Leeds City Council v Broadley [2016]:
Where leases are granted for a fixed term followed by a periodic tenancy, can tenants still constitute ‘owners’?
The background
The landlord granted Assured Shorthold Tenancies of properties for fixed terms of 6 or 12 months, following expiry of which the ASTs would continue on a monthly rolling agreement. They were terminable on notice from either party.
Proceedings arose after tenants vacated the properties without notice during the extended periodic tenancies. The claimant Council claimed that the freeholder was the party responsible for payment of council tax whilst the properties were vacant; however, where tenancies were granted for a period of ‘six months or more’, the tenants themselves were to be classed as ‘owners’ of the properties and would be liable for council tax payments even though they were not in occupation.
At First-tier Tribunal, the court held in favour of the freeholder Respondent, deciding that tenants remained liable for council tax following their vacation of the properties; the FTT did not concur with the Council that the initial fixed term, followed by a periodic tenancy conflicted with the rule that tenancies must be of a certain duration.
The Council appealed.
The law
S.6 of the Local Government Finance Act 1992 sets out the criteria for liability of payment of council tax. This appeal centred on whether the tenants had a ‘material interest’ in the properties, determined as “a leasehold interest which was granted for a term of six months or more”. Where tenants held a material interest, they were the parties liable for payment of council tax; the Council wished to prove that the freeholder held the material interest.
At the Court of Appeal, the Council argued that the arrangements had in fact created two separate tenancies; one of a certain fixed term, and one of a period tenancy. The interest granted by the period tenancy was not an interest ‘granted for a term of six months or more’ and therefore the freeholder retained liability for council tax. The Court then considered the basis of this argument, and whether the fixed term and periodic tenancy constituted one grant or two.
The Court referenced a number of authorities, including Doe d. Chadbourn v Green [1839], where a tenancy “for a term of one year…and so on from year to year” was considered to be a grant of a single term. The language of the agreement suggested that it was clearly contemplated by the parties that the term would be longer than one year.
Further, in Brown v Trumper [1858], the Court held that a lease granted for “seven years and afterwards from year to year…” was to be deemed “a demise for seven years certain and for so much longer as they should think fit”.
On considering these, and other, authorities, the Court held that the FTT was correct to conclude that the tenants’ liabilities for council tax continued during the periodic tenancy periods, regardless of whether or not they were in occupation.
The decision
The Court of Appeal concluded that the fixed term and periodic tenancies constituted a single grant and dismissed the Council’s appeal. The conclusion was reached on the basis of both existing case law and on interpretation of the tenancies, which the Court decided were entered into by the parties with the intention of creating a single tenancy.
The tenants held the properties on the same terms during both the fixed term and periodic elements of the tenancy, and had therefore been granted tenancies of six months or more. The provisions of the Local Government Finance Act 1992 were satisfied, and the tenants were found to be liable for council tax during both the fixed term and periodic tenancies, regardless of whether or not the properties were occupied.
Where a contractual tenancy term comes to an end but a tenant remains in occupation or by virtue of a statutory or common law provision, the conclusion will be different, and the freeholder will assume council tax liability.
J B Leitch’s Phil Parkinson comments on the decision:
“This case discusses an important point of law and is of significance to landlords and freeholders of residential properties let on Assured Shorthold Tenancies. Reassuringly, the Court of Appeal held that tenancies granted for an initial fixed term and subsequent periodic tenancies constituted a single grant, meaning that tenants who vacate without giving notice of determination of their tenancy remain liable for council tax. It is recommended that landlords ensure that tenancies are of a sufficient duration to allow tenants to be deemed ‘owners’ of properties and to be aware that landlords’ own liability for council tax will only arise where a tenancy has been appropriately determined.”
The Court of Appeal concluded that the fixed term and periodic tenancies constituted a single grant and dismissed the Council’s appeal.