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We have already reported a council tax material interest case where it was shown that a tenancy which continues as a contractual periodic tenancy would hold the tenant liable for the council tax on an empty property until the tenancy is brought to an end by proper notice given by the tenant.
However, that case wasn't an assured shorthold tenancy, so although helpful, it wasn't perfect for most landlords' needs.
It was also a Tribunal decision, so not binding. Now, there has been a new case dealing with an assured shorthold tenancy, and it was in the High Court, so it has binding authority.
The hierarchy of liability provides that the "owner" is liable where the property is unoccupied.
"Owner" is defined as the person with an inferior material interest, including a leasehold interest of 6 months or more. I
t has been held that where a tenancy goes statutory periodic after a fixed term, this is not a material interest for this purpose because a monthly statutory periodic tenancy which arises upon expiry of a fixed term is not of at least six months.
As discussed earlier, it has nonetheless been held at the tribunal level that the original fixed term is what matters where a tenancy continues as a contractual periodic tenancy. As long as that was for at least six months or more, the tenant will have an inferior material interest in the property where they vacate without giving proper notice or, if they do provide adequate notice but vacate early.
In Leeds City Council v Broadley [2016] EWHC 1839, the question finally arose about an assured shorthold tenancy with a clause that continued as a contractual periodic tenancy.
The appeal to the High Court was from one landlord, and there were five properties in question, all with basically the same situation:
The common issue was identified by the Vice President of the Tribunal as follows:- "Whether the appellant [Mr. Broadley] or his tenants was or were the owner of the appeal dwelling, within the meaning of section 6 of the Local Government Finance Act 1992 when the appeal dwellings had no resident for the periods in dispute."
The tenancies granted by the landlord were all similar in format and contained the following (relevant) provisions:
"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 Paying therefor the rent of ….per calendar month….
- The landlord lets and the tenant takes the property for the term at the rent payable as above.
- This agreement is intended to create an assured shorthold tenancy under the provisions of the Housing Act 1988.
- This agreement may be terminated by either party giving to the other one full calendar month's written notice provided that no such notice may be served during the first [6 or 12 as above] months of the term.
Crucially, therefore, the tenancy continued at the end of the term rather than coming to an end.
This means that no statutory periodic tenancy arises; instead, a contractual periodic tenancy continues until either party gives notice.
At the initial valuation tribunal hearing, the landlord successfully showed that the tenancies continued and, therefore, Trustees of the Berwick Settlement and Shropshire Council, appeal number 3245M131738/176C, applied.
In each case of the five properties, the tenants had vacated the premises early, either during a valid or invalid notice period.
Either way, the landlord argued that the tenancy continued (and therefore, so did the tenant's liability) until the tenancy was ended correctly by clause 3 of the tenancy agreement, which required at least a month's notice.
The main argument by the local authority was that a periodic term could not follow as described by the tenancy agreement because a term of a tenancy must be certain:
It is a requirement of all tenancy agreements that the term created was of certain duration. It is beyond the power of the landlord and the tenant to create a term which is uncertain: "A term must either be certain or uncertain. It cannot be partly certain because the tenant can determine it at any time and partly uncertain because the landlord cannot determine it for an uncertain period. If the landlord does not grant and the tenant does not take a certain term, the grant does not create a lease."
This uncertainty rule (as it is known) was explained in Mexfield Housing Co-Operative Ltd. v. Berrisford [2011] UKSC 52; [2011] 3 WLR 1091:
"Periodic tenancies obviously pose something of a puzzle if the law insists that the maximum term of any leasehold estate be certain. The rule was invented long before periodic tenancies were invented and it has always been a problem how the rule is to apply to them. In one sense the term is certain, as it comes to an end when the week, the month, the quarter or the year for which it has been granted comes to an end. But that is not the practical reality, as the law assumes a re-letting (or the extension of the term) at the end of each period, unless one or other of the parties gives notice to quit. So the actual maximum term is completely uncertain. But the theory is that, as long as each party is free to give that notice whenever they want, the legal maximum term remains certain. Uncertainty is introduced if either party is forbidden to give that notice except in circumstances which may never arise. Then no one knows how long the term may last and indeed it may last forever."
The court held:
... I reject the appellant's [local authority’s] argument that it is legally impossible to have a single tenancy comprised of both a fixed and periodic term. The only reason for wishing to define a term in this way appears to be to secure a benefit for the landlord in relation to his Council Tax liability. It is a modern contrivance. Such a term has not therefore received the attention of the courts over the centuries. The uncertainty rule, which was developed long before anyone considered granting a tenancy in these terms, should not be extended to invalidate it.
The Court of Appeal has confirmed this decision - see Leeds City Council v Broadley (Rev 1) [2016] EWCA Civ 1213. Further update - permission has been refused by the Supreme Court for Leeds to appeal, and the matter is therefore settled and can go no further.
We now seem to have some fairly settled case law on who is liable where a property is unoccupied, but the tenancy is not at an end.
Crucially, it depends on whether the assured shorthold tenancy goes statutory or contractual periodic at the end of the fixed term. To ensure the tenant remains liable during any periodic term, the following criteria must be met:
If the tenancy agreement remains silent about what happens at the end of the fixed term, a new statutory periodic tenancy by section 5 of the Housing Act 1988 will arise.
In this case, because it is a new tenancy of fewer than six months, the landlord will generally be liable for the period whilst the property is empty, even if the tenancy is not at an end (see CT v Horsham District Council (HB) [2013] UKUT 617 (AAC)). However, where the tenancy contains a continuing provision, the tenant will usually be liable until the tenancy has been appropriately ended.
The tenancy agreements provided by our Tenancy builder operate as described in this case and continue as a contractual periodic tenancy rather than a statutory periodic tenancy arising at the end of the term.
Below are some examples. For the tenant to remain liable, the criteria detailed above (minimum six months and continued) must apply.
It should be noted that all these examples assume the landlord does not act to accept the early termination of the tenancy.
For example, early key acceptance could result in the Tribunal or Court determining that the tenancy was at an end from the point the landlord or agent accepted the keys.
Landlords and agents should be careful not to accept an invalid notice and to ensure the tenancy continues by not accepting keys, and they should continue to demand rent.
Where a tenant gives valid notice and leaves correctly on the given date, the landlord will be liable for council tax in the usual way from that point on.
The only way the rules outlined in this case can hold the tenant liable is if the tenancy is continuing. Once the tenancy ends, the tenant no longer has a material interest and is, therefore, no longer regarded as "the owner."
We have a couple of templates available where the tenant has failed to give proper notice. A letter before appeal must be made to the local authority in the first instance: