R(IS) 18/93

Mr. A. T. Hoolahan QC	CIS/42/1992
30.9.92
Housing costs - recovery of land certificate on repayment of a debt - whether “acquiring an interest in the dwelling” 
The claimant had purchased the dwelling occupied as the home without a mortgage. The land certificate had been deposited with a bank as security at the time the claimant took out a loan to help his company. The claimant took out a further loan to discharge the debt secured on the dwelling occupied as the home and recovered the land certificate. The claimant contended that by recovering the land certificate on discharge of the debt he had acquired an interest, previously held by the bank, in the dwelling he occupied as his home. The adjudication officer decided that the loan did not fall to be treated as a loan used to acquire an interest in the dwelling occupied as the home under paragraph 7(3)(a) of Schedule 3 to the Income Support (General) Regulations 1987. On appeal the tribunal upheld the adjudication officer’s decision. The claimant appealed to the Commissioner.
Held that:
1. 	“interest” in the phrase “an interest in the dwelling occupied as the home” means either a freehold or a leasehold interest or some lesser interest such as an interest of a tenant in common or joint tenant (para. 12);
2. 	the mere deposit of the title deed with another party does not transfer an interest in the dwelling occupied as the home to that party within the meaning of paragraph 7(3)(a) of Schedule 3 to the Income Support (General) Regulations 1987 (para. 12).
The appeal was dismissed.	

DECISION OF THE SOCIAL SECURITY COMMISSIONER

1. 	I disallow this appeal by the claimant. The decision of the social security appeal tribunal dated 21 October 1991 was not erroneous in law.
2. 	On 7 May 1991 the claimant claimed income support. By a decision issued on 31 July 1991 the adjudication officer decided that the claimant was not entitled to income support because his income exceeded his weekly applicable amount. The claimant appealed. On 21 October 1991 the social security appeal tribunal confirmed the decision of the adjudication officer. The claimant appeals with leave of the tribunal chairman.
3. 	On 23 July 1992 I held an oral hearing. The claimant was present and was represented by Mr. E. K. Shah, Chartered Accountant. The adjudication officer was represented by John Polland of the Chief Adjudication Officer’s office.
4. 	The essence of the claimant’s case is that he is entitled to payment of his mortgage interest as housing costs under regulation 17(1)(e) of, and paragraph 1(a) of Schedule 3 to, the Income Support (General) Regulations.
5. 	Under regulation 17(1)(e) of the Income Support (General) Regulations, a claimant’s weekly amount includes:
“(e) any amounts determined in accordance with Schedule 3 (housing costs) which may be applicable to him in respect of mortgage interest payments or such other housing costs as are prescribed in the Schedule.”
Paragraph 1 of Schedule 3 lists eligible housing costs, so far as are relevant, as “(a) mortgage interest payments” and “(h) payments analogous to those mentioned in this paragraph”. Paragraph 7(1) of Schedule 3 to those regulations prescribes the amounts of “eligible interest” which are payable as housing costs, and in paragraph 7(3) “eligible interest” is defined as meaning:
“the amount of interest on a loan, whether or not secured by way of a mortgage ... taken out to defray money applied for the purpose of -
(a) 	acquiring an interest in the dwelling occupied as the home; or
(b) 	paying off another loan but only to the extent that interest on that other loan would have been eligible interest had the loan not been paid off.”
6. 	The appeal tribunal found the following facts as set out in form AT3 box 2:
“In 1979 [the claimant and his wife] purchased their house for cash. A loan to a company in which [the claimant] had an interest was secured on the house. The company debt was re‑scheduled with Barclays Bank. In 1989 the company was unable to repay the debt and Barclays threatened to realise its security and sell the house. [The claimant and his wife] obtained a £310,000 mortgage and discharged the company debt owed to Barclays”.
The appeal tribunal in their reasons for their decision in form AT3 box 4 stated that interest on the mortgage was not “eligible interest” within the meaning of paragraph 7 of Schedule 3 and that “the mortgage was taken out to preserve the freehold interest in the home, not to acquire such an interest, which had been acquired without a mortgage in 1979” . They then set out the claimant’s argument, namely that if the bank had exercised its right to sell the house, he could have bought the house from the bank with the help of a mortgage, interest on which would have been “eligible”, and they concluded:
“We reject that argument. Whatever may have happened if the bank had exercised its right and sold the house is not relevant. We cannot accept that the purpose of the relevant mortgage was to acquire an interest in the home nor do we accept that the payments on this mortgage are analogous to interest payments for the acquisition of a home”.
7. 	At the oral hearing before me, Mr. Shah did not put forward any argument in relation to paragraph 1(h) of Schedule 3 (analogous payments). He contended however, that when the claimant and his wife obtained the mortgage they used the loan to acquire the bank’s interest in their property within the meaning of paragraph 7(3)(a) of Schedule 3. Did the bank acquire any and if so what interest in the property?
8. 	In his evidence before the appeal tribunal, according to the chairman’s note of evidence in form AT3 box 1, the claimant stated that they (he and his wife) had bought their house in 1979 without a mortgage and that the title was registered; that they deposited the land certificate with the bank as security for the loan to their company; that the company was in difficulty and so the house would have to be sold  and so they obtained a mortgage to discharge the security lodged with the bank. He produced a bundle of documents which included a photostat copy of the entry in the charges register in the Land Registry on 14 March 1989 of notice of the deposit of the land certificate with Barclays Bank.
9. 	When I asked Mr. Shah what was the interest that the bank had acquired and when, he first of all submitted that the bank had become owners of the house shortly before November 1989 when they had served a notice, a copy of which had not been put in evidence, informing the claimant and his wife that the bank would have to enforce their security due to the default in repayment of the loan to the bank. But, of course, in giving notice of their intention, the bank acquired no interest in the property. The mere giving of notice that they intended to enforce the security, gave them no right to sell or dispose of the house.
10. 	Mr. Shah then submitted that the bank had acquired an interest when the claimant and his wife deposited the land certificate with the bank and that the mortgage was taken out to acquire that interest. Did the bank acquire any interest? The claimant and his wife acquired the legal title to their house when they purchased it in 1979. They did not dispose of or part with that interest when they deposited the land certificate with the bank. The bank may have acquired an equitable interest in the property which represented an incumbrance on their title. When the claimant and his wife took out the mortgage and repaid the bank loan, they cleared the incumbrance on their title. They did not purchase any interest from the bank.
11. 	Mr. Shah repeated the claimant’s argument before the appeal tribunal that if the bank had enforced their security and taken possession of the dwelling house, they could have sold the house and the claimant could have purchased the house from the bank by means of a mortgage, and that by taking up the mortgage before the bank had taken possession, the claimant had short‑circuited what would or could otherwise have occurred. As the appeal tribunal stated, that was irrelevant. If the bank had taken possession and then sold the house, there was no obligation upon the bank to sell the house to the claimant and his wife. The bank could have sold the house to anyone else on the open market. The bank would have been answerable to the claimant and his wife for any surplus of the proceeds of sale after they had recovered what was due to them in repayment of their loan.
12. 	In my judgment, when the land certificate was deposited with the bank, the bank did not acquire “an interest in the dwelling occupied as the home” within the meaning of paragraph 7(3)(a) of Schedule 3. I hold, as a matter of construction, that “interest” means either a freehold or leasehold interest or some lesser interest such as an interest of a tenant in common or joint tenant. The mere deposit of the title deeds does not, in my judgment, create an “interest in the dwelling occupied as the home”. The mortgage was not “taken out to defray money applied for the purpose of ... acquiring an interest in the dwelling occupied as the home” within the meaning of paragraph 7(3)(a). The reality of the situation is that the mortgage was taken out to pay off another loan i.e. the bank loan, within the meaning of paragraph 7(3)(b). Interest on that other loan (the bank loan) was not “eligible interest”. Accordingly, interest on the mortgage does not qualify as “eligible interest”: paragraph 7(3)(b).
13. 	The appeal tribunal came to a correct conclusion and I can find no error of law in their decision. Accordingly, I must disallow this appeal.

Date: 30 September 1992	(signed) Mr. A. T. Hoolahan QC
	Commissioner