Stockport Metropolitan Borough Council v Punj Lloyd Ltd

For non-domestic rating, the owner of an unoccupied hereditament is the person with an immediate legal entitlement to possession. A contractual obligation to accept a new lease, even if specifically enforceable, does not itself create that immediate entitlement before the lease is executed or specific performance is ordered. The existing landlord may retain the immediate right to possession during that period. The equitable principle that equity regards as done what ought to be done cannot be used by a landlord to transfer rating liability where the tenant has not performed its obligation to take the new lease. Rating liability therefore follows the legal entitlement to immediate possession, not a broad assessment of which party might commercially exploit the property or whether a party would otherwise benefit from its conduct.

Stockport Metropolitan Borough Council appealed by case stated from the Greater Manchester Magistrates’ Court. It sought non-domestic rates from Punj Lloyd Limited for two unoccupied hereditaments after the original tenant’s underlease was disclaimed in insolvency.

The respondent was guarantor under a deed requiring it, on notice, to accept a replacement underlease. The landlord served notice on 19 December 2013, but the replacement underlease was executed only on 21 April 2016 following an order for specific performance. The district judge held that the respondent became liable only from 21 April 2016. The central issue was whether the respondent had been the owner, as the person immediately entitled to possession, from the date of notice or only from execution of the replacement lease.

1. Appeal dismissed. The district judge correctly answered the first two questions in the affirmative and the third in the negative.
2. Under sections 45 and 65(1) of the Local Government Finance Act 1988, liability depended on whether the respondent was, on each relevant day, the person immediately entitled to possession. The period from 14 August to 18 December 2013 preceded the notice requiring the respondent to take a new lease, and no immediate entitlement could arise during that period.
3. The meaning of immediate entitlement was confirmed by Brown v City of London Corporation [1996] 1 WLR 1070. There could normally be only one owner entitled to possession. The landlord retained that entitlement after serving the notice. The respondent had an unperformed contractual obligation to take a new underlease and could not have ousted the landlord without first performing it.
4. The equitable principle in Walsh v Lonsdale (1882) 21 Ch D 9 could not be applied to create rating liability from the date of notice. The landlord could not invoke equity to deny its own immediate right to possession in favour of a tenant that had not executed the new lease. Specific performance was a necessary step to transfer the immediate entitlement, and it remained a discretionary remedy until granted.
5. The court was not a court of morals in rating proceedings. The suggestion that the respondent should not benefit from its own wrongdoing did not answer the statutory question. The due diligence issue did not require remittal because the entitlement issue disposed of the appeal.

• High Court (Administrative Court): The appeal by case stated was dismissed. The district judge’s conclusion that liability arose only from 21 April 2016 was upheld.
• Greater Manchester Magistrates’ Court: The district judge dismissed the applications for liability orders for the earlier periods and was prepared to make an order only from 21 April 2016.