Thankyou all for your helpful and constructive comments.I am pleased that the slight disagreement between Kevin and Mark now seems to have resolved itself.
The legal position in this type of situation appears to be clear.However my only comment would be that certainly in the case of this particular council the the position is not exactly made clear to either the tenant or the landlord prior to the submission of any form.The only information which at first sight appears to be relevant in the Council's literature and in their 'frequently asked questions'deals with the non payment of benefit to close relatives who share the SAME household as the tenant.The one question that touches on this issue in the housing benefit application form is equally misleading and could be taken to refer to the question of paying benefit to close relatives living in the same households.
In my view this is an area that certainly this particular council needs to deal with specifically in its guidance literature as it is easy to be caught by HBR 9(1)(d)without realising it is even an issue.

If I've understood your post correctly, you are suggesting that there might be grounds for compensation or ex-gratia payments on the grounds that the tenant was led to believe the claim would succeed?

If the tenancy was created after the claimant had sought advice about her position from the council, mentioning specifically the connection with the landlord, and that advice was that she would qualify for benefit, then grounds for a complaint would be quite compelling, especially if the advice were given in writing.

However, if the tenancy was created anyway and the claimant didn't seek such advice, then I don't think the authority could said to be at fault. The lack of, or inadequate expression of, factual information about the law in a claim form or advice leaflet could not have helped the claimant as she had already signed the tenancy agreement.

If the claimant had considered the question before signing the tenancy and was led to believe by the literature that there would be no problem, then you are in the middle ground and have an arguable case - although, IMHO, it would be unlikely that the authority would accept liability.

It sounds as though the council's literature could be clearer (actually, from what you say, it doesn't mention this issue at all) and in that respect they should be asked to change it.

It also means that there might be an arguable case for non-recovery of any subsquent overpayment - but that's a different question hinging on several unknown factors.