England and Wales High Court (Administrative Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT

		Leeds Combined Court Centre The Court House 1 Oxford Row Leeds LS1 3BG
		26/07/2016

Mr. Justice Edis:

1. This is a statutory appeal on a question of law from a decision of the Vice President of the Valuation Tribunal for England ("the Tribunal") brought under Regulation 43 of the Valuation Tribunal for England (Council Tax and Rating Appeals) (Procedure) Regulations 2009 (the Regulations). The decision in issue was made on 27^th January 2016 and related to 5 properties. Each property involved a separate appeal, but the issues were such that all appeals were heard at the same time and dealt with in the same decision. The common issue was identified by the Vice President 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."

2. The issue is of importance because it determines whether the landlord is liable to pay Council Tax or whether the tenant (or former tenant) is liable to pay Council Tax after vacating the premises.
3. This issue depends upon the construction of the terms of a standard form tenancy agreement used by Mr. Broadley (and others) when granting residential tenancies in respect of properties which he owns. That form, so far as relevant, provides as follows

"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.

TENANT'S OBLIGATIONS

….

(b) To pay….Council Tax…charged in respect of the property during the tenancy……"

4. Liability to pay Council Tax is to be determined having regard to the provisions of section 6 of the Local Government Finance Act 1992 ("the 1992 Act"). So far as material, these provide as follows:

"(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 or 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.

...

(5) In this Part, unless the context otherwise requires—

'owner', in relation to any dwelling, means the person as regards whom the following conditions are fulfilled—

(a) he has a material interest in the whole or any part of the dwelling; and.

(b) at least part of the dwelling or, as the case may be, of the part concerned is not subject to a material interest inferior to his interest;

"resident", in relation to any dwelling, means an individual who has attained the age of 18 years and has his sole or main residence in the dwelling.

(6) In this section— ...

'material interest' means a freehold interest or a leasehold interest which was granted for a term of six months or more."

5. Fundamentally, the issue is whether the tenancy agreement I have set out above creates a leasehold interest for a term of six months or more. The rival contentions are, in summary:-

i) Mr. Broadley submits that the contract created a single tenancy whose term was 6 months and thereafter continuing as a monthly tenancy. This would have the same effect as a fixed term assured shorthold tenancy, but would be the result of the contract rather than the effect of statute at the conclusion of the fixed term.

ii) Ms. Bretherton QC submits that a single tenancy cannot be both a fixed term and a periodic tenancy as this would offend the principle of uncertainty. Therefore she contends either

a) the words used must be construed against the legal context in which they were chosen and that the contractual term is a fixed term of 6 months at the conclusion of which a new statutory tenancy was created by statute and the conduct of the parties in continuing to pay and accept rent; or

b) the lease created a periodic monthly tenancy with a fetter on the giving of notice to terminate before the expiry of 6 months; or

c) Finally, and only in reply and somewhat faintly, she suggests that the parties created a contractual licence.

6. Mr. Broadley relies on what he contends is the natural meaning of the words used, and the actual intention of the parties. Ms. Bretherton says that this construction offends against the rule which requires a tenancy to be for a certain term and that it is a species of interest in land which it is beyond the power of the landlord to create. Therefore another meaning must be given to the words used. The significance of the arguments is that if she is right the landlord is obliged to pay Council Tax for the disputed period whereas if Mr. Broadley is right the tenant continues to be liable until the contractual tenancy is terminated by notice or otherwise.

The facts

7. The findings of the Vice President may be shortly summarised for the purpose of this appeal on a question of law in the Table set out below. In each case Mr. Broadley granted an assured shorthold tenancy in relation to a dwelling to a tenant. The tenant left after a period of time, and the Council ceased to regard the tenant as liable for Council Tax when notified of his/her departure. The tenant was no longer resident, but the landlord, Mr. Broadley, asserted that the tenancy continued with the result that there was, until the tenancy was terminated under Clause 3, a material interest inferior to his and he was therefore not "the owner" during that period. In each case, the "period in dispute" is the time between the date when the departing tenant gave up possession and the date when the tenancy was terminated by notice under Clause 3 or, if later, the date when the property was re-let.

Property	Date Of Grant Of Tenancy	Period In Dispute	Term Of Tenancy	End of tenant's liability for Council Tax
Flat 2 44 Victoria Park Avenue LS5 3DG	14/6/ 2013	14/12/13-1/2/14	For a term of six months, and thereafter continuing on a monthly basis unless terminated by either party under the provisions of Clause 3	28/11/13
Flat 2, 51 Boroughgate, Otley LS21 1AG	13/7/13	19/3/14-6/5/14	As above	19/3/14
Flat 6, Kirkstall Mount, Leeds LS5 3DT	15/8/11	1/1/14-31/1/14	As above	1/1/14
Flat 1, 24 North Grange Rd, Leeds LS6 2BR	15/11/12	4/1/14-28/2/14	As above	4/1/14
Flat 2, 22 North Grange Rd, Leeds LS6 2BR	10/9/13	10/9/14-1/10/14	For a term of twelve months, and thereafter continuing on a monthly basis unless terminated by either party under the provisions of Clause 3	9/9/14

8. The Vice President resolved some issues of fact and I have summarised the result of his findings in the Table above only to give context to the pure legal issue which I have to resolve. There is no appeal against those findings and it is not necessary to address them further. The law as I hold it to be will apply to the facts as found by the Vice President.

The decision of the Valuation Tribunal on the legal issue

9. The Vice President followed a decision of the Valuation Tribunal to which he had been party in Trustees of Berwick Settlement v. Shropshire Council (Billing Authority) dated 22^nd July 2014. That was a case in which an identical point arose. He was not addressed on behalf of the Billing Authority in either case in quite the same way in which Ms. Bretherton has addressed me, taking me back to the fundamental character of a tenancy. He decided that Mr. Broadley was right and that the tenancy agreement created a single term which was a fixed period of 6 months, followed by a further period of time which was identical to a periodical monthly tenancy.

The submissions in more detail

The Appellant

10. The Housing Act 1988 by s.1 defines an assured tenancy which is, as is obvious, a type of tenancy. s.5 provides for a new statutory periodic tenancy to come into existence at the conclusion of a fixed term assured tenancy. Where the rent is payable monthly during the fixed term the new periodic tenancy is a monthly tenancy. By s.19A an assured tenancy is an assured shorthold tenancy unless stipulated to the contrary. This means that a landlord can obtain possession after the end of a fixed term assured shorthold tenancy by giving two months' notice in writing.
11. Ms. Bretherton cited the first paragraph of Woodfall Landlord & Tenant as authority for the proposition that a tenancy is a relationship of tenure. It is an estate in land. s.1(1) of the Law of Property Act 1925 provides that

"The only estates in land which are capable of subsisting or being conveyed or created at law are – (a) An estate in fee simple absolute in possession; (b) A term of years absolute."

12. s.205(1)(xxvii) of the LPA 1925 defines a term of years absolute as including a term which is liable to determination by notice or operation of law and includes a term for less than a year, or for a year or years and a fraction of a year. A periodic tenancy may therefore be created under s.1(1). These provisions reflect the requirement in the common law for certainty as to "when the lessee shall have the land".
13. Prudential Assurance Co Ltd v. LRB [1992] 2 AC 386 concerned the grant of a tenancy which purported to continue until the land concerned was required by the local authority for widening the highway, which never happened. The passage at 394F-395A-C is at the heart of Ms. Bretherton's submissions. 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."

14. Mexfield Housing Co-Operative Ltd. v. Berrisford [2011] UKSC 52; [2011] 3 WLR 1091 re-affirmed the certainty rule, despite concerns about its utility. The law is stated by the then Master of the Rolls Lord Neuberger at [33]. At [55] he explained the decision in Breams Property Investment Co Ltd v. Stroulger [1948] 2 KB 1 where the court had held that a periodic tenancy with a fetter on the landlord's right to determine for three years was valid. Lord Neuberger held that this amounted to a fixed term of three years (subject to a restricted right of determination in the landlord and an unrestricted right of determination by the tenant) followed by a periodic tenancy.
15. Hammersmith & Fulham LBC v. Monk [1992] 1 AC 478 further explains the conceptual basis of a periodic tenancy which explains why a periodic tenancy does not offend against the rule about uncertainty. However, unless the period of the periodic tenancy is at least 6 months it does not qualify as a material interest under s.6(6) of the Local Government Finance Act 1992 and this is why the term in the present agreements was drafted as it is.
16. Ms. Bretherton referred me to Investors Compensation Scheme Ltd. v. West Bromwich Building Society [1998] 1 WLR 896, 912 on the proper approach to the construction of written agreements and the irrelevance of the actual intention of the parties.
17. Finally, I was referred to Macattram v. London Borough of Camden [2012] EWHC 1033 (Admin) a decision of HH Judge Robinson sitting as a Deputy High Court Judge. This was, like the present case, an appeal from the Valuation Tribunal in a case concerning liability for Council Tax. She decided that a periodic tenancy which arose after the end of the fixed term of a lease it was a new tenancy. A property was leased to the London Borough of Camden for a fixed term of 3 years. Camden did not give up possession at the expiry of the term and continued to pay the rent. After a period when negotiations broke down between landlord and tenant, Camden gave notice terminating the tenancy, returned the keys and said that its liability for Council Tax was at an end. The lease had made no provision for any continuation beyond the three year term. An argument was advanced that the periodic monthly tenancy had lasted for longer than 6 months and in reliance on Hammersmith and Fulham London Borough Council v. Monk at 488-489 should be regarded as an entire lease for the years past. The judge said that this did not assist the landlord because s.6(6) required the leasehold interest to have been granted for a period of 6 months or more. What the landlord had granted by accepting rent after the fixed term had expired was a monthly tenancy. [16]-[18], [22] and [24]. At [24] she said

"In my judgment the appellant's argument fails and a leasehold interest which was granted for a term of 6 months or more does not include a periodic tenancy unless the period of the tenancy is 6 months or more. For those reasons, I consider that the Tribunal's decision that the appellant's monthly periodic tenancy was not a material interest for the purposes of s.6(6) of the 1992 Act was correct as a matter of law"

18. The proposition that a periodical tenancy following the expiry of a fixed term is a new tenancy was applied to statutory periodical tenancies in Superstrike Ltd. v. Rodrigues [2013] EWCA Civ 669; [2013] 1 WLR 3848.
19. The Valuation Tribunal in Trustees of the Berwick Settlement v. Shropshire Council decided on 17^th June 2014 and followed by the Tribunal in the present case distinguished Macattram because the tenancy which followed the fixed term was granted by the lease and did not arise from the payment or acceptance of rent or operation of law. This was also the basis on which the billing authority's argument based on Superstrike was held to be unavailing.

The Respondent, Mr. Broadley FRICS.

20. Mr. Broadley made his submissions succinctly and in an entirely reasonable and professional way. He submitted that the parties had not wanted or intended to create a fixed term tenancy. He said that if the appellant's submissions were correct, this would change the interpretation of legislation which has worked well for 20 years.
21. He submitted that the form of agreement such as the present is very commonly used, and that it was attractive to him because he requires an assurance that tenant will remain for a minimum period. He prefers them to stay as long as possible. The tenants like to have some assurance of a guaranteed minimum period. It was, he said, a periodic tenancy with a minimum period, and not a fixed term ending after six months. He said that the term was a minimum term of 6 months thereafter terminable by one months' notice which cannot be given before 6 month period had expired.
22. Mr. Broadley submitted that the appellant was wrong to say the agreement ends at the 6 month point, because the period which followed is the same agreement that continues. He suggested that the council were seeking to secure payment of the Council Tax at the unoccupied rate during the life of the tenancy after the tenant had left because it was easier to recover it from the landlord than the tenant. The tax had to be paid by one party or the other.
23. Mr.Broadley also relied on Oyston v Leeds CC which was a decision of the Valuation Tribunal ref 4720M6769/244C . This held that vacating a property did not terminate a tenant's liability to pay Council Tax which was otherwise due. It was only the termination of the tenant's interest in the property which did that. I do not think that this is controversial before me.
24. Mr. Broadley relied on his written submissions. It is fair to say that they did not deal with the appellant's point as argued before me, which was based on the uncertainty rule. He was concerned with the practical consequences if the appeal were to succeed both for Council Tax and other reasons. These are really irrelevant to determining the challenge to the decision of the Tribunal advanced by the appellant before me.

Discussion and decision

25. On their face, the words used in the agreement purport to create a single tenancy whose term comprises a fixed period of 6 months followed by a period which operates precisely as if it were a new monthly tenancy, but which is described in the document as a continuation of the term originally granted. The issue is whether the tenancy as granted by the plain words of the agreement was invalid because it offends the uncertainty rule. The words used must be construed in a way which gives effect to the intention of the parties as deduced from the document itself against the relevant background (which does not include their actual intentions). The document actually states its intention which is plainly to create one tenancy only:

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

26. The agreement must be interpreted in the same way as any other written contract, see Mexfield [17] per Lord Neuberger JSC. If the words on their plain meaning offend against the rule against uncertainty then it may be possible to save something of the agreement by interpreting it in another way, as Ms. Bretherton suggests, but this will mean that it is not a "material interest" for Council Tax purposes. She contends that the document in fact creates two tenancies, a fixed term of 6 months followed by a monthly tenancy. At the material time the tenant was holding the premises under the second of these which was not a material interest for the purposes of Council Tax.
27. Lord Neuberger in Mexfield at [33] stated the uncertainty rule as follows:-

"33 Following the decision of the House of Lords in the Prudential case [1992] 2 AC 386, the law appeared clear in its effect, intellectually coherent in its analysis, and, in part, unsatisfactory in its practical consequences. The position appears to have been as follows: (i) an agreement for a term, whose maximum duration can be identified from the inception can give rise to a valid tenancy; (ii) an agreement which gives rise to a periodic arrangement determinable by either party can also give rise to a valid tenancy; (iii) an agreement could not give rise to a tenancy as a matter of law if it was for a term whose maximum duration was uncertain at the inception; (iv) (a) a fetter on a right to serve notice to determine a periodic tenancy was ineffective if the fetter is to endure for an uncertain period, but (b) a fetter for a specified period could be valid."

28. The reservations of the Supreme Court about the uncertainty rule in Mexfield were powerfully expressed. As Baroness Hale of Richmond JSC put it when explaining the rule which she later described as having an "Alice in Wonderland quality":-

"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."

29. The Supreme Court declined to jettison the rule for the six reasons which appear in the judgment of Lord Neuberger at [35]-[37], none of which included enthusiasm for the rule. It is, in my judgment, appropriate to apply the rule in the form which the Supreme Court stated and decided not to jettison. No encouragement for any extension to the scope of the rule can be found in Mexfield. It is for this reason that I have set out the formulations of the rule as given by Lord Neuberger and Lady Hale. The rule which was preserved was a rule which holds that a tenancy is invalid for uncertainty if it prevents a party from determining it except if an event occurs which may never happen.
30. The answer to Ms. Bretherton's submission is that this tenancy as granted by the plain words of the agreement does not offend against the rule against uncertainty as I have just expressed it. This tenancy agreement created a term which is neither simply a fixed term nor a periodic tenancy, nor one followed by the other. It is a term which has the characteristics of a fixed term followed by a periodic tenancy. Fixed terms and periodic tenancies are both capable of being created under the Law of Property Act 1925 and are not void for uncertainty at common law. Why should a term become uncertain because it is comprised of two successive periods of time each of which is sufficiently certain for the purposes of the relevant rule? There is no prospect of the term being perpetual because its termination depends on an event which may never happen. Alternative constructions would be that (1) the agreement creates a monthly tenancy with a fetter on the giving of notice in the first 6 months, or (2) the agreement creates two tenancies a fixed term followed by a periodic tenancy. If those are not bad for uncertainty I do not see why the formulation used in the agreement should be. All three formulations have the same practical effect and legal consequences so far as the termination of the tenant's holding is concerned. There is no basis for finding that one is repugnant and the other two not. They are all equally uncertain or, to put it another way, equally certain. For this reason I reject the appellant'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.
31. For these reasons I dismiss the appeal against the Valuation Tribunal's decisions.