, as well acting as a deterrent to those tempted to illegally sublet properties.
Clearly the fight against illegal subletting in social housing is about to begin in earnest. However, the Fraud Act 2006 continues to provide viable offences to prosecute those tenants who act in a dishonest and persistent manner in both the private and social housing markets. Whilst an Unlawful Profit Order cannot be sought following a prosecution under the Fraud Act, the courts powers of compensation and confiscation can still be utilised to recover the losses suffered by landlords as a result of fraud and to deprive these persons of the proceeds of their offending.