Enforcing sale through council tax debt

Hi,
I am dealing with an empty property of some 10 years or so, which has a substantial accumulated Council Tax debt on it. The registered owner(s) of the property are now deceased and their daughter is administratrix for the estate, with signed letters of administration. However the estate has not been dealt with, the property remains empty and no Council Tax has been paid for sometime.

My colleagues in Council Tax now have a liability order in respect of the Council Tax debt against the administratrix for the estate, who does not engage with any Council department.

I am currently scoping the option of forcing the sale of the property on the basis of the Council Tax debt, but understand that as it’s a Council Tax debt you do not use the Law of Property Act 1925 procedure to do this. Does anybody have any experience of the process, tips, pitfalls etc of forcing the sale of a vacant property on the basis of a Council Tax debt.

Many thanks

Jackie

Forums: 
Enforced Sale

Dear Jackie

Assuming that the liability order is secured against the correct person and that they have the relevant interest in the property, which the liability order (Magistrates Court) would suggest.

If the debtor still does not pay the debt, the creditor will need to apply to the county court to enforce that judgment. You are unable to use the Law & Property Act 1925 (LPA 1925) in relation to Council Tax debt, predominantly it relates to statutory debts created by undertaking works in default. You need to review the actual legislation that you are using such as the Building Act 1984 or Prevention of Damage by Pests Act 1949 to ensure that it allows you use to the LPA 1925

There are a number of debt enforcement options available.

There are 3 stages

  • Interim Charging order
  • Final charging order
  • Order of Sale
  • Charging orders are effective if there is a substantial level of equity in the property and the judgement debtor is the sole owner. In such cases the enforcement of the charging order by order of sale will be effective. In addition, interest continues to run from the date of the judgement until final receipt of monies
  • This method is less effective if the property has limited equity or it is jointly owned or used as a family home.
  • It must be noted that the charge is an equitable charge and therefore subject to any prior charges such as mortgages or previous charging orders by other parties (priority usually based on date of creation).
  • The use of charging orders does not necessarily mean that the LA will recover their monies but on the sale of the property there is potential to realise monies (based on the level of equitable and any other priority charges). Where there is insufficient equity in the property there is little merit in pursuing this option.
  • An interim order can be secured generally without the debtor being present and once secured can be registered at the Land Registry. A sale to a bona fide purchaser without notice will defeat the charge if it is unregistered. In order to be effective, therefore, the charge must be registered.
  • Unregistered Land – The Land Charges Act 1972 governs the registration of land charges entries for unregistered land. An application should be made as soon as possible to register a pending action and then a writ or order affecting the land, when the interim charging order is made. An application can also be made to register a caution against first registration once an interim is in place.
  • Once an interim Order is obtained the LA can then apply for a final charging order, where the debtor can object to the order. There is a long standing authority that states that the burden of proof is on the judgement debtor to show why a final order should not be made.

    However it must be noted that Section 24(1) Limitation Act 1980  applies to monetary debts such as Council Tax, after 6 years you are barred from recovery (actual money debt / not charging order)

    In addition, once a charging order has been registered then the Section 20(1) & 24(1) Limitation Act 1980 does not apply and therefore will sit against the interest indefinitely: Yorkshire Bank Finance Ltd case (2008). A previous MOJ Consultation document suggested that on average it took 7 years to recover the debt (natural churn of the market – sale of property

In certain circumstances, a judgment creditor in possession of a final Charging Order can also force the sale of the debtor’s property by applying to the court for an Order for Sale. The regulations on when a judgment creditor can apply for a Charging Order and when that Order may be enforced by way of an Order for Sale have recently changed. The Court has an unfettered discretion on whether to make an Order of Sale or not and will take into account a range of factors, such as:

  • The fact that the property is jointly owned will not prevent the court from making an order for sale of the property. Again, the court must exercise its discretion; it will no doubt balance the impact on the creditor of being prevented from enforcing the charging order and the impact on the joint owner of being forced to sell their interest in the property.
  • Size of debt and length of time it has been outstanding are relevant. If the outstanding debt (overall) is nearing the current value of the property, then there will be a stronger justification for the Order of Sale
  • Likelihood of the debt being satisfied by the proceeds of sale. A valuation of the property and redemption statements for and charges with priority will therefore be necessary.
  • Whether the creditor is unlikely to be able to recover his debt using an alternative method.
  • Don’t forget the Human Rights Act 1998, at all stages you will have to convince the judge that this approach is reasonable and proportional (Article 8 Protection of Private and Family Life (qualified right) & Article 1 first protocol (limited right).

So in summary it is fairly simple to obtain an interim and final charging order.

The ability to successfully obtain an Order of Sale will be dependent on a range of factors - including (but not exclusively)  the more significant the debt, the longer it has been outstanding and the outstanding debt nearing the property value are important factors.

In addition, if the family member has only obtained probate within the last 12 months after the recent death of a family member, then you will need to consider the potential for negative PR in such an approach.

So in the round it can be a fairly lengthy process and the Order of Sale is at the discretion of the court, which produces uncertainty. We have obtained a number of Orders of Sale for various debt but have also had cases where the court suspended an Order of Sale on the basis that the owner keeps to a payment plan – over 30 years.

Therefore, depending on the condition of the property there may be a possibility of pursuing other statutory action with a view to creating a statutory charge through works in default. This would then allow you to utilise the enforced sales procedure using the provisions of the Law & Property Act 1925. This would be a paper exercise with the Land Registry (assuming registered land).

This would avoid the need to go to Court and justify the need for an Order of Sale. If the charging orders were in place on the date of sale, you would be entitled to recover those monies – assuming that there is no other priority charges.

As always, seek guidance from your own Solicitors

Hope that helps

Regards

Andrew Lavender

www.htlc.co.uk

Thank you for the detailed answer Andrew, we are just embarking on our first attempt at this.  We have multiple charging orders, and we are going to try for Order of Sale.  Do you know if it's worth including other reasons (for the Court) for the Order to be granted, from a bringing property back into use perspective.  eg. complaints, demand for housing etc. or will this not make any difference, as it is a strict debt recovery?

 

Sarah

Sarah Williams

Public Protection Officer, Ceredigion County Council