Understanding Third-Party Deductions for Landlords

A third-party deduction is how landlords and tenants on benefits can ensure rent arrears and service charges are paid.

The payments are triggered when a tenant has rent and other essential outgoings arrears and does not have enough money to pay them.

Third-party deductions are a financial last resort once other measures have failed, such as negotiating a repayment plan or when enforcement action, like eviction, is imminent.

The aim is to offer claimants in money trouble a safety net to prevent eviction and homelessness.

Arrears covered by a claim

The solution takes a fixed amount from a tenant’s monthly benefits to pay the creditor to reduce arrears. The creditor may be a landlord or utility supplier, for example.

If the rent includes a service charge, the deduction is increased to cover the cost to stop arrears building.

For tenants in serious financial difficulties, the Department of Work and Pensions  (DWP) only allows three deductions at a time. If someone has three or more creditors, the DWP will make an order prioritising the debt.

When the arrears are cleared, the deduction stops unless the tenant continues to mismanage money.

The debt priority order makes applying early for the scheme vital for landlords who otherwise may have to wait until other debts have cleared to get their money.

Does third-party deduction cover rent?

The third-party deduction scheme includes rent arrears and service charges, making the landlord the third party.

What’s included in the amount owed?

Besides rent arrears and service charges, the scheme covers any reasonable costs incurred in recovering the debt.

Who can apply for a third-party deduction?

Landlords and tenants can apply for the benefit deduction. So can their representatives and agents.

Applying to join the scheme

The application for third-party deductions for rent arrears and service charges is part of the form for claiming:

• Jobseekers Allowance
• Employment and Support Allowance
• Income Support
• Pension Credit

If the deduction is from Universal Credit, read the notes here.

Send the completed form to the benefit or pension centre dealing with the tenant’s claim.

The DWP will want to know:

• Details of debt repayment methods that have failed
• The amount owed, including costs
• The weekly rent cost
• Proof that the debt has lasted for eight weeks or more
• Any additional payment is needed to cover ongoing costs, such as service charges
• Details of any other debt recovery payments made by the tenant
• Details of any repayment disputes

The DWP says most third-party deduction applications are granted, but sometimes, the tenant must consent to take the money. Generally, this is due to the deduction exceeding more than 25 per cent of the total benefit paid.

How the DWP assesses claims

The DWP is likely to grant a third-party deduction claim if the application shows the following:

• The tenant and family face enforcement action, like eviction
• If the landlord indicates at least four weeks of rent remains unpaid in any eight weeks
• The tenant and, if applicable, their partner are named on the tenancy agreement as responsible for paying the rent and other charges. Sometimes, the DWP refuses claims if the debt was incurred by a former tenant who has left the property.
• The claim must leave the tenant with enough benefits to claim any linked benefits, such as housing benefit reductions or council tax relief.
• The lowest priority deductions stop if the tenant has three or more third-party deduction claims.

Paying third-party deductions

If a claim is successful, landlords are paid third-party deductions every four weeks in arrears. The DWP can take six weeks or more to set up payments.

When to claim a third-party deduction

Waiting for a tenant to leave is too late to claim a third-party deduction - private landlords must apply while the tenant is still living in the home where the arrears were incurred. The arrears must accrue over eight weeks and come to at least half of the rent due.