Landlords face liability for business rates after disclaimer

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Landlords face liability for business rates after disclaimer

In the recent case of Schroder Exempt Property Unit Tryst v Birmingham City Council [2014] the High Court has confirmed that it is indeed the landlord, following disclaimer, who is liable for business rates on their empty properties.

Background

Under the Local Government Finance Act 1988 business rates are payable in respect of most empty properties after 3 months.  The case of Hindcastle Ltd v Barbara Attenborough Associates Ltd [1996] set down the general principle that “a disclaimer operates to determine the interest of the tenant in the disclaimed property but not so as to affect the rights or liabilities of any other person.”

Many local authorities looked to landlords for payment of business rates after disclaimer of a lease by the liquidator of an insolvent tenant. Though this has become a common occurrence, the basis to which these payments have been sought has been somewhat blurred by legal uncertainty. The central issue was whether the landlord, following disclaimer, was the “owner” of the property. The “owner” is that person ‘entitled to possession’ as set out by section 65(1) of the Local Government Finance Act 1988 and if so, liable to pay these rates. The case of Schroder attempted to give clarity to this question. 

Case summary

A freehold owner in Birmingham had let premises to a tenant who subsequently went, with its guarantor, into liquidation.

The liquidator disclaimed the lease but instead of re-entering the premises, the freehold owner sought payment of rent from the original tenant under an authorised guarantee agreement.

The council issued demands on the landlord for business rates as a result of the disclaimer after two years of the property remaining unoccupied.

After unsuccessfully challenging their liability in the Magistrates’ Court, the freehold owner appealed to the High Court of Justice on the grounds that it had not re-entered the unoccupied premises removing any right to entitlement to possession of the property.

The judge held that landlords are to be treated as the occupier of unoccupied premises and therefore responsible for non-domestic rates, when a tenant's liquidator disclaims its lease. This is so regardless of the continued existence of a guarantor or original tenant who, despite the disclaimer, remains liable under the lease for the tenant's default and who has a right to request an overriding lease and thereby take possession.

Implications

The outcome of the case now means that local authorities have firm legal grounds to pursue landlords for business rates after disclaimer of a lease by Liquidators of insolvent tenants. With many landlords still struggling with the issue of empty properties, this decision will prove to be a further blow in an already difficult climate.

For more information on business rates liabilityand to start a conversation on how we can help you please contact Camilla Askaroff, Solicitor, Dispute Resolution.

View Camilla's profile email Camilla now

Published: 28 Aug 2014


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