The following response is a "broad brushstroke" approach.
By "exempt", I'm assuming you mean that your client has been continuously entitled to and in receipt of HB since at least 1st Jan 1996.
On that basis, the LA should be considering restrictions with reference to "old" regs 10, 11, 12. I suspect it's HBR 11 at issue ("Restrictions on unreasonable payments").
If so, the LA is still correct to refer. However, the rent can only be restricted if the rent is "unreasonably high" by comparison with either the rent officer's figure, or the cost of suitable alternative accommodation.
Subject to the exception explained in the next para, if the rent is "unreasonably high", the LA SHALL then restrict by an amount as it considers appropriate having regard to the cost of suitable alternative accommodation elsewhere.
The exception: if the clmt is in a "vulnerable group" (mainly: over 60, incapable of work, child in same household), then the suitable accom must also be AVAILABLE to the clmt. If the accom is not available, then no restriction can be applied under "old HBR 11".
There is a veritable shedload of caselaw on "old HBR 11" - see Findlay. There are also one or two CDs which may be of interest.
Hope the above helps.
Regards
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