Pursuer: Garioch, solicitor advocate; Morisons LLP

Defender: Stuart Q.C., Dunlop; Ledingham Chalmers LLP

31 August 2012

[1] This action raises the question whether a rating authority is entitled to levy non-domestic rates on the owner of a newly erected and unoccupied building without first having served on him a completion notice under schedule 3 to the Local Government (Scotland) Act 1966 ("the 1966 Act").

The undisputed facts
[2] The pursuers are part of the same group of companies. The first pursuer ("CB") is entitled to possess offices at Unit B, Innovation Park, 13 Melford Road, Righead Industrial Estate, Bellshill ("the office"). The second pursuer ("AIJ") has paid rates and penalties for late payment in relation to the office which was constructed between 2005 and 2006.

[3] The Assessor for Lanarkshire entered the premises in the valuation roll as an unoccupied office with effect from 1 December 2006 with a rateable value of £330,000 because the assessor's staff were satisfied that the office was complete and capable of beneficial occupation. The assessor sent a valuation notice dated 7 December 2006 to CB although the pursuers do not admit receipt of that notice. But the pursuers do not dispute that the office was complete at the time. D M Hall as their agents claimed empty property relief which the rating authority (NLC) granted with effect from 17 February 2007. Thereafter the office remained unoccupied until 5 January 2011. The pursuers did not appeal the entry in the valuation roll or the demands for rates over the following years.

[4] The pursuers now contend that the demands for rates were illegal because NLC had not served a completion notice on them in order to establish a deemed date of completion of the newly constructed but unoccupied office. They seek repayment of £289,329.50 on ground of unjustified enrichment because NLC had wrongfully charged rates and penalties in the five rating years from 2006/2007 to and including 2010/2011 while the office was unoccupied and AIJ had paid the rates in error.

The statutory provisions
[5] S. 1 of the Local Government (Scotland) Act 1975 ("the 1975 Act") provides:

"(1) The assessor for each valuation area shall, in respect of each year of revaluation, make up a valuation roll in the prescribed form which shall come into force on the first day of the year of revaluation. ...

The assessor must also alter the roll by entering any lands and heritages which have come into existence or occupancy since the roll was made up (s.2(1)(b)). The rating authority is required to levy rates by s. 7(1) of the 1975 Act which provides:

"Subject to the provisions of any other enactment, every rate levied by a rating authority for any year shall be levied in respect of all lands and heritages within the area to which the rate relates according to the rateable value of the lands and heritages as appearing in the valuation roll in force at the beginning of the year in respect of which the rate is levied:

Provided that where during any year the valuation roll has been altered under section 2 of this Act by inserting a new entry therein or altering an existing entry, the rate levied for the year or the part of the year after such alteration takes effect shall be according to the rateable value of the lands and heritages concerned as appearing in such new or altered entry."

To achieve that end the rating authority makes up and maintains an assessment roll

under s.233 of the Local Government (Scotland) Act 1947 ("the 1947 Act").

[6] S. 24(1) of the Local Government (Scotland) Act 1966 ("the 1966 Act") sets out the general rule that no rates are payable in respect of lands and heritages which are unoccupied. But that rule is subject to s. 24(2) of the 1966 Act which provides:

"The Secretary of State may by regulations prescribe a class or classes of lands and heritages such as are mentioned in subsection (1) above for which the rates payable shall be the rates mentioned in subsection (3) below."

[7] The Secretary of State prescribed the classes broadly in the Non-Domestic Rating (Unoccupied Property) (Scotland) Regulations 1994 ("the 1994 Regulations"),

Regulation 2 of which provides:

"The class of lands and heritages prescribed under section 24(2) of the 1966 Act is all relevant lands and heritages (other than lands and heritages to which any of the conditions specified in Parts 1 and 2 of the Schedule to these Regulations applies) which have been unoccupied for a continuous period of more than 3 months."

[8] S. 24(3) of the 1966 Act provides that the rate to be charged on unoccupied premises is one half of the amount of the non-domestic rate which would have been payable had the premises been occupied.

[9] The issue arises in this case because in s. 25 of and Schedule 3 to the 1966 Act Parliament enacted a regime for newly erected buildings. S. 25 provides:

"The provisions of Schedule 3 to this Act shall have effect, for the purposes of section 24 of this Act, with respect to the treatment of newly erected and altered buildings and the other matters there mentioned."

Paragraphs 2 and 3 of Schedule 3 to the 1966 Act provide:

"2. For the purposes of section 24 of this Act, a newly erected building, which is not occupied on the date determined under the following provisions of this Schedule as the date on which the erection of the building is completed shall be deemed to become unoccupied on that date.

3. (1) Where a rating authority is of opinion -

(a) that the erection of a building within their area has been completed; or

(b) that the work remaining to be done on a building within their area is such that the erection of the building can reasonably be expected to be completed within three months,

the authority may serve on the owner of the building a notice (in this Schedule referred to as "a completion notice") stating that the erection of the building is to be treated for the purposes of this Schedule as completed on the date of service of the notice or on such later date as may be specified by the notice; and the authority shall along with the completion notice send to the owner a notice of his right of appeal by virtue of sub-paragraph (4) below."

[10] Schedule 3 to the 1966 Act allows the owner on whom a completion notice is served to agree in writing with the rating authority a date when the building is to be treated as completed (para 3(3)) and also gives the owner a right to appeal to the sheriff against the completion notice (para 3(4)).

Discussion
[11] This case raises a question of the correct interpretation of the provisions of the 1966 Act which I have quoted. Parliament in s. 24 of the 1966 Act and in the 1994 Regulations required the levying of rates on all relevant buildings which have been unoccupied for a continuous period of more than three months. In order to be classified as unoccupied for rating purposes a newly erected building must be complete in the sense that it is capable of occupation. The date of completion of a building is a question of fact and is one which the rating authority and the owner can agree upon or contest in litigation. There is sufficient in s. 24 and the 1994 Regulations to have an operable regime for the levying of rates on newly constructed but unoccupied buildings.

[12] In my view s. 25 of and Schedule 3 to the 1966 Act provide an additional mechanism by which a rating authority can establish an undisputed deemed date of completion by serving a completion notice. But I do not detect in the statutory language any intention to make those provisions the exclusive way in which the rating authority and the owner can establish the date of completion of the building. Rather s. 25 and Schedule 3 provide a deeming mechanism which may avoid the need for a declaratory action in the event of dispute. Further, I see no good policy reason for an interpretation which would make the completion notice procedure the only means by which a rating authority could bring into existence a liability for non-domestic rates on a newly built but unoccupied building.

[13] The pursuers found on dicta of eminent English judges in cases which were concerned with parallel legislation in England and Wales, namely the General Rating Act 1967 ("the 1967 Act"). In particular they rely on the decision of Bridge J (later Lord Bridge of Harwich) in Watford Borough Council v Parcourt Property Investment Co Ltd [1971] 17 RRC 19, in which he held that the rating authority had to follow the completion notice procedure before a new building could be rated under s. 17 of and Schedule 1 to the 1967 Act. Sir Douglas Frank QC sitting as a Deputy High Court Judge followed that decision in Drake Investments Ltd v Lewisham London Borough Council [1984] 269 EG 135, and expressed the view that the contrary position was "really beyond argument". In Ravenseft Properties Ltd v Newham London Borough Council [1976] 1 QB 464 the Court of Appeal and the House of Lords in London Merchant Securities plc v Islington London Borough Council [1988] 1 AC 303 commented on the Watford case with apparent approval.

[14] Mr Garioch submitted that this clear authority supported the pursuers' contention that the only route to the rating of a newly built but unoccupied building was the completion notice procedure of Schedule 3 to the 1966 Act. I am however satisfied that the English case law is not a good guide to the interpretation of the Scottish provisions. I have two reasons for this conclusion.

[15] First, the wording of the 1967 Act was not the same as the Scottish legislation. There are admittedly strong similarities between paras 7-10 of Schedule 1 to the 1967 Act and Schedule 3 to the 1966 Act. But para 1 of Schedule 1 to the 1967 Act differed from s. 25 of the 1966 Act and was more peremptory in its wording. It provided:

"Where, in the case of any rating area in which ... this Schedule is in operation, any relevant hereditament in that area is unoccupied for a continuous period exceeding three months, the owner shall, subject to the provisions of this Schedule, be rated in respect of that hereditament for any relevant period of vacancy; and the provisions of this Act shall apply accordingly as if the hereditament were occupied during that relevant period of vacancy by the owner." (my emphasis)

To my mind this provision, which was the gateway to the rating of unoccupied premises, clearly lent itself to the interpretation which Bridge J adopted in the Watford case. The Scottish provisions, by contrast, set up the rating of unoccupied premises in s. 24 of the 1966 Act and the 1994 Regulations; and s. 25 provided the deeming mechanism as an adjunct.

[16] Secondly, as Mr Stuart pointed out, Parliament repealed the 1967 Act in England and Wales and replaced it with the Local Government Finance Act 1988 ("the 1988 Act"). Ss. 45 and 46A of and Schedule 4A to the 1988 Act contain provisions similar to the Scottish legislation. Recent case law suggests that under this regime the completion notice procedure is not a pre-condition of the creation of a liability to rates. Thus s. 45(1) provides that a ratepayer shall be subject to a non-domestic rate if the hereditament falls within a class prescribed in regulations by the Secretary of State. This resembles s. 24 of the 1966 Act. Another means is the entry of the hereditament in a local non-domestic rating list. S. 46A, which resembles s. 25 of the Scottish legislation, provides that Schedule 4A shall have effect and that schedule provides a completion notice mechanism.

[17] In Prudential Assurance Co Ltd v A Valuation Officer [2011] RA 490 the Valuation Tribunal for England expressed the obiter view that the completion notice procedure was not a precondition of liability to rates and that an agreement between the parties as to the completion date was binding without a prior valid completion notice. In Porter (Valuation Officer) v Trustees of Gladman SIPPS [2011] RA 337 the Upper Tribunal (Lands Chamber) considered a case where the valuation officer had entered properties in the rating list before they were completed and without having served a completion notice. It held that entry of the properties on the list did not create a liability to rates because at the time they were not ready for occupation. The Tribunal proceeded on the basis that, if the buildings had been complete, inclusion in the rating list would have been sufficient to impose liability to rates without the service of a completion notice. In RGM Properties Ltd v Speight [2012] RA 21, a case about Council Tax under s. 17 of the Local Government Finance Act 1992 and Schedule 4A to the 1988 Act, Langstaff J held that it was not a necessary pre-condition for entry of a new dwelling on the valuation list that the billing authority should first have served a completion notice.

[18] Mr Garioch sought to distinguish those cases because para 1 of Schedule 4A to the 1988 Act obliges the billing authority to serve a completion notice if it has notice that a building could reasonably be completed within three months (para 1(1)) while it gives the authority discretion to serve a completion notice where a new building in its area has been completed (para 1(2)). I am not persuaded that that difference is significant or that it is a basis for distinguishing the cases. To my mind what is significant is that s. 45 of the 1988 Act created various options by which liability for rates could be created without requiring service of a completion notice. That regime is a closer analogy to s. 24(2) of the 1966 Act and the 1994 Regulations than the 1967 Act had been.

[19] I therefore conclude that the pursuers' case is irrelevant.

[20] If I had concluded that the service of a completion notice under s. 25 of Schedule 3 to the 1966 Act was a necessary precondition, I would have rejected NLC's submission that s. 7 of the 1975 Act provided a basis for the levying of rates which bypassed that requirement. This is because s 7 of the 1975 Act is stated to be "subject to the provisions of any other enactment".

Challenges to the competency of this action
[21] Mr Stuart also submitted that the action was incompetent because AIJ had failed to appeal either the entry of the subjects on the valuation roll (under s. 3(2) of the 1975 Act) or the demands for rates (under s. 238 of the 1947 Act). He submitted that the pursuers, having failed to use their statutory remedies, were barred from pursuing this common law claim. There was however a dispute of fact whether either of the pursuers had received the valuation notice dated 7 December 2006. Mr Garioch also attacked as non-compliant with the requirements of ss. 237(2) and 238(2) of the 1947 Act the leaflet which NLC said it attached to its demand notices and explained that the pursuers did not accept that they had received the leaflet. I would have to resolve disputed issues of fact about the receipt of documents before I could decide the issue of competency. But I do not need to do so because of my decision on the relevancy plea.

[22] At the hearing I raised two further issues of competency, namely (i) whether the action was properly raised as a commercial action and (ii) whether the pursuers should have mounted their challenge to the legality of the charging of rates as a judicial review application. Counsel, who had not addressed those issues in their preparation, invited me to hold them over and hear the challenge to the relevancy of the pursuers' case. As I have decided the case on the basis of relevancy I do not need to hear further submissions on those challenges.

Conclusion
[23] I have concluded that the action is irrelevant. I therefore sustain the second plea in law for NLC and dismiss the action. I will have the case put out by order to deal with expenses.