Time is money

Local authorities should beware – a failure to demand business rates will preclude subsequent recovery of rates if it would cause the ratepayer prejudice, warns Robert Fookes.

The recent High Court decision in North Somerset District Council v Honda, Chevrolet and Graham [2010] EWHC 1505 (QB); [2010] R.A. 285 has confirmed that ratepayers do not automatically have to pay a late demand for business rates, particularly if steps could have been taken to avoid or fund the payment had it been sought promptly.

The issue

Can non-domestic (“business”) rates be demanded retrospectively and not as soon as practicable?

The law

Liability to pay rates arises under section 43 of the Local Government Finance Act 1988. A ratepayer is subject to a non-domestic rate in respect of a chargeable financial year if, on the chargeable day:

• the ratepayer is in occupation of all or part of the hereditament, and
• the hereditament is shown for that day in a local non-domestic rating list in force for the year.

Obligation on the ratepayer to discharge that liability and to pay rates only arises after service of a demand notice. Regulation 4 of the Non-Domestic Rating (Collection and Enforcement) (Local Lists) Regulations 19891 requires that a demand notice be served for each chargeable year. Regulation 5 requires the demand notice to be served “on or as soon as practicable after” 1 April in the relevant chargeable financial year.

The legal issue

Questions of late demands arising from late identification of a ratepayer first arose in Encon Insulation (Nottingham) Limited v Nottingham City Council [1999] R.A. 382. Deputy Judge David Pannick QC decided that liability depended upon:

1. not whether the billing authority was unaware of the facts (location of premises) prior to the date of discovering the true facts and therefore that it was not feasible physically to serve a demand notice before that discovery (i.e. not as soon as practicable after discovery of the correct information);
2. but whether it was practicable for the billing authority to have taken steps to obtain that information and make that discovery at an earlier date and therefore whether the billing authority would have been able physically to have served the demand at an earlier date (i.e. as soon as practicable after the discovery should have been made).

In Encon, the occupation commenced in 1988 but the discovery of that rateable occupation was not made until 7 November 1997. A demand was issued on 14 November 1997. The billing authority had sent, on one (undated) occasion, an outside inspector who had been unable to locate the premises (wrongly described) on the valuation list. There was no finding as to the length of delay between this visit and the subsequent discovery of the premises and their true address, nor as to how that discovery had been made. The Court found that the question was not when the discovery was made but what could earlier have been discovered by taking practicable steps. Confusion had arisen because the name of the hereditament had changed.

This approach has not been altered by the recent decision in North Somerset District Council v Honda Motor Europe Ltd, Chevrolet UK Ltd., Martin Graham [2010] EWHC 1505 (QB); [2010] R.A. 285, Burnett J stating: “I have rejected the Council's contention that the correct approach is 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.”

“Prejudice”

The North Somerset case considered the correct test to be applied to delay in serving a demand notice in great detail. The High Court:

• rejected the interpretation of Regulation 5 of the 1989 Regulations that the obligation to serve a demand notice as soon as is practicable is mandatory or that automatic invalidity would arise in cases of delay (implicit but not argued in Encon);
• rejected the argument that the recipient must demonstrate that it would be unconscionable for the Billing Authority to recover rates;
• found that the recipient must show that he has suffered prejudice.

The judge did not specifically find that it was requirement of establishing prejudice that the ratepayer did not know of his potential liability. He merely observed that none of the ratepayers did know, although they each had rating advisors. Nevertheless, it was a factor in the balance of prejudice between different ratepayers during the relevant period of delay. The fairness to other ratepayers must be weighed against any unfairness to the ratepayer in question. It was important in the North Somerset case that none of the ratepayers knew that they were liable to pay rates on the relevant dates. The greater the period of delay and the greater the impact of that delay on the ratepayer, the more likely it becomes that Parliament intended invalidity to flow in such circumstances.

Rectification

The error of a late demand cannot be corrected by subsequent service of a fresh but retrospective further demand.

Robert Fookes is a barrister at Francis Taylor Building. He can be contacted by email at This email address is being protected from spambots. You need JavaScript enabled to view it.. This article was first published in the FTB Local Government Newsletter. The newsletter contains short and practically focussed items sent quarterly by e-mail to busy local authority practitioners and is written by FTB’s specialist local government team. To subscribe to the FTB Newsletter, please e-mail This email address is being protected from spambots. You need JavaScript enabled to view it..