Councils often ask us whether there are any restrictions on their ability to issue rates demands retrospectively.

The ratepayer’s obligation to discharge their liability for non-domestic rates only arises after service of a demand notice. The key provision in the Non-Domestic Rating (Collection and Enforcement) (Local Lists) Regulations 1989 is Regulation 5, which requires demand notices to be served “on or as soon as practicable after” 1 April in the relevant year.

Encon

The issue of back-dated rates bills was considered in the case of Encon Insulation (Nottingham) Limited v Nottingham City Council [1999] R.A. 382. In that case, Encon occupied a building which, although it appeared in the rating list, was not immediately identified by the Council. The Council had sent an inspector, but they had been unable to physically locate the premises. As such, no rates bills were delivered. Some nine years later, the Council discovered the property, and demands were then delivered covering the entire period of occupation.

Encon disputed the liability on the basis that the Council had not sent the demands “as soon as practicable” as required by the regulations. The Court found in favour of Encon, holding that the Council could, and should have, carried out further searches to locate the premises earlier.

As it was practicable for the Council to have taken such steps earlier, the Court found that the obligation to issue the demands arose not when the discovery was actually made, but as soon as practicable after the discovery should have been made.

Honda

The High Court again considered this issue in North Somerset District Council v Honda Motor Europe Ltd, Chevrolet UK Ltd., Martin Graham [2010] EWHC 1505 (QB); [2010] R.A. 285. This case arose following a breakdown in the Council’s property inspection system, which meant the Council had not identified the occupiers and had not issued bills for between two and five years for each of the respondents.

The High Court followed the approach of Encon, in so far as the Court rejected the Council’s contention that the correct approach was to ask whether the notice was served as soon as was practicable after they in fact became aware of the correct identity of the owner or occupier of the hereditament in question, irrespective of whether it was practicable for them to have done so earlier.

However, the Court clarified a number of issues, considerably softening the strict approach indicated by Encon. The Court found that:

: The obligation under Regulation 5 of the 1989 Regulations to serve a demand notice as soon as practicable is not mandatory, and a delay in doing so will not automatically invalidate the demand; and

: In order to challenge a demand notice served late, the recipient of the demand must show that they have suffered substantial prejudice.

The Court found that the correct approach is to consider the length of delay and the impact of that delay upon the ratepayer, in the context of the public interest in collecting outstanding rates. The greater the prejudice to the ratepayer flowing from the delay, the more likely it will be that the demand will be found to be invalid.

The Judge noted that prejudice may flow to business ratepayers in any number of ways as a result of a late notice to pay rates, but that prejudice is different from inconvenience. The prejudice relied upon must be real, substantial, and certainly not technical or contrived. The Judge noted that a late demand may well actually improve a rate payer’s cash flow by enabling them to either delay the payment of interest on borrowed monies, or earn interest on monies put aside for the purpose of paying rates.

The question of prejudice needed to be balanced against the countervailing public interest is in the collection of taxes, the interests of other tax payers and the revenues of the local authority concerned.

The Court did not specifically find that it was a requirement of establishing prejudice that the ratepayer did not know of their potential liability. However, the Court did accept that all of the ratepayers in that case were in fact genuinely unaware of their potential liability.

Avoidance Cases

Neither of the above cases involved a situation where a landlord has, for example, claimed that a property is tenanted in circumstances where there is no supporting evidence to indicate any actual occupation by anyone other than the landlord. Should any party claim to have been prejudiced by late service of a demand, the onus will be on them to evidence this. Where a landlord is aware of their potential liability for rates, but takes steps to avoid these liabilities (or simply puts its head in the sand) it will be difficult for them to establish that they have suffered substantial prejudice as a result of late service of a demand.

Councils should not therefore be constrained from issuing back-dated rates bills, particularly where the evidence indicates that the bill payer has been aware of their potential liability throughout the period.