Council Tax

We have been getting a number of queries regarding council tax liability on our helpline recently so we thought it was about time that we revisit some past cases and the relevant legislation and answer a few of our frequently asked questions.

Who is liable to pay council tax?

As a starting point, Section 6(2) of the Local Government Finance Act 1992 sets this out thus:

Persons liable to pay council tax.

(1)The person who is liable to pay council tax in respect of any chargeable dwelling and any day is the person who falls within the first paragraph of subsection (2) below to apply, taking paragraph (a) of that subsection first, paragraph (b) next, and so on.

(2)A person falls within this subsection in relation to any chargeable dwelling and any day if, on that day—
(a)he is a resident of the dwelling and has a freehold interest in the whole or any part of it;
(b)he is such a resident and has a leasehold interest in the whole or any part of the dwelling which is not inferior to another such interest held by another such resident;
(c)he is both such a resident and a statutory , secure or introductory tenant of the whole or any part of the dwelling;
(d)he is such a resident and has a contractual licence to occupy the whole or any part of the dwelling;
(e)he is such a resident; or
(f)he is the owner of the dwelling.

Local authorities will therefore first see if there is someone who falls into para (a), and if not will move onto para (b) and so on.

Following this list, it is clear that where the owner of the freehold interest (the Landlord) is no longer a resident of the property and has entered into a tenancy or created a licence with another party who is resident of the property i.e. there is someone who falls into one of categories a-e above, he will no longer be responsible for the payment of council tax. However if there is no-one liable under a-e, council tax liability falls on the owner.

Who is the “owner” for the purposes of section 2(e)?

In Section 6(5) ‘owner’ is defined as a person having a material interest in the whole or any part of the premises. Section 6(6) further defines ‘material interest’ as being either a freehold interest or a leasehold interest which is granted for six months or more.

Therefore the “owner” for the purpose of this section can mean not only the owner of the freehold interest ( i.e. Landlord), but also in some cases the tenant ( owner of leasehold interest).

What happens if the tenant is no longer resident?

Where the tenant leaves the property before the end of a fixed term of six months or more (without giving notice in line with a break clause or agreeing a surrender with the landlord), the tenant would be the “owner” for the purposes of Council Tax liability and therefore the tenant would continue to be liable for council tax. This liability would only continue until either the tenant’s valid notice has expired or the landlord accepts to implied surrender and takes back possession.

However, what about when fixed term has ended and a statutory periodic tenancy has arisen. This situation was considered in the case of MacAttram v London Borough of Camden [2012] EWHC 1033. This case concerned a three year fixed term contract with Camden who used the property to house homeless applicants. After an initial fixed term the tenancy became a statutory periodic tenancy and Camden continued to pay the monthly rent although there were no longer any occupiers residing in the property. Camden had then stopped paying rent and tried to surrender the tenancy. To add insult to injury, they then presented the landlord with a council tax bill for the time that the tenancy was a periodic tenancy.

As neither the landlord nor tenant was a resident during this time, the court explored the definition of ‘owner’.

The Landlord, Mrs MacAttram tried to argue that as the original tenancy had been granted for three years, Camden continued to have a material interest in the property when the tenancy went periodic. However, it was held that the periodic tenancy was a new tenancy and not a continuation of the original fixed term. As the tenancy ran from month to month, Camden was not considered to have a material interest as it had not been granted for six months or more.

It is worth noting that whilst this would mean that the local authority can require a landlord to pay the council tax from the date that the tenant vacates, this does not affect the contractual relationship between the landlord and tenant. As such, you should ensure that your tenancy agreement contains a clause that states that the tenant is responsible for council tax until the end of the tenancy (and most well drafted agreements will define the tenancy to include any holdings over or statutory periodic tenancies etc) so that the landlord in turn can recover this money from the tenant.

Who is responsible for council tax where the property is an HMO?

It is important to note that the definition of an HMO for the purposes of council tax liability is different to the definition provided in the Housing Act 2004. We have already posted a blog on this case, Goremsandu R (on the application of) v London Borough of Harrow [2010] EWHC 1873 (Admin), but for those of you that missed it the case can be summarised as follows:
A group of tenants occupying the property on a single AST, each paying a ‘share’ of the rent direct to the landlord. The conservatory at the property was unusable because the tenants had placed all of the landlord’s furniture in it (by agreement) as they had no use for it. As the tenants were jointly and severally liable and the tenants did have access to the conservatory should they have wished, liability fell to the tenants.
However where a property is an HMO for Council Tax purposes then the landlord has the primary liability for Council Tax. If part of the demise is excluded from the tenancy ( e.g. a locked room) so that there is no liability to pay rent on the dwelling “as a whole”, or the tenants have a licence to occupy only part of the dwelling, then the landlord will remain liable for Council Tax.
The tenants left owing in excess of £11,000 in Council Tax. Harrow tried to make the landlord pay it.
The full post can be found here.

What if the landlord is storing items or restricting access to parts of the premises?

Landlords should be careful where they are storing possessions at the property or restricting the tenant’s access to parts of the premises. A common example is where the tenancy agreement specifically excludes the loft from the tenancy. In these situations the owner can be pursued by the local authority for the council tax. Again, the landlord would be able to pursue the tenant for any council tax he has paid if the tenancy agreement states that the tenant is liable to pay it.

Who is entitled to any council tax discounts when the property is vacant?

Local authorities now have the discretion to charge full council tax on empty properties, but can choose to offer a discount. You will need to contact your local authority to find out if they have an exemption period of offer any discounts.

We receive a lot of calls from the agents and landlords whose tenants have vacated the property a month early and later find the council tax exemption period has already been used by their former tenants. Unfortunately for landlords hoping to use any discount themselves to bridge the gap between tenants, tenants are able to make use of any empty house exemptions. Of course this is only if they are no
longer living in the property and have taken all their belongings with them.

Filed under: England only, legislation, Utilities and Services

The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013

These Regulations are due to come into force on 13 June 2014 and will apply to all contracts that traders enter into with consumers after that date. The Regulations replace the provisions that are currently in place under the Consumer Protection (Distance Selling) Regulations 2000 and the Cancellation of Contracts Made in a Consumer’s Home or Place of Work etc Regulations 2008.

A consumer for the purposes of the Regulations is an individual acting outside of their trade, business craft or profession.

How do the new Regulations apply to lettings agents?

The Regulations do not apply to tenancy agreements as Regulation 6(1) (d) specifically excludes contracts for rental of accommodation for residential purposes from their scope. However, terms of business with landlords are potentially caught.

What is required?

The Regulations distinguish between three types of contracts and require different initial information to be given or made available to the consumer:

1. On Premises Contracts – Regulation 9

These are defined as contracts that are concluded otherwise than at a distance or by way of an off premises contract.

So, all contracts concluded at a lettings agent’s premises. The Regulations require the trader to give or make available the information set out in Schedule 1 of the Regulations.

The information does not necessarily have to form part of the terms of business document but the agent will need to be able to prove that the information was given and it must be in a clear a comprehensible form.

2. Off Premises Contracts – Regulation 10

These are defined as contracts that are either negotiated and concluded in the physical presence of both the trader and the consumer off of business premises; or concluded at a distance following the consumer making an offer in the physical presence of the trader.

The Regulations require the trader to give or make available to the consumer the information set out in Schedule 2 of the Regulations.

Again, the information does not have to be in the contract so long as proof that the information has been given in a clear and comprehensible form is kept.

The trader must in addition give the consumer the cancellation form contained at Part B of Schedule 3 of the Regulations on paper.

3. Distance Contracts – Regulation 13

These are defined as contracts concluded under an organised distance selling/service provision scheme without the physical presence of the consumer and the trader at any time.

So, none of the negotiations or offers have been conducted face to face.

The Regulations require the trader to give or make available to the consumer the information set out in Schedule 2 of the Regulations.

The requirements are the same as off premises contracts (as above) in terms of the provision of the information and the cancellation form. In addition, the trader will need to send confirmation of the contract in a “durable medium” and keep proof that the confirmation of instruction was sent out.

There are additional specific requirements for contracts concluded by electronic means or on the telephone.

What are the consumer’s cancellation rights?

For off premises and distance contracts, the consumer has the right to cancel the contract at any time during 14 days without giving a reason unless the consumer requests early supply of service in accordance with Regulation 36(4).

There are a number of exceptions to the right to cancel but none of these will apply to most terms of business – Regulation 27 and 28.

The trader should not begin service until after the cancellation period unless the consumer expressly requests this. If this has not been requested and the consumer cancels within the 14 days, the trader is required to reimburse the consumer for all costs paid by the consumer already under the contract without imposing any fees.

If the consumer does requests that the supply of service begins during the cancellation period, the consumer may still cancel within the 14 day period but will be required to pay for the service on a pro rata basis. If the service has been fully performed before cancellation, the consumer will cease to have the right to cancel.

What are the implications of failing to give the required information?

1. If the required information about fees is not given to the consumer, he or she will not be liable for them;
2. The 14 day cancellation period is extended until either 14 days after the information is given or at 12 months, whichever is the earlier;
3. The trader will be guilty of an offence under Regulation 19 if it fails to give notice of the right to cancel and will be liable to a fine.

Conclusion

Agents would be advised to update their terms of business from June to make sure all of the information required and the notice of cancellation is included. The complete Regulations and schedules can be found here

Filed under: England & Wales

Court Fees to Increase on 22 April 2014

In a move that has been described by the Civil Justice Council as “a tax on litigation”, HM Courts and Tribunals Service have announced that many Court fees will be significantly increased from 22 April 2014.

The fees for possession proceedings are subject to some of the highest increases with the fees for claims issued via the Court’s Possession Claims Online (PCOL) system to suffer a staggering rise from £100 to £250 and the fee for paper based claims to see a rise of in excess of 60% from £175 to £280.

There is a catalogue of other significant increases, which can be viewed on the court website. It has been approximated that all of the increases will boost Court revenue by approximately £200m.

Understandably there has been much criticism of the increases, which will undoubtedly considerably add to the cost of accessing justice for litigants.

Landlords may feel particularly hit in light of the need for a court order to recover possession, and especially since many local authorities will not re-house tenants until they have been formally evicted.

Filed under: England & Wales, litigation