Property guardian rate relief schemes under focus at Court of Appeal

The use of property guardian schemes as a means of avoiding paying business rates on otherwise empty properties is under scrutiny at the Court of Appeal, with ratepayers anxiously awaiting the outcome. If a local authority’s appeal is successful, it could bring an end to property guardianship as a rates mitigation measure. The case involves Ludgate House at the southern end of Blackfriars Bridge in Southwark which, until its demolition in 2018, was an office building – formerly the home of Express Newspapers – occupied between July 2015 and May 2017 by a number of property guardians. However, the court’s eventual ruling could have widespread impact on properties across the country, particularly at a time when Covid-19 has seen greater numbers of premises standing vacant. Due to the presence of property guardians, the Upper Tribunal (Lands Chamber) found that the owner of Ludgate House was not liable to pay non-domestic rates for the property – which had a rateable value of almost £4.2m – during that period. Now, the London Borough of Southwark is asking the Court of Appeal to overturn that decision. Roger Cohen, partner at Bryan Cave Leighton Paisner, said: “The outcome before the Upper Tribunal suited the owner and disappointed the local authority responsible for collections. Ratepayers will be hoping that the Court of Appeal follows the reasoning of the Upper Tribunal. “Nevertheless, the Court of Appeal has an opportunity to hold that it is the council’s ability to charge empty rates that is in greater need of guarding.” Joseph Green, associate at Charles Russell Speechlys, said that the appeal outcome “could have a profound effect on the way commercial building owners utilise property guardianship schemes to mitigate business rates on vacant sites”. He said that the ground of appeal that will be of most interest to building owners will be the argument that, where guardianship schemes amount to a criminal offence, the court should not permit the building owner to rely on that scheme on the grounds of public policy. Southwark argues in this case that the guardianship scheme used premises in such a way that they should have been licensed as a house in multiple occupation and the building owner did not obtain a HMO licence, which constitutes a criminal offence under section 72(1) of the Housing Act 2004. Green added: “The proposed benefit of a property guardianship scheme is that a property will be deleted from the non-domestic ratings list once occupied as a residence. Instead of paying business rates, the property guardians should then contribute to the council tax that becomes payable as part of their licence fee. However, if Southwark’s appeal on this ground is successful, the need to comply with the minimum health and safety standards and gas and electricity safety regulations required to obtain an HMO licence is likely to make these schemes unviable for many building owners. “The survival of guardianship schemes for the mitigation of business rates will depend on the decision reached by the Court of Appeal in this important and ground-breaking appeal and building owners using such schemes will be keeping a close eye on proceedings.” To send feedback, e-mail jess.harrold@egi.co.uk or tweet @estatesgazette