Dealing with "No DSS"

17 September 2020

Gurdip Chana, Advisor at specialist lettings helpline, HF Assist, explains why you must not advertise "No DSS" and how you can encourage landlords to consider tenants on benefits.

We are receiving enquiries from many agents requesting information on how to deal with “DSS tenants”, following recent discrimination claims leading to £1000s in settlement costs being paid by the agent or landlord.

Importantly, on 2nd July 2020, a County Court had awarded a tenant damages against an agent who would not consider the tenant due to the fact they were claiming housing benefits.

Click here for a copy of the judgement and click here for commentary on the case by Nearly Legal.

More recently, on 8th September 2020, a second County Court had awarded a tenant damages due to a “no DSS” policy. Click here for a link to an article on this case.

Why you must NOT advertise “No DSS”

Due to the Court ruling, preventing a tenant from applying for a tenancy on the grounds they will apply or are entitled to benefits will amount to discrimination and be considered unlawful under the Equalities Act 2010.

Therefore, under no circumstances must you place in adverts stating “No DSS” or refuse outright to consider such a tenant for a tenancy.

Shelter include the following statement on their website advising tenants on benefits looking for housing: “No DSS policies are blanket bans on renting to tenants claiming universal credit or housing benefit. You can complain if you see adverts like these or if an agent refuses to deal with you because you're on benefits. No DSS policies and adverts are unlawful discrimination but you can still be asked to pass an affordability check.”

What can I do to comply with the Equalities Act?

In short, you must treat all applicants ‘equally’. This means that you must explain to all tenants, from the outset, the ‘affordability criteria’ which they must meet. For example, you could require tenants to have a minimum income, have sufficient savings, have no CCJs, etc.

Some agents/landlords might consider using ‘rent guarantee’ insurance. The insurance provider will have clear criteria to be followed for a tenancy to be eligible for cover. The insurer’s criteria can also be used as a means of setting your affordability criteria.

What all this means in practice is that your only means of rejecting a prospective tenant is on the basis of whether they can afford to rent as opposed to whether they are claiming benefits.

Not all tenants claiming benefits are ‘bad’ tenants – most will pay all rent due or make ‘top-up’ payments to cover any shortfall in benefit entitlement. Encourage your landlords to be open minded and to consider some of the below if facing this situation.

What can I do to encourage landlords to consider tenants on benefits?

You should consider the following:

• LHA rates: you can check to see how much of the rent will be covered by benefits by checking the Local Housing Allowance (LHA) rates. You might find all or most of the rent payable is covered – as such your landlord can be at ease the tenant is able to afford rental payments. Click here for more info.
• Rent in advance: Requesting the tenant to pay rent in advance, for example first two months’ due, will also give your landlord confidence the tenant has the finances available to cover rental payments. Some tenants are also entitled to an interest free loan via a DWP Loan to help cover advance rental payments. Some local authorities also operate an ‘incentive scheme’ where a bulk payment in advance is offered to the landlord as an incentive to take on the tenant (normally paid in addition to rent).
• Request direct payment of benefits: You could encourage the tenant to request their benefits be paid directly to the landlord. This way, the landlord can be sure the tenant is not at risk of accumulating rent arrears. If the tenant ends up owing at least 2 months arrears, your landlord can request direct payment of benefits in any case.
• Deposit and deposit alternatives: A deposit should always be paid by tenants to cover damages or arrears. Some local authorities can also pay a ‘bond’ as an alternative. Otherwise, if the tenant cannot afford to pay a large deposit up front, encourage them to consider insurance-based deposit alternatives. At Hamilton Fraser, we have recently launched Ome. For an affordable fee (paid by the tenant each month), OME will cover arrears or damages arising during the tenancy. For more info visit omehq.com.
• Due diligence: Make sure to undertake credit checks (with permission of the tenant) to ensure they do not have an adverse credit history. CCJs or other defaults will indicate they are not ‘financially capable’ – which means you could simply reject the tenant’s application on this basis. However, a tenant with a ‘clean’ record should instil confidence in your landlord. In addition, try to obtain references from the tenant’s current landlord to demonstrate they are reliable and trustworthy. Our partner site, Tenant Verify, offer various services in relation to tenant checks for a small affordable fee. For more info visit tenantverify.co.uk.
• Guarantor: if the tenant can provide a guarantor to cover costs in the event the tenant fails to pay rent or for other tenancy breaches, the landlord will be at ease that should the worst happen, they will not be left out of pocket. You will have to apply your affordability criteria to the guarantor to ensure they have the financial capacity to honour the guarantee.

In summary:

The days of placing “No DSS” in adverts has come to an end. The penalties (and losses) for discriminating against tenants claiming benefits are significant. Therefore, in summary:

• Do not advertise “No DSS” or stop a prospective tenant from applying for a tenancy if they claim benefits
• Case law (and other out-of-court settlements) demonstrates tenants can sue the agent or landlord if found to be in breach of Equalities Act 2010
• Set affordability criteria which the tenant must meet to be considered for letting – the same criteria must apply to all prospective tenants
• Encourage your landlord to think ‘out of the box’ using the above guidance and consider a tenant claiming benefits for letting.