Introduction

We have already reported a council tax material interest case where it was shown that a tenancy which continues as a contractual periodic tenancy will 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 useful 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 has binding authority.

The Law

For full details about who is liable including the hierarchy of liability, see this article. Where the property is unoccupied, the hierarchy provides that the “owner” is liable. “Owner” is defined as the person who has the inferior material interest which includes a leasehold interest of 6 months or more.

It 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 6 months 1.

As discussed earlier, it has nonetheless been held at tribunal level that where a tenancy continues as a contractual periodic tenancy, the original fixed term is what matters and as long as that was for at least 6 months or more, the tenant will have the inferior material interest in the property where they vacate without giving proper notice or, if they do give proper notice but vacate early.

High Court

In Leeds City Council v Broadley [2016] EWHC 1839, the question finally arose about an assured shorthold tenancy which contained a clause that the tenancy continued as a contractual periodic tenancy.

The appeal to the High Court was from one landlord and there were 5 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….

  1. The landlord lets and the tenant takes the property for the term at the rent payable as above.

  2. This agreement is intended to create an assured shorthold tenancy under the provisions of the Housing Act 1988.

  3. 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 has the effect that no statutory periodic tenancy arises and instead a contractual periodic tenancy continues until either party gives notice.

At the initial valuation tribunal hearing, the landlord was successful in showing that the tenancies continued and therefore Trustees of the Berwick Settlement and Shropshire Council, appeal number 3245M131738/176C applied.

In each case of the 5 properties, the tenants had vacated the premises early either during a period of valid notice or invalid notice was given. Either way, the landlord argued that the tenancy continued (and therefore so did the tenants liability) until the tenancy was properly ended by clause 3 of the tenancy agreement which required at least a months 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.

Update – Court of Appeal

This decision has been confirmed by the Court of Appeal – 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. The matter is therefore settled and can go no further.

Comment

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.

In order to ensure the tenant remains liable during any periodic term, the following criteria must be met:

  • the initial fixed (or minimum) term must be at least 6 months or more, and
  • the tenancy agreement must contain a term that it continues upon expiry of the term.

If the tenancy agreement remains silent as to what happens at the end of the fixed term, a new statutory periodic tenancy by way of section 5 Housing Act 1988 will arise. In this case, because it is a new tenancy of less than 6 months, the landlord will normally 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 provision that it will continue, then, the tenant will usually be liable until the tenancy has been properly ended.

The tenancy agreements provided by our Tenancy builder operate in the way described in this case and continue as a contractual periodic tenancy rather than a statutory periodic tenancy arising at the end of the term.

Examples

Below are some examples. In order for the tenant to remain liable, the criteria as detailed above (minimum six months and continues) must apply.

  • A tenant gives correct notice on 1 July to leave by 1 August but in fact leaves on 15 July. Where the criteria is met (minimum 6 months with a continuation clause), the tenant will nonetheless be liable until 1 August.
  • If a tenant abandons a property without giving any notice and the criteria is met, the tenant will remain liable until the landlord accepts the property back or has obtained a court order / bailiff etc. i.e. until the tenancy is truly at an end.

  • If a tenant gives a notice on 10 July to expire 30 July and leaves on 30 July. Assuming the criteria is met and the landlord rejects the invalid notice (or at least does nothing to accept the invalid notice as valid), the tenant will remain liable until the landlord accepts the tenancy as at an end (such as re-letting or entering to carry out substantial works) or, until a valid notice is given and expired.

  • If the tenancy is for six months but the tenant leaves at month 4, the tenant will remain liable until the end of the term (this example applies irrespective of what the tenancy does at the end of the term).

It should be noted that all these examples assume the landlord does no act accepting the early termination of the tenancy. For example, the acceptance of keys early could result in the Tribunal or Court determining that the tenancy was at an end from the point of the keys being accepted by the landlord or agent. 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 date given, the landlord will, from that point, be liable for council tax in the normal way. The only way for rules outlined in this case to hold the tenant liable is where the tenancy is still continuing. Once at an end, the tenant no longer has a material interest and therefore no longer regarded as “the owner”.

Templates

We have a couple of templates available where the tenant has failed to give correct notice. A letter before appeal must be made to the local authority in the first instance: