Rather too certain to be uncertain

Leeds City Council v Broadley [2016] EWCA Civ 1213

This was Leeds’ second appeal of a Valuation Tribunal decision on council tax liability. We covered the first High Court appeal here. Full disclosure, I acted for the intervener in this second appeal, the Residential Landlords Association, with Justin Bates (or as it turns out, Bate) as counsel.

The issue, in brief, was council tax liability where an (assured shorthold) tenant had left the property without the tenancy being terminated by either the tenant or the landlord. Mr Broadley’s tenancy agreements set out the term as

Whereas the landlord agrees to let the premises known as…..for a term of (6 or 12) months and thereafter continuing on a monthly basis unless terminated by either party under the provisions of Clause 3 (a termination clause)

In each of several cases, the tenant had left during the ‘monthly basis’ part of the tenancy. (We have previously called this a contractual periodic element, but this has caused some confusion, because of course, a tenancy may be a contractual periodic from the start, so let’s call it the ‘periodic element’ of the term).

Leeds’ case, both below and in the Court of Appeal, was founded on the view that such a ‘compound’ tenancy, with an initial fixed term and a subsequent periodic element, was void for uncertainty. As such, the contractual provisions of Mr B’s tenancy agreements could only be, alternatively i) two tenancies – a fixed term, then a new periodic tenancy – or ii) a periodic tenancy from the start, with a fetter on possession for the first 6 (or 12) months, or iii), that it was a contractual licence, not an interest in land that would be a tenancy.

Why does this matter? Because in the hierarchy of council tax liability, the tenant is liable for council tax so long as they are in occupation, or if they have a ‘material interest’ of 6 months or more, for the duration of the tenancy. Otherwise it is the landlord who is liable (section 6 Local Government Finance Act 1992).

If Leeds interpretation were right, then the ‘periodic element’ would be a new tenancy of less than 6 months term, or the tenancy would have been periodic from the start, and so less of 6 months term. Thus, when the tenant ceased to occupy the property, the landlord was liable for council tax. A contractual licence would not be an interest in land, no matter what the term, so not a ‘material interest’, so the tenant would only be liable when in occupation.

It is, of course, a lot easier for the council to pursue the landlord for council tax than a tenant who has moved without notice.

But all of this rested on the initial issue of whether such a tenancy was void for uncertainty, and that is exactly where the court of appeal focussed.

The nature of tenancies granted in this form is considered in Woodfall on Landlord & Tenant in its current edition (at para. 5.076); and the law is there stated (as broadly in all previous editions in my experience) as follows:
“5.076
A demise for “one year from the date hereof, and so on from year to year, until determined by three months’ notice,” creates a tenancy for two years at the least, determinable at the end of the second or any subsequent year by notice expiring at the end of such year. A fortiori such a tenancy will be created where the words are “for the term of one year certain and so on from year to year.” A demise “for years” will also create a lease for two years. Similarly a demise “for six months, and so on from six months to six months until determined by either party,” will create a tenancy for one year at the least. A tenancy “for two years certain and thereafter from year to year” can only be determined at the end of the third or any subsequent year. But a tenancy for 12 months certain, and six months’ notice to quit afterwards, has been held to be determinable at the end of the first year, and a term of two years from a stated date, and the quarterly, subject to three months’ notice on either side expiring on any quarter day, was held to be a term for two years and then on a quarterly basis, subject to the three calendar months’ notice.

A demise may be made from two years to two years, or from three years to three years, or like. So a lease may be made for seven years, and afterwards from year to year. However, an agreement to let from year to year, for so long as the tenant pays rent, and the landlord has power to let, is void as lease and confers no particular estate beyond a tenancy from year to year.”

The authorities construing grants of this character in this fashion, referred to in the footnotes to this paragraph of the textbook date back to 1605.

In Doe d. Chadbourn v Green (1839) 9 A & E 658 a tenancy for a “term of one year, from the date hereof, and so on from year to year” was said by Lord Denman CJ (for himself, Littledale, Williams and Coleridge JJ) to “give…a term for a year and so on from year to year…for the language of the contract clearly contemplates a term longer than one year”, i.e. a single term.

In R v The Inhabitants of Chawton (1841) 1 QB 247, the question arose whether a letting was for at least one year. The grant was “for the term of six months from the 1st day of January next…and so on for six months to six months, until one of the said parties shall give to the other of them six calendar months’ notice in writing to determine the tenancy”. It was held to be a letting for at least one year.

Brown v Trumper (1858) 2 Beav. 11 concerned a lease for seven years and afterwards from year to year if notice were not given to terminate at the end of seven years. It was held by Romilly MR that the lease was a “… a demise for seven years certain, and for so much longer as they should think fit, with liberty to either party to put an end to it”.

It seems to me that all these authorities point to the result that grants in the form such as those made by the present agreements are single grants for a fixed term followed by a periodic tenancy thereafter. They were valid grants at common law and no doubt was ever cast upon that.

Did the Law of Property Act 1925 make any difference to this prior common law position? Section 1(1) LPA provides that only fee simple or a term of years absolute can be created as estates in land. Section 205(1)(xxvii) states

“Term of years absolute’ means a term of years . . . either certain or liable to determination by notice, re-entry, operation of law, or by a provision for cesser on redemption, or in any other event (other than the dropping of a life, or the determination of a determinable life interest); . . . and in this definition the expression ‘term of years’ includes a term for less than a year, or for a year or years and a fraction of a year or from year to year; …”

Leeds argued that while a fixed term, or a periodic tenancy was within the terms of the LPA, “an amalgam of the two is invalid as being void for uncertainty and/or as not being within the contemplation of the 1925 Act.”

The Court of Appeal referred to Prudential Assurance Co. ltd. v London Residuary Body & ors. [1992] 2 AC 386 and  Mexfield Housing Co-operative Ltd. v Berrisford [2011] UKSC 52 as both taking the view that the LPA 1925 “seemed to underwrite the established common law position”, rather than invalidating the previous common law position on ‘hybrid’ tenancies.

Leeds’ follow up argument that an ‘invalid’ fixed term and subsequent periodic hybrid agreement would be rescued by s.5 Housing Act 1988, so a statutory periodic (and new) tenancy would arise after the fixed term, was therefore also dismissed. The situation, on these agreements, simply did not arise.

So, in dismissing the appeal

In essence, therefore, I agree with the solution to the present problem arrived at by the Tribunal and by the judge. However, I disagree with the judge’s comment (at paragraph 31) that the definition of the tenant’s term is a “modern contrivance”; it is not, as the textbooks and authorities demonstrate. Further, quite apart from any advantage with regard to council tax that the judge perceived, there is obvious benefit to both parties to the lease in giving a degree of initial certainty of the term’s duration, with a degree of flexibility thereafter. This is a commercial advantage to which Mr Broadley speaks from his own experience as a landlord on the sixth page of his skeleton argument (p.35K of the appeal bundle). It is, however, an obvious commercial reality, quite apart from any fiscal issues, to which I think we are entitled to have regard in construing the agreements.

And, because I acted for the intervenor, I have to quote

I would add that the conclusion to which I have come is essentially that for which Mr Bate contends in his written submissions for the intervener. I found those submissions most cogent.

Comment

I have to say (as I would) that this is the right result. If certainty of term is satisfied by a fixed term, or by a periodic tenancy, it is surely satisfied by an initial specified term followed by a periodic one. This was the common law position and the LPA 1925 does not displace it.

Of course, unless any landlords reading this get over excited, the argument does not apply to a tenancy for a fixed term, followed by a statutory periodic tenancy arising by way of s.5 HA 1988. We know from Superstrike that a statutory periodic is a new tenancy, and it is for a term of less than 6 months. So if the tenant ceases to occupy during the statutory periodic, without formally ending the tenancy, the landlord will indeed be liable for the council tax. The issue here is solely liability where the tenancy agreement is for an initial term (of at least 6 months) followed by a periodic term.

It should also be noted that Leeds conducted the appeal on an eminently civilised and proper basis. The sums at issue in respect of Mr Broadley were relatively small – a few hundred pounds – though the sums involved in the principle for Leeds and all other councils will more likely run into six figures.

Leeds took the view that this was an issue of law and principle that required deciding and that costs would not be sought from Mr B if Leeds were successful. It was also agreed by appellant, respondent and intervenor that no costs would be sought on the intervention, either way. Mr Broadley was in person thoughout, and of course won the Tribunal and first appeal, but counsel for Leeds actively sought to ensure that the legal issues were fully argued before the court of appeal.

 

About Giles Peaker

Giles Peaker is a solicitor and partner in the Housing and Public Law team at Anthony Gold Solicitors in South London. You can find him on Linkedin and on Twitter. Known as NL round these parts, and still is Nearly Legal on Google +.
Posted in Assured Shorthold tenancy, Housing law - All and tagged .

32 Comments

  1. Next up, when a tenant uses the (often short now) council tax free period for the property being empty, so stopping the landlord using it when finding the next tenant. E.g can you landlord stop the tenant doing so and if so, how do you handle recovering the money from the deposit before you know how long the landlords void will be?

    And all these issues due to councils no longer giving at least 6 months free council tax on empty properties creating loads of issues just by moving money about in a different why.

    • I was thinking when the property was empty, but still within the fixed term and tenant is till paying the rent, but is using up the 30 days of “fee” council tax having informed the council it is empty. The landlord then does not have the 30 days of “fee” council tax when keys are handed back to find the next tenant.

    • During the fixed term, if it is for at least 6 months, the tenant is liable for council tax, come what may. There should be no ‘using up’ of the free period

    • Sorry you do not understand what I am saying, most councils have a council tax rate of £0 for a short time when a property is empty, so the tenant will be liable to pay at the £0 rate. This £0 rate is often limited to 30 days, councils don’t reset the timer on the 30 days when a tenancy comes to the end therefore the landlord loses the £0 council tax rate if the tenant has used it up.

    • Oh I see. Well nothing that can be done about that, as the exemption applies to the property, not to the tenant or owner. No way the LL can claim it back from the tenant as the exemption period doesn’t ‘belong’ to the landlord in any sense.

    • Not even if the AST says the tenant must use the property as their main home (and therefore not have it empty and hence for example make the landlords insurance void.)

    • As a consequential loss on a breach? Tricky. And LL duty to mitigate loss in any event (by getting new T in quickly). Not a line I’d run with any confidence.

  2. That is a very good point, after all this case was never about a point of law being argued out in court, it’s all about the greedy, grasping, lazy Public Sector trying to get their filthy hands on money to which they’re not entitled. Like the DVLA, their next move will be trying to get both Landlord and Tenant to pay for these “unclear” periods of time at the end of a tenancy.

    • There are no ‘unclear’ periods.
      If ‘material interest’ is more than 6 months, tenant is liable until the formal termination of the tenancy.
      If the interest is less than 6 months (a statutory periodic, say), then the tenant is liable as long as the tenant is in occupation. The landlord may want a contractual clause that the tenant must indemnify the landlord for CT until the forma termination of the tenancy.

  3. Very interesting. I’ve not given much thought to the CTax element before. So let me get this straight – if tenant serves valid NTQ during a stat periodic tenancy which expires at the end of a period but then moves out mid-way through that period, the landlord becomes liable for the CTax for the remainder of that period? Even though the stat periodic tenancy has not ended?
    Does the fact that a tenant may continue to ‘pop by’ to clean, move out any remaining furniture etc as is often the case make any difference to whether or not the tenant is considered to be in occupation or not?

  4. In real life the tenant has told the council they have moved out by applying for housing benefit on anther property, by have not told the landlord. A lot of these issues could be stop if the tenant had to prove they had given the correct notice to their current landlord, before they could get housing benefit on anther property….

    • That could be tricky in practice. What would the proof consist of? A copy of a letter from the tenant which could easily be forged? Confirmation from the previous landlord which, depending on the scruples of the landlord, may make it even harder for people on housing benefit to access accommodation. There is also an assumption that this issue only affects housing benefit claimants, but people who do not claim benefits are perfectly capable (and may sometimes have more financial motive to do so) of leaving landlords carrying the can. It would also add another layer of administration costs to housing benefits claims, diverting public funds away from more pressing issues.

  5. one wonders as to the impact on s11 LTA

    Just thinking.
    Post this case, Is a grant of 12 months and thereafter monthly “A term of less than 7 years”?
    We know it is “granted for a term of six months or more” but that does not directly answer the 7 year
    issue.

    s13(2)(b) does not assist In cases of secure tenancies or assured tenancies because the lease is not determinable at the option of the Landlord before the expiration of 7 years.
    I suppose that based upon the construction of the s13 the courts will construe 13(2)(b)as unaffected by the security of tenure provisions of the the Housing Act 1985 and the Housing Act 1988.

    There is probably s0mething much more obvious that I have overlooked

    13 Leases to which s. 11 applies: general rule.
    (1)Section 11 (repairing obligations) applies to a lease of a dwelling-house granted on or after 24th October 1961 for a term of less than seven years.
    (2)In determining whether a lease is one to which section 11 applies—
    (a)any part of the term which falls before the grant shall be left out of account and the lease shall be treated as a lease for a term commencing with the grant,
    (b)a lease which is determinable at the option of the lessor before the expiration of seven years from the commencement of the term shall be treated as a lease for a term of less than seven years, and
    (c)a lease (other than a lease to which paragraph (b) applies) shall not be treated as a lease for a term of less than seven years if it confers on the lessee an option for renewal for a term which, together with the original term, amounts to seven years or more.
    (3)This section has effect subject to—
    section 14 (leases to which section 11 applies: exceptions), and
    section 32(2) (provisions not applying to tenancies within Part II of the M1Landlord and Tenant Act 1954).
    kjetilniki

    • Oh, you were thinking periodic secure or assured – periodic from the start. That is covered by s.205(1) LPA 1925, as above. Term is the period. So, for CT purposes, a weekly secure or assured would not be a material interest.

    • I was not thinking of a straight periodic, I was thinking of a combined – fixed term followed by a periodic as in Broadley. I don’t see where s2015[1][xxvii] takes us.
      an assured tenancy is not terminable at the option of the landlord — s5[1] HA88 altho, I suppose it could be argued as AST would be.
      a secure tenancy is not terminable at the option of a landlord s82[1]HA85

    • Assured and secure are periodic from the start, so not for a term of 7 years. You are mixing up how long one might last with the term granted.

    • a term comprising of “12 months then thereafter monthly” is not “periodic from the start” that is what Broadley decided. what is the term? (nor for that matter is a 12 months fixed term assured or secure tenancy a periodic from the start)

      Is such a term a “term of less than 7 years” ?
      is it 12 months + the very first month of the periodic ?
      my gut says yes it is a term of less than 7 years however it is a term in excess of 12 months.

    • It is, as per LPA and the common law, a term of 12 months and then month by month (or depending on precise wording of clause and termination clause, maybe 13 months, then month by month). So it is quite simply not a grant of a term of 7 years (or more). But still more important, it falls squarely under LTA 1985 s.13(2)(b), as determinable at will by landlord after 12 months.

  6. OK. I assume then by your suggestion that “The landlord may want a contractual clause that the tenant must indemnify the landlord for CT until the forma termination of the tenancy” , this is in your opinion likely to be a fair and enforceable contractual term?
    All very interesting, thank you.

  7. If the tenancy began before 1 October 2015 would the landlord have to serve a s21(1) notice or a s21(4) notice ?

  8. Pingback: Is a clause requiring a tenant to pay council tax unfair? - The Landlord Law Blog

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