IS THIS THE END OF THE ROAD FOR PROPERTY GUARDIANSHIP BUSINESS RATES MITIGATION SCHEMES?

The recent Court of Appeal decision in Southwark London Borough Council v Ludgate House casts doubt on whether property guardianship schemes will survive as a legitimate means of mitigating business rates liability on empty properties. The decision is significant for landlords and building owners seeking to reduce their liability on empty property. It comes at a time when COVID-19 and its impact on public health has interfered substantially with the extent to which occupiers of properties can use their premises and the financial implications which have ensued have resulted in many more properties becoming vacant.

COURT OF APPEAL DECISION

The appeal grounds included an argument which fundamentally undermines guardianship schemes: that where the guardianship scheme uses premises in such a way that they should be licensed as a house in multiple occupation (HMO), and as no licence is actually obtained, the Court should, on grounds of public policy, decline to allow the building owner to rely on that scheme.

Southwark submitted that the business rates mitigation scheme was contrary to section 72 (1) Housing Act 2004 by undermining the HMO licensing legislation. Once five or more people occupied the premises (in the case in question, 32 people) it would be subject to mandatory licensing as an HMO. Southwark submitted that the Court should not allow the building owner to use the premises as an illegal HMO in order to avoid business rates.

The Court of Appeal allowed Southwark’s appeal: the building owner (the rate payer) retained “general control” of the building and that was enough to leave the owner with the liability for empty property business rates. The scheme provider engaged guardians as their means of providing services to the building owner, who was otherwise liable for the empty property rates.

Addleshaw Goddard LLP are appointed solicitors of Mothball. The above is a summary of their article – for a full and unabridged version, please go to https://www.addleshawgoddard.com/en/insights/insights-briefings/2020/real-estate/business-rates-on-empty-property/