Managing agent attempts to sue closing exempt accommodation provider for £1.3m

In many cases, registered providers lease homes from managing agents to provide the accommodation and support services by entering into short-term lease arrangements.

In the latest judgment handed down by the High Court Business and Property Courts in Birmingham on 29 September, the judge outlines the current state of the case between the two providers.

In it he finds that Midland Living had been operating in the exempt system under Prospect and submitted a claim totalling £1.25m to the County Court Money Claims Centre on 10 February 2021 against the exempt provider for breach of contract.

In its claim form, Midland Living alleged that Prospect had breached a number of management, lease and rental agreements it had entered into in February 2019 by failing to pay rent, utilities and services for housing management due to Midland Living over an eight-month period.

According to the judgement, in the subsequent particulars of the claim, served on Prospect on 1 March 2021, Midland Living claimed additional losses including exemplary damages, aggravated damages, expenses, costs and disbursements and interest on loans it said were required due to Prospect’s non-payment.

In its particulars of claim, Midland said the exemplary and aggravated damages were due to Prospect’s “causing mental distress and injury to feelings by the dismissive and contemptuous manner in which the defendant conducted themselves throughout this matter”. It added that this failure to pay caused Midland financial difficulty in “unprecedented times due to the COVID-19 outbreak”.

The judge further found that Prospect rented rooms in different properties from Midland Living over a period of 96 weeks. Rooms were rented by Midland Living at a rate of £189.18 per week for rent and service charge. Those rooms were then re-let by Prospect to individuals under a licence agreement for £237.53 per week, with Birmingham City Council paying £217.53 of the bill through housing benefit and tenants paying £20 themselves as a service charge.

Under the exempt accommodation model, landlords are able to access such high levels of housing support because their landlords provide them with some housing management and support, meaning they are exempt from usual housing benefit restrictions.

Having identified some concerns with the claimant’s original claim, Prospect served a request for further information on Midland on 26 June, giving Midland an opportunity to provide clarification on its claims, however the judgment notes that “the opportunity was not taken”.

On 9 August, Midland Living did provide replies but the judge said that it had not provided all of the invoices to back up its claim for £1.3m in non-paid rates, and there was no breakdown of the associated damages that Midland Living had claimed.

The judgment also noted the confusion over invoices which were submitted for the unpaid claims. Two invoices were presented – one totalling £1.1m and covering June to November 2020 was submitted on 11 November, and a further invoice, with the same invoice number, also dated 11 November, totalling £160,948.

Prospect said that they received the first invoice but only saw the second invoice when Midland Living filed its evidence in support of its application to amend its claim.

According to the court documents, Prospect has admitted that it had entered these leases and management agreements with Midland. However, it submits that if it does owe Midland Living money, then on Midland’s best case it would be an amount totalling £467,413, but submits that more likely it would be a “more realistic figure” of £170,039.

Prospect also argues that any money that should be paid to Midland Living should be “set off” against money that it had to pay back to Birmingham City Council in overpaid housing benefit claims.

These overpayments are said to have arisen in situations where Prospect had continued to receive payments despite occupants vacating a property, situations where couples were claiming twice despite living in the same property, or where it was found the right level of support was not being provided. Prospect said that it had repaid the council £786,627 and this was comfortably more than what was being claimed by Midland.

Midland responded by alleging that Prospect and Birmingham City Council had collaborated to sabotage the interests of the claimant, and that Prospect had not submitted evidence of these payments.

Reflecting on Midland’s particulars of claim, the judge, describing the original case as “a mess”, has struck out Midland’s pleading and left it to Prospect to agree or not to granting permission for Midland to submit the draft particulars of claim it has proposed.

In his judgment, His Honour Judge Worster stated that there were several defects in Midland Living’s claim, in particular finding that the terms of a management agreement which Midland Living had relied upon as grounds for its claim provided no basis for liability from Prospect for the money which Midland has claimed.

He said that it was not clear how the sum of £1.25m was calculated and that aggravated damage claims made by Midland Living were “wholly unparticularised and in any event bad in law”.

He concluded: “The claimant’s case is a mess. There has been a failure to understand the legal basis of the claim, and no proper thought has been given to the evidence it needs to respond to the defendant’s application or how to present it.”

Nevertheless, the judge said that while there may be shortcomings in the presentation of the claimant’s case, he said that he was “concerned that there might be something in it” and will consider giving Midland Living the opportunity to re-plead its case, for which a new date will be set.

The judge also ordered Midland Living to cover Prospect’s costs in the application (68-8), which he assessed at £44,992.

Midland Living said that it had now prepared a completely amended claim. It added that this had now been served on Prospect’s solicitors and it was awaiting hearing from them.

Vicky McDermott, interim chief executive of Prospect Housing, said: “We gave Midland Living a number of opportunities to provide evidence that residents were supported in line with the housing benefit claims.

“Unfortunately, in our view, they failed to provide the reassurance and evidence we expect and that residents deserve.

“We welcome the opportunity of discussions in open court and the transparency that offers.

“So far that process has seen Midland Living asked to provide upfront costs and amended particulars of claim.

“Our legal team is reviewing this now, and we await a new court date to present our arguments.”

Additional reporting by Jack Simpson