Council tax liability and void properties

The problem

Section 4 of the Local Government Finance Act 1992 (“LGF92”) provides that council tax is payable¹ on any dwelling which is not an "exempt dwelling". A dwelling is an "exempt dwelling" if it is “of a class prescribed by an order made by the Secretary of State”² and thereby falls into one of 23 categories provided for by the Order.

Prior to 1 April 2013 one of these exemption categories was Class C and encompassed vacant dwellings which had been empty for less than 6 months.  This enabled housing associations to deal with their void stock in a manner which did not therefore incur any council tax liability because the "turnaround time" in most instances was significantly less than 6 months (for the more major works Class A, described below, was available). That category is no longer available and the charge for council tax is falling in many local authority areas on associations during the void periods between lets.

The legislative development

As a result of the Government’s continuing "localism agenda"³ the Council Tax (Prescribed Classes of Dwellings) (England) (Amendment) Regulations 2012 (“2012 Regulations”), which came into force on 1 April 2013, omitted exemption  Classes A (for a maximum 12 month period, empty homes requiring or undergoing major repair work, or undergoing structural alteration, or having undergone either if less than 6 months had elapsed since the works were substantially completed) and the aforementioned C (empty homes for a six month period or less) from the classes of exemption. 

This move has led to the previously and rarely used⁴ Class B to become more prominent in between-let cases⁵. Class B of the Council Tax (Exempt Dwellings) Order SI No.1992/558 (“the Order”) applies to:

"a dwelling owned by a body established for charitable purposes only, which is unoccupied and has been so for a period of less than 6 months and was last occupied in furtherance of the objects of the charity."

The response of some local authorities has been to reject the landlord’s claim for exemption because even though the first two requirements are generally clear and satisfied by those with charitable/exempt charity status it is said that the landlord has to demonstrate in each case that the relevant property was "last occupied in furtherance of the objects of the charity".

Section 2 of the Charities Act 2011 states⁶:

(1) For the purposes of the law of England and Wales, a charitable purpose is a purpose which—
(a) falls within section 3(1), and
(b) is for the public benefit (see section 4).

3 Descriptions of purposes

(1) A purpose falls within this subsection if it falls within any of the following descriptions of purposes—
…
(j) the relief of those in need because of youth, age, ill-health, disability, financial hardship or other disadvantage…
 (2) In subsection (1)—
…
(e) paragraph (j) includes relief given by the provision of accommodation or care to the persons mentioned in that paragraph…

4 The public benefit requirement

(1) In this Act “the public benefit requirement” means the requirement in section 2(1)(b) that a purpose falling within section 3(1) must be for the public benefit if it is to be a charitable purpose.
(2) In determining whether the public benefit requirement is satisfied in relation to any purpose falling within section 3(1), it is not to be presumed that a purpose of a particular description is for the public benefit⁷.
(3) In this Chapter any reference to the public benefit is a reference to the public benefit as that term is understood for the purposes of the law relating to charities in England and Wales.
(4) Subsection (3) is subject to subsection (2).

It will be apparent from the objects of most associations that they satisfy the (first) test for being a body established for charitable purposes only⁸ and a charity provided for at sections 3 and 4 of the Charities Act 2011 (a fact acknowledged by many local authorities).

The test

Any landlord with "between-let" void properties must therefore now essentially satisfy 3 conditions in order to be exempt from council tax liability (under Class B):

• First, the dwelling must be owned by a body established for charitable purposes only;
• Second, it must be unoccupied and have been so for a period of less than 6 months;
• Third, it must have been last occupied in furtherance of the objects of the charity.

The local authority argument

The fundamental case of many local authorities is that there can be no "blanket" approach taken to the question of whether Class B is satisfied in any particular case and the association concerned has essentially to show on the facts of each case that it is. In short, and in reliance on Helena Partnerships Ltd and another v Commissioners for HMRC [2012] EWCA Civ 569; [2012] 4 All ER 111, it is submitted that the letting of properties for the occupation of tenants generally is not per se a charitable purpose and so the letting itself was not per se in furtherance of the objects of the charity.

The argument against

This approach is however not one that has found favour with many associations.  The "over-reliance" on the Court of Appeal’s decision in Helena Partnerships Ltd as justification for the argument that the letting of properties for the occupation of tenants generally is not per se a charitable purpose is in particular, it is argued, misplaced. For example:

i. That case concerned whether the Revenues and Customs Commissioners had been right to determine that Helena Partnerships had not been established exclusively for charitable purposes between 2001 and 2004 and therefore were liable for corporation tax: at [1-4]. In contrast, in most instances it is apparent that the relevant association has been established exclusively for charitable purposes⁹.

ii. The case is fact sensitive and the objects of Helena Partnerships would not necessarily or at all mirror those of the association facing a council tax bill.

iii. The status of Helena Partnerships was only considered between 2001 and 2004 when it was not a registered charity and therefore the Charities Act was not necessarily applicable. A registered charity is conclusive as to the organisation’s status and the same must apply with equal force to exempt charities.

iv. The wider objects of Helena Partnerships, which allowed the purchase and sale of properties, were of great concern to the Court: at [103]. Conversely, it was not seemingly argued by Helena Partnerships that the provision of housing relieves poverty or assists the “poor”/disadvantaged: section 3(1)(j) of the Charities Act 2011.

v.The objects of Helena Partnerships were "not, on their face, limited to activities consistent only with charitable status": at [104] [105] [111]. Again, as with sub-paragraph i above, the objects of most associations make it clear that theyare limited to charitable objects.

vi. Whilst provision of housing per se was not seen as a charitable object it could be if it had "regard to a relevant charitable need": at [107] [110]. Associations are inevitably utilising the provision of accommodation as part of their core business and in direct furtherance of their (charitable) objects.

Context is everything therefore and there are important additional factors that need to be appreciated in relation to Class B:

(a) It would make little sense to expect a landlord to “track” its tenants’ changing social and financial circumstances to the extent expected by the local authority interpretation, or at all. The practicality of such an exercise, putting aside confidentiality and data protection principles, is almost impossible to contemplate.

(b) For example, if a property is let to a person in real housing need under an assured tenancy¹⁰ there is no legal basis upon which they can be removed if, say, their circumstances significantly improve (there is in any event no indication that “last occupied” in Class B refers to the position at the time of the decanting as opposed to the more obvious circumstances behind its letting).

(c) Ironically in some instances it is the local authorities’ own nomination rights¹¹ (and explicit assessment and identification of need/disadvantage) which ensure that lettings are in furtherance of the landlord’s charitable objects.

(d)The notion that local authority officers should engage in a complicated analysis of charity law is not one that could said to be attractive.

Where are we now?

I am awaiting a decision of a Valuation Tribunal hearing the appeals of two housing associations against the decisions of three local authorities to reject their request for exemption class B status. The issue is tremendously important because though the amounts in issue in the individual cases are invariably small void periods are inevitable and numerous and as such the costs to associations of failed exemption class B "applications" are necessarily more significant.

1. Liability to pay council tax is determined on a daily basis and the hierarchy of liability can be found at section 6 of the Local Government Finance Act 1992 and in essence it is the resident who is liable.  Where the property is unoccupied following the termination of the previous tenancy then there is no resident and liability thereupon falls on the landlord as owner of the dwelling until the relevant property is re-let.

2. Section 4(2) of the Local Government Finance Act 1992

3. Previously, local authorities received full funding from central Government for Council Tax Benefit. From April 2013 this refund was replaced by a grant that is not ring-fenced and accordingly local authorities are free to design a system for how these newly localised council support schemes will be provided.

4. Because Classes A & C were previously available

5. Class C would have been the usual exemption category applied in these circumstances

6. Section 1 says that “(1) For the purposes of the law of England and Wales, “charity” means an institution which—(a) is established for charitable purposes only, and(b) falls to be subject to the control of the High Court in the exercise of its jurisdiction with respect to charities.

7. Ibid at [44] – the Court found that to be a ‘public benefit’ the purpose itself must be such as to be a benefit to the community and must benefit either the public in general or a sufficient section of the public

8. This test is to be determined solely by looking at the constitution: R(Independent Schools Council) v Charity Commission [2012] Ch 214 at [188-9]

9. The charitable purposes being those objects set out in the constitution/objects :Oxfam v Birmingham City District Council[1976] AC 126 at p 148E-F per Lord Morris of Borth-y-Gest.

10. The usual tenancy and in line with regulatory guidance

11. Charity Commission Guidance for charitable registered social landlords says:“nomination agreements with local authorities. Most RSLs have these. They are a convenient way of meeting local housing needs, and the criteria for admission to waiting lists generally fit well with charitable objectives.”