Where a person is renting a property they are usually entitled to claim Housing Benefit if they have a commercial arrangement and the Local Authority is satisfied that the arrangement was not set up to take advantage of the Housing Benefit scheme.This would mean that the agreement would need to be enforceable in law in order to show that it was a commercial agreement. You may find that some authorities want more information or evidence of the agreement from you before they are willing to accept that the tenancy is a commercial one particularly where you are letting to relatives. Please note it is for the landlord (ie you) to prove the agreement is a commercial one and for the Local Authority to show that the tenancy is set up to abuse the system.
There is no legal rule which prevents close relatives entering into a legally binding agreement to pay rent and claim Housing Benefit where they do not occupy the same dwelling, which would be the case in your scenario. The authority would again be looking at whether it is a commercial agreement and whether it was set up to take advantage of the Housing Benefit system. So, provided you have a valid Tenancy Agreement and your parents were paying a market rent, there should not be any difficulty in proving that it is a commercial agreement.
On a side point, most retirement schemes insist that the owner of the apartment is indeed over the age of 55 years, and some insist that whoever is owning the apartment is also the occupier. You should therefore check with the Development that it would indeed be possible for you to go ahead and buy.
I hope this assists and sets out the legal position.
Hi Rebecca, can I assist any further? If not, I would be grateful if you could rate my answer. Kind Regards Al