The Ombudsman's final decision
Summary: Ms D complained the Council was at fault when it reviewed a decision that she was not liable to pay business rates on premises she has used since 2019, which meant she could not claim grants to support businesses impacted by COVID-19. We do not find fault in the Council’s decision that a third party was responsible for those business rates.
The complaint
I have called the complainant ‘Ms D’. Since April 2020, the Council has refused to award her business grants under two schemes set up to help businesses with the impact of COVID-19. In October 2021, following an earlier investigation by this office, the Council completed a review of Ms D's liability to pay business rates – as qualification for the grants hinged on Ms D being liable to pay business rates. In its review decision, the Council maintained Ms D was not liable to pay business rates. It is about this review decision that Ms D now complains.
Ms D says this has caused financial hardship to her business, already impacted by the pandemic.
The Ombudsman’s role and powers
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) This complaint involves events that occurred during the COVID-19 pandemic. The Government introduced a range of new and frequently updated rules and guidance during this time. We can consider whether the Council followed the relevant legislation, guidance and our published “Good Administrative Practice during the response to COVID-19”.
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)
How I considered this complaint
Before issuing this decision statement I considered: Ms D’s written complaint to the Ombudsman and any supporting information provided in emails and telephone conversations; information gathered during an investigation into an earlier complaint made to the Ombudsman by Ms D; further information provided by the Council; relevant law and guidance as referred to in the text below.
I gave both Ms D and the Council an opportunity to comment on a draft decision statement setting out my proposed findings. I took account of any comments they made in reply, before finalising this statement.
What I found
Retail, Hospitality & Leisure Grants In March 2020, in response to the COVID-19 pandemic, the government created schemes for councils to pay grants to small businesses. These included grants specifically targeted at retail, hospitality and leisure businesses (RHL grants).
To be eligible to receive a RHL grant a business first had to be eligible to receive the Expanded Retail Discount (ERD) scheme for business rates “had that scheme been in force” on 11 March 2020. Eligible businesses with a rateable value of more than £15,000 would receive a grant of £25,000.
Government guidance headed “Who will receive this funding?” said: “The person who according to the billing authority’s records was the ratepayer in respect of the hereditament on the 11 March 2020” (the term hereditament refers to any rateable property and/or land).
“where the Local Authority has reason to believe the information they hold about the ratepayer on the 11 March is inaccurate they may withhold or recover the grant and take reasonable steps to identify the correct ratepayer.” (see Grant Funding Schemes – Small Business Grant Fund and Retail, Hospitality & Leisure Grant Fund Guidance – paragraphs 32 to 33 version 4 in force during the events of this complaint).
Further government guidance discussed “Rating List Changes”. It said: “Any changes to the rating list (rateable value or to the hereditament) after 11 March 2020 including changes which have been backdated to this date should be ignored for the purposes of eligibility.
Local authorities are not required to adjust, pay or recover grants where the rating list is subsequently amended retrospectively to 11 March 2020.
In cases where it was factually clear to the Local Authority on 11 March 2020 that the rating list was inaccurate on that date, Local Authorities may withhold the grant and/or award the grant based on their view of who would have been entitled to the grant had the list been accurate.
This is entirely at the discretion of the Local Authority and only intended to prevent manifest errors”. (see Grant Funding Schemes – Small Business Grant Fund and Retail, Hospitality & Leisure Grant Fund Guidance – as above, paragraphs 38 to 41).
Local Restrictions Grants & Additional Restrictions Grants From August 2020 onward the Government made funds available to councils to support businesses impacted by further local or national restrictions resulting from the COVID-19 pandemic. These were known as Local Restriction Support Grants (LRSGs). LRSGs were payable to businesses mandated to close in December 2020. These included non-essential retail, leisure, personal care, sports facilities and hospitality businesses.
Guidance issued by Government in December 2020 said that eligible businesses for the LRSG (closed) grant scheme included those businesses “occupying hereditaments appearing on the local rating list”. The amount of grant payable depended on the rateable value of the premises.
A separate grant scheme, known as the Additional Restrictions Grant (ARG) was sometimes payable to businesses impacted by restrictions, but which were either not mandated to close or did not occupy properties appearing on the rating list. These grants were at the discretion of the Council.
Restart Grants In April 2021 the Government made further grants available to support businesses re-opening following the lifting of COVID-19 restrictions. This included paying grants of up to £6000 to non-essential retail businesses to help them re-open safely. The amount of the grant depended on the rateable value of the premises used by the business. To qualify businesses had to be “occupying hereditaments appearing on the local rating list” on 1 April 2021.
Valuation Office Agency The Valuation Office Agency (VOA) provides valuations and property advice to support taxation and benefits to the government and local authorities in England, Scotland and Wales. It compiles and maintains lists detailing the rateable value of commercial properties for business rates.
Background
Ms D runs a retail business and operates out of premises located on a High Street in the Council’s area. The premises are owned by the Council. The rateable value of the property is between £15,000 and £51,000.
Ms D has not contracted with the Council for rental of the premises. Instead, in May 2019, she entered a sub-letting arrangement with the tenant of the premises, who I will call ‘Mr E’. Mr E rented the premises from the Council on a ‘tenancy at will’ basis – a form of letting that allows the Council to repossess the premises at short notice. Mr E rented three adjacent premises on this basis, including those sub-let to Ms D.
Ms D’s written agreement with Mr E said Ms D would “take a section of the space” while Mr E’s business had “use of the back room and access to the garden”. The agreement also said any rent payments made by Ms D were inclusive of rates.
In July 2019, the Council visited the premises, found Ms D’s business trading and made it liable for business rates. However, following representations by Ms D in November 2019, the Council reverted the business rates to make Mr E (or his business) liable. This was after the Council considered Ms D’s sub-letting agreement with Mr E.
Ms D says around January 2020 Mr E agreed to stop using part of the premises for storage. He had also for a time sub-let another part of the premises and agreed not to do so in future. Ms D says she now had sole use of the whole premises and that she agreed with Mr E the rates bill should reverse back to her name. Ms D says these details were agreed in conversations with Mr E. There was no new written agreement to cover the letting of the premises.
Next, Ms D says she contacted the VOA to let it know she was in sole occupation. I have seen screenprints which show Ms D was in contact with the VOA in February 2020. However, these do not show what Ms D told the VOA nor what it said in reply. Ms D has not been able to provide that detail. The Council says it has made its own enquiries with the VOA but has not been provided with the detail of those communications either. Despite requests, we too have not been given this information by the VOA.
In March 2020, following the onset of the COVID-19 pandemic and a Government announcement that it would support retail businesses, Ms D asked the Council about receiving a RHL grant. In mid-May 2020 the Council told Ms D her business was not entitled. It gave its reason as follows: “that you were not registered as in occupation on 11 March 2020 or are not a Business Rates account holder”.
Later that month Ms D appealed the Council’s refusal of a RHL grant. Subsequently she pursued a complaint and approached her local Councillor and MP who both made enquiries on her behalf. In that correspondence Ms D consistently: explained the sequence of events as I summarised above; said she was therefore in sole occupation of the premises on 11 March; used those premises for retail; and so should therefore receive a RHL grant.
In its replies the Council said: it accepted Ms D was running a retail business from the premises on 11 March; but Ms D was not the ratepayer on 11 March 2020 and was not liable for the rates; that it had no record Ms D told it before 11 March that her business was solely occupying the premises and so should solely be liable for business rates from January 2020; that it “could only consider paying the grant to the business registered for payment of business rates on 11 March 2020”; that its records were correct and did not need updating.
Ms D’s first complaint to the Ombudsman In February 2021 Ms D complained to this office about the Council’s refusal to pay her a RHL grant. By this time there had also been later restrictions placed on non-essential retail businesses and Government had introduced the LRSG and ARG schemes described above. We noted the Council had paid some funds to Ms D under the ARG scheme but not the LRSG scheme as it continued to regard Mr E as the ratepayer. Ms D told us she believed this decision was also wrong and she should have been entitled to LRSG funding, which was more generous.
We considered the Council had been at fault for its consideration of Ms D’s RHL application. We said it was wrong for the Council to say it could not pay a grant to Ms D as she was not the ratepayer on 11 March 2020. This was because Government guidance said it could take “reasonable steps to identify the ratepayer” and if it found the details were wrong, it could consider using its discretion to pay a RHL grant to the correct ratepayer. We found the Council had not reconsidered its position that Ms D was not the ratepayer, despite her repeated first-hand statements Mr E had vacated the premises before 11 March 2020.
We said the Council’s position had created uncertainty as it had not properly considered Ms D’s liability to pay business rates and therefore her potential eligibility to receive a RHL grant. Further, that it had also led the Council not to consider if Ms D was liable to receive LRSG funding as opposed to ARG funding.
The Council accepted our findings and said it would review its position on Ms D’s liability to pay rates and the consequent decisions it took on her eligibility to receive payments from the RHL and LRSG schemes. It said that it would want to ask for evidence to consider if Ms D’s occupation status changed around January 2020. We said it could reasonably ask Ms D for: copies of any communications she had with Mr E in early 2020 and clarification if any new letting agreement was signed; details of her rental payments to Mr E; details of what Ms D said to the VOA in February 2020.
The Council’s review decision In October 2021 the Council wrote to Ms D giving its decision on review. It noted Ms D: had not supplied the detail of what she told the VOA in February 2020; only that she had registered with its ‘check and challenge’ service; had not entered into any separate agreement with Mr E after May 2019, including when she said he vacated the premises in January 2020; did not pay any more rent to Mr E after January 2020.
The Council explained that liability for rates rests on four key tests (see John Laing & Sons Ltd v Kingswood Area Assessment Committee 1949). For the ‘possessor’ of premises to be liable for rates they must: be in actual occupation of the premises; have exclusive occupation of the premises; occupy premises that have some value or benefit to them; and not be in transient occupation (less than 42 days).
The Council said that Ms D’s use of the premises did not meet all four tests. Because of the agreement she had signed with Mr E she did not have ‘exclusive occupation’. So, it held that she could not become the ratepayer and therefore did not have entitlement to receive grants from the RHL or LRSG schemes (nor by consequence the later restart grant scheme).
Our investigation We asked the Council about the evidence that underpinned its review decision. We established the Council undertook no visits to Ms D’s business premises between May 2019 and October 2021. It then undertook a further visit in November 2021. While the notes of the inspections are not detailed there is nothing to indicate the Inspector found anyone but Ms D trading from the premises.
We asked for records and comments from the Council’s Property Services which owns the premises used by Ms D. We were told that in May 2020 the Council served a Notice to Quit on two of three premises rented by Mr E, but not the premises sub-let to Ms D. The Council Head of Property Services said at the time he “was not aware” the premises used by Ms D were separate to the other two premises rented to Mr E. We also noted the Council’s Property Services were in communications with Ms D in early June 2020 and asked her to vacate the premises on the same day as that specified in the two notices served on Mr E. We asked about the content of any communications the Council had with Mr E subsequently and took account of its response on this point also.
The Council shared with us the advice it received from its business rates team. That service said it did not consider Ms D liable for rates on the unit she traded from because: the tenancy at will with Mr E had not been cancelled; so he or his business remained liable to pay rent on the premises; that Mr E only ever gave Ms D permission to use part of the premises – she never enjoyed ‘exclusive occupation’ of the premises; that Ms D’s agreement with Mr E also said he remained liable to pay rates; that in the event Mr E vacated any agreement Ms D signed with him, her agreement would pass to the Council. In effect the Council would become bound by the sub-letting agreement. So, by default it would also become liable to pay business rates.
During this investigation the Council also consulted an independent expert body for an opinion. The Council gave it a chronology of events for the period June 2019 to June 2020 only.
The expert opinion noted that there were “very few established facts” in the chronology sent by the Council. But that it appeared Mr E or his business were the “paramount occupier and thus the ratepayer”. They could see nothing that would make Ms D or her business the ratepayer, although it suggested “this needs to be established in fact".
Findings
The Ombudsman is not an appeal body. This means we do not take a second look at a decision to decide if it was wrong. Instead, we look at the processes an organisation followed to make its decision. If we consider it followed those processes correctly, we cannot question whether the decision was right or wrong. As I explained above, disagreement alone is not enough for us to find fault with the Council’s actions.
After our first investigation completed, we wanted the Council to carefully reconsider its position that Ms D was not liable to pay business rates. The evidence shows the Council did that, consulting with appropriately qualified specialist officers. It also gave Ms D opportunity to provide any further evidence relevant to the review. I consider the Council therefore followed a satisfactory process when carrying out the review.
The Council explained that its decision rested on an analysis of the law which sets out who is liable to pay rates. ‘Exclusive occupation’ is a key test. There is no dispute that when Ms D started using the business premises, she did so based on a sub-letting agreement that did not give her exclusive occupation. This agreement was not changed after January 2020 and continues to run. The agreement continues to give Mr E rights over the property therefore as does the tenancy at will he has with the Council. These were all relevant factors the Council could properly take account of as part of its decision.
We note there is no evidence Mr E has taken any interest in the property used by Ms D since at least June 2020. He has not paid rent to the Council and not chased Ms D to pay him rent. And the Council has also chosen not to pursue Mr E for any rent or rates in that time. Its belated inspections in Autumn 2021 did not show any sign of his presence or that of his business in the premises. It is less clear how the Council took these factors into account in its decision.
However, we consider these factors are not enough to find fault with the Council’s position. We note the Council has now obtained an expert opinion which while not wholly supportive of its position, was generally supportive. We also note the Courts have held that where a landlord “retains to himself general control over the occupied parts” they will be treated as in rateable occupation. This is regardless as to whether in practice they choose to exercise that control. And that: “where a person already in possession has given to another possession of a part of his premises, if that possession be not exclusive he does not cease to be liable to the rate, nor does the other become so” (see Westminster Council v Southern Railway (1936) AC 511 and Cardtronics Europe Ltd v Sykes (2020) UKSC 21).
We consider there is no fault therefore in the Council’s position that Ms D does not have ‘exclusive possession’ of the premises she uses for her business. And that as such it is Mr E, the tenant, who remains liable for the business rates. If there is no fault in this position, then it follows that there can also be no fault in the Council’s position that Ms D was not liable to receive the RHL or RLSG grants either. The same would also apply to the re-start grant. Because she cannot be made the ratepayer for the premises.
Finally, while it may be unsatisfactory the Council has allowed the tenancy of the unit to run on, I do not consider this a source of injustice to Ms D. First, because the Council is not treating her as liable for either rent or rates. Second, because more decisive action by the Council here would likely have resulted in Ms D losing her place of trade. I hope that further to any decision we reach on this complaint the Council will write to Ms D advising of its intentions for the premises and if her use of the premises can be regularised or of any sources of support or advice it can offer should it require her to re-locate.
Final decision
For the reasons set out above we do not uphold this complaint, finding no fault by the Council. I have therefore completed my investigation.
Investigator's decision on behalf of the Ombudsman