Summary: Mrs X complains the Council did not properly consider information she said proved she had a tenant occupying her business premises. She said this meant she was unfairly billed for business rates. She feels the Council racially discriminated against her. The Ombudsman does not find the Council at fault.

The complaint

1. Mrs X says the Council did not properly consider the information she provided in support of her claim to have a tenant for business premises she owned. She says the Council wrongly took her to court for not paying business rates on an unoccupied property. She says the Council racially discriminated against her.

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The Ombudsman’s role and powers

2. We investigate complaints of injustice caused by ‘maladministration’ and ‘service failure’. I have used the word ‘fault’ to refer to these. We cannot question whether a council’s decision is right or wrong simply because the complainant disagrees with it. We must consider whether there was fault in the way the decision was reached. (Local Government Act 1974, section 34(3), as amended)
3. If we are satisfied with a council’s actions or proposed actions, we can complete our investigation and issue a decision statement. (Local Government Act 1974, section 30(1B) and 34H(i), as amended)

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How I considered this complaint

4. I spoke with Mr X, who represents Mrs X. I made enquiries of the Council and researched the relevant law and guidance.
5. Both the Council and the complainant were given the opportunity to comment on the draft decision. What I found

Relevant law and guidance

Business rates

6. Business rates are charged on most non-domestic properties such as shops, offices, pubs and warehouses. They are the way in which businesses contribute to the cost of local services.
7. There are three categories of ratepayer; occupiers, owners and (one we need not concern ourselves with here), persons named in central rating lists.
8. Under section 43 of the Local Government Finance Act 1988 (LGFA 1988), liability for business rates in respect of a property falls on the person who is in occupation of the property. The occupier is ‘rateable’.
9. But where a property is unoccupied, liability falls instead on the owner of the property under LGFA 1988, s 45. The owner is ‘rateable’.
10. In law, the owner is the person who is ‘entitled to possession’ of the property (or ‘hereditament’, which is the term used in the relevant legislation).
11. If the property is tenanted, the tenant is considered to be the person entitled to possession and the tenant therefore becomes ‘rateable’. The tenant will be liable to pay business rates.
12. It is therefore very important to determine clearly who is entitled to possession, to determine who, if anyone is liable for business rates.
13. There is no statutory definition of occupation, but case law has set out some guidance which councils use to determine if a property is in occupation or not:

• There must be actual occupation. This involves acts of use. A mere intention to use the land is not enough.
• The occupation must be exclusive to the occupier
• There must be some benefit to the occupier, and
• The possession must not be too transient - occupation must be sufficiently permanent

(John Laing & Son Ltd v Kingswood Area Assessment Committee (1949) and London County Council v Wilkins (1956).

14. A council has to decide, if on the balance of probability, the four elements are satisfied so as to give rise to an occupied charge. Once that is established, business rates are due from the occupier or tenant.
15. However, there are certain circumstances when full rates may not be payable. One of those is where the occupier qualifies for small business rate relief. Full relief is available on properties with a rateable value of £12,000 or less.
16. In order to determine if a business is able to claim rate relief, the council has to first decide whether it considers that that small business is in occupation. If it is not in occupation, rates will fall to be liable to be paid by the owner of the property.
17. Schemes have been utilised over a number of years to avoid liability for rates of unoccupied properties. Sometimes a property owner can grant a lease to an inactive company, which is controlled by it and has been established for the sole purpose of holding the property. By granting such a lease, the property owner claims to no longer be the person entitled to possession of the property and therefore no longer liable for business rates.

Council policy on business rates

18. The Council follows a policy called the Non-Domestic Rates Administration and Collection Policy, August 2018.
19. It says that, if a landlord wants to notify the Council of a new tenant, the Council will require a copy of a tenancy agreement/lease, as a minimum, before any changes to an account will be considered. It says that more information may be needed following the receipt of these documents.
20. The policy says that, when considering if a ratepayer is entitled to a small business rate relief, the Council may require further information. It says that, if it requests information in support of an application, it will not consider the application until it receives it.
21. The Council says that when it has concerns that some form of rates avoidance is being operated or attempted, it reserves the right to exercise scrutiny of representations and documentation put forward.
22. It says the provision of a signed lease may not in itself be sufficient to establish non-liability for non-domestic rates. It relies on the case of Pall Mall Investments Ltd v London Borough of Camden (2013). (The Council, in its response, referred to the case of Pall Mall Investments v Westminster City Council), but I believe this was a mistake.)
23. The case says, among other things, that once a billing authority has made a determination in respect of liability, the burden of proof rests with the respondent to show why they are not liable.
24. The Council says it assesses each case on its own facts and it may request documentation in support. It says that ultimately, in the event of a dispute over who the liable party is, the court should decide.
25. If the Council decides a bill is due and owing and there has been no agreement over payment, it will seek a liability order through the Magistrates Court.

Background facts

26. Mrs X is the complainant. She and her daughter Miss X, own Premises 1. The Council considered, as the person entitled to possession of the property, Mrs X was liable to pay full business rates for a non-occupied property.
27. Mrs X’s husband, Mr X, acts on her behalf in this complaint.
28. Mr X is the director of a business (Business 1), which he says operated from Premises 1 from 26 March 2018.
29. On 28 February 2018, Mrs X informed the Council that Business 1 would occupy Premises 1 from 26 March 2018.
30. On 26 March 2018, Business 1 applied to the Council for small business rate relief. The letter and the application for the relief were signed in the name of the business. Mr X told me it was his signature as he is the director of Business 1.
31. On the same date, Mrs X again told the Council that Business 1 was being operated from Premises 1. In her letter, she asked that anyone contacting her should ask for Mr X.
32. The records show that the Council officer, Officer 1, who received Business 1’s relief application, had concerns. He said Mrs X had applied for relief but as she is not the director of Business 1, she could not do so.
33. He asked Mrs X for a copy of the lease between Mrs X and Business 1 and proof of rent payments.
34. On 4 April 2018 Mrs X responded to Officer 1’s email. She said:

• It was not correct that all the documents were signed by Mrs X. She said she signed the form informing the Council she had a new tenant (Business 1) but Business 1 made the application for small business rate relief.
• She provided a rent receipt purporting to show that Business 1 paid £12 for a year’s rental of Premises 1.

35. She also said she provided a copy of the lease. I have not seen a copy of the lease but Officer 1 recorded that a lease document had been provided.
36. However, Officer 1 noted that he was unsure if Mr X was trying to use rate avoidance tactics as he owns Business 1.
37. Officer 1 visited Premises 1 on 11 April 2018. He decided that Premises 1 was unoccupied. He emailed Mr X, asking him to provide other supporting evidence. He asked him to provide:

• A copy of his utility bill showing the closure of electricity/gas liability; and
• Insurance documents which ceased when the tenancy began.

38. He referred Mr X to the case of Pall Mall Investments v Camden, (see paragraphs 22-24 above), which he said states that a lease by itself is not sufficient to prove occupancy.
39. On 13 April 2018 Mr X responded. He asked for the Council’s visiting officer to contact him to arrange a visit and said he could prove Premises 1 was occupied.
40. On 21 May 2018 the Council wrote to Mr X, saying it had still not received the documents requested.
41. On 24 May 2018 Mrs X responded. She said she attached:

• A copy of the new tenant opening meter reading (This showed a handwritten note that a new tenant had a meter reading of 276187 on 26 March 2018).
• An electric bill to Business 1 for Premises 1 in April 2018 (This showed a reading of 276187 had been completed on 30 April 2018).
• A copy of a rent receipt (This showed a payment of £12 for the year).
• A copy of page 2 of insurance document for the tenant. (It said the start date for insurance cover for Business 1 (and Mrs X) was 12 April 2018. It had a balance of zero).

42. The Council thanked Mrs X for providing the above. However, it maintained the evidence was not sufficient. It asked:

• Mrs X to provide the full copy of the insurance document.
• To explain why the insurance document had a balance of zero and was in both Business 1’s name and her name.
• To explain why the insurance start date was 12 April 2018 when occupancy had apparently been from 26 March 2018.
• Mrs X to provide her bank statement showing receipt of payment for the utilities that she charged Business 1.

43. On 4 June 2018 the Council wrote to Mr X. It said he had not answered the above questions.
44. Mr X replied providing the full insurance document. He said:

• The insurance agent must have forgotten to insert the premium amount and the insurance agent must have added Mrs X’s name to the document.
• Business 1 ‘took his time’ setting up the policy. He attached a copy of the paid invoice for utilities. (The payment was shown to be made on the same date the Council asked for a statement showing payment had been made.)

45. He said he would like to lodge a complaint against the Council for harassment. He said the Council’s approach was racially motivated.
46. The Council decided Mrs X was still liable for business rates. Mrs X wrote to the Council on 22 June 2018. She disputed this. She said she had provided all the relevant documentation to prove Business 1 occupied Premises 1. She wrote to the Council saying the same again on 25 June 2018. She also said she felt she was being harassed.
47. Mrs and Miss X were summonsed to court for the hearing of the Council’s application for a liability order. They wrote to the court and argued they had given all the relevant information to the Council. They said Mr X would represent them in their case as Mr X dealt with the tenant for them.
48. On 3 July 2018 the Council withdrew the summons. It said it was to provide time for Mr X to send the Council the information it had requested.
49. On 13 July 2018 Officer 1 met with Mr X at Premises 1. From his visit to the property he recorded:

• The property had the name of, Business 1, written on a sign at the top of the unit.
• The property looked like it had been abandoned by the previous occupiers. There were boxes on the floor and no obvious stock for Business 1.
• The previous occupier’s insurance certificates and documents were displayed.
• Mr X did not appear to know how to turn on the light switch in the room he called his office.
• The previous occupier’s van was parked outside. Mr X said he had taken the van as the previous occupier owed him money.

50. Officer 1 says he took photographs during his visit but they did not save on his phone. When he returned from the visit, another officer emailed Mr X, asking him why the only items seen at Premises 1 were left over from the previous tenant. He noted there was no stock for Business 1.
51. Mr X responded. He said there was nothing in the legislation that said the previous insurance certificates could not be on display. He said the property was used to store wholesale goods, although did not say why there were no wholesale goods there at the time of the visit. He said the Council could not say whether the goods present at the time of the visit were his or the previous occupiers but claimed that, in any case, the liquidator had disposed of the previous occupier’s goods.
52. Mr X said the Council’s actions were racially motivated. He said he wanted the matter to go to court so a Judge could decide on the matter.
53. The Council responded. It asked for the cover page of the insurance document to ascertain who the document was sent to.
54. It said it was sorry Mr X felt he was being harassed but said it was only trying to clarify who was in occupation at Premises 1. It pointed out that, in a previous inspection, the property had appeared to be empty.
55. Mr X replied, saying the insurance document had been emailed to the tenant and therefore he did not have a copy of it. He said the Council was harassing him because of his race.
56. A different officer replied to Mr X saying the Council was, “…quite right to request full documentation when assessing evidence.”
57. The officer referred Mr X to the case cited above. He said the burden of proof lies with the liable party to prove the validity of a tenancy and failure to prove that validity would result in the landlord being held liable for rates.
58. The officer asked Mr X if he was the director of Business 1.
59. There is no record of Mr X answering that question. But he asked for a copy of the caselaw the Council relied on. He asked why the Council had the authority to follow that caselaw and asked for any Government guidance that sets out the procedure that should be followed when a new tenant occupies a property.
60. Mr X complained to the Council. At stage one and two, the Council responded saying Mr X had not provided any evidence of rent, utilities or insurance documents.
61. After Mr X came to the Ombudsman, the Council wrote to Mr X again. It apologised for not properly answering his complaint previously. It explained in detail why it felt its approach had been reasonable, providing Mr X with extracts from the above cited caselaw and an explanation as to why it felt it was right in law to proceed in the way it had.

Analysis

62. The Council was wrong, in complaint correspondence, to say Mr X had provided no evidence to show that Business 1 was Mrs X’s tenant. However, in correspondence prior to reaching the complaint stage, the Council accepted Mr X and Mrs X had provided documentation. The issue was whether it considered that documentation proved Business 1 was Mrs X’s tenant. So, I do not consider its a finding of fault is warranted. It did not cause Mr X an injustice. Further, the Council has since addressed its poor complaint response by providing a detailed letter explaining its approach.
63. The Council was not at fault for investigating the claims Mrs X and Mr X made about Business 1 being Mrs X’s tenant. The Council has a duty to the public purse to ensure that rate relief for small businesses is only granted to those operating as small businesses.
64. Mrs X did not consider she was liable for business rates as she had a lease from Business 1, who was, she said, in occupation. Business 1 did not consider it should pay business rates as it claimed to be in occupation as a small business. It was reasonable of the Council to ask questions and demand sufficient supporting evidence to be satisfied this was the case.
65. The evidence Mr and Mrs X produced gave the Council cause for concerns and this was understandable.
66. Mr X did not provide the cover page of the insurance document the Council asked for. It was reasonable for the Council to ask for this as the insurance document provided was also in Mrs X’s name. The Council needed clarity on who had taken out the insurance. Mr X claimed he could not provide this because it had been emailed to the tenant. However, Mr X was the tenant. When Mr X was questioned about whether he was the tenant or not he did not answer. When speaking to the Ombudsman he confirmed he was. He should therefore have been able to provide the document the Council asked for.
67. Mr X said that Business 1 paid Mrs X for utilities but only provided evidence of any payment after the Council asked for it. The evidence of payment that Business 1 provided showed payment made on the day the Council asked for evidence.
68. Mr X said Business 1 only paid Mrs X £12 a year for rent. This is a very low sum and it was reasonable for the Council to make further enquiries into the business arrangements of Mr and Mrs X and to investigate if they had so arranged their affairs in such a way as to avoid paying taxes.
69. Mr X provided the Council with a copy of a lease. However, the Council explained that this is not by itself enough evidence of occupation, which is the question the Council had to decide.
70. When the Council visited Premises 1 there was little evidence that Business 1 was in occupation and trading as a small business from that site. It had information that this was not the case and the Council considered Mr X did not produce sufficient evidence to refute that.
71. There is no evidence the Council’s enquiries were racially motivated, they were reasonable enquiries.
72. The Council has said that if Mr X can provide the required information, an agreement can be reached. If not, the matter will proceed to court and the magistrates will be asked to make a determination on rateable occupation based on the evidence presented.

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Final decision

73. I have not found the Council at fault. I have now completed my investigation.

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Investigator's decision on behalf of the Ombudsman