Typical Scenario

When the council is notified that a company has gone into administration, it is relatively common for NNDR bills relating to a leasehold interest to be re-addressed to the administrators. The matter then rolls on for another year or two, the council accepting that the administrator is not liable for the rates.

In the meantime the company is placed into liquidation at some point and the leasehold interest disclaimed by the liquidator.

If the council is notified of the disclaimer at a later stage, the landlord of the property is then re-billed for the empty rates from the date of the disclaimer.

However, if the gap between the actual disclaimer and the council being notified of it happens to be longer than say two years, an argument about delay and prejudice can be expected from the landlord or their property agent. The Encon case is frequently rolled out as a blanket defence to any bills that happen to be raised outside the rateable years in question.

Some Tips

The first tip is that prevention is better than cure. It is good policy to check the position with the administrators every six months to ensure that the council is up-to-date.

Otherwise, it must be remembered that Encon is not an absolute defence. The Encon case considered a matter where there had been a delay of up to nine years in re-billing.

The more recent decision in North Somerset DC v Honda provided that not only must the debtor show delay but also prejudice caused to them.

In most of these cases it is likely that the landlord knew about their potential liability and did nothing about it. Any argument in this regard ought to be more difficult to raise where that landlord has been professionally advised by property agents.

Consideration therefore ought to be given not only to the time period involved in the delay, but the landlord invited to provide evidence of any prejudice caused. Indeed in some cases it is possible to argue that where the landlord was aware of the potential liability it was in fact a benefit for them not to have to pay it for a period of time, they having had the benefit of those funds.

One final point, remember it is a requirement in the Insolvency Rules that the disclaimer is validly served by the liquidator on the parties concerned, including the landlord and so the liquidator ought to be invited to provide proof of this in order to further protect the council’s position.