Court of Appeal hands empty rates ‘lifeline’ to property owners

The Court of Appeal today sided with ratepayers over local authorities in a test case battle over schemes to help owners of unoccupied properties avoid paying empty-property business rates. The court struck out proceedings brought by Rossendale Borough Council and Wigan Council against property owners in their respective areas, clearing the way for landlords to employ similar mitigation tactics to avoid paying business rates on empty commercial properties. Many other cases have been waiting on the outcome of the appeal, with an estimated 11% of commercial properties standing vacant. But the ruling will thwart local authorities in their bid to pursue owners of properties for business rates where that property is unoccupied and a business rates mitigation scheme is in place. Roger Cohen, real estate disputes partner at Bryan Cave Leighton Paisner LLP, welcomed the decision, saying:  “Empty property rates are a tax on failure; the failure of the owner to let premises or to find its own use for the premises. “Given that empty rates are charged at the same rates as occupied property, it’s no wonder property owners seek to mitigate such onerous liabilities. The Court of Appeal today has thrown a lifeline to such owners. The court has rightly prevented billing authorities from interfering with perfectly legal corporate ownership arrangements, even if they are designed with a desire to avoid empty business rates. “This will be seen as welcome relief to landlords especially those hit hard by the decline of the high street, providing them breathing space as they seek to re-let.“ Lord Justice David Richards said the appeal concerned two schemes designed to avoid the payment of National Non-Domestic Rates (NDR) on properties which in most instances were unoccupied, adding: “Both schemes involved the grant of leases of the properties to special purpose vehicle companies (SPVs) without assets or liabilities which, as part of the scheme in question, were then placed in voluntary liquidation or were allowed to be struck off the register of companies as dormant companies and thus dissolved.” Each SPV was then automatically allowed to rely upon an exemption for business rates for as long as it remained in liquidation. In 2017 Wigan Council and a number of other local authorities issued 55 separate claims seeking to recover approximately £10m in alleged arrears of business rates. The defendant property owners – including the Property Alliance Group (PAG) in the Wigan action – sought to strike out the cases without a trial on the basis that they disclosed no reasonable grounds for bringing the claims. These two cases were chosen as test cases. Wigan had alleged the mitigation tactics used by PAG were a sham, an abuse of corporate personality and an abuse of legislation, however, the court today rejected those claims. The judge said that it could not be said that the SPVs were used in the present cases “as engines of fraud or to take an unconscionable advantage”, adding: “In my judgment, it is not open to the courts to pierce the corporate veil of the SPVs.”   To send feedback, e-mail jess.harrold@egi.co.uk or tweet @estatesgazette