Court of Appeal Holds Business Rates Payable Despite Property Guardian Scheme
Published: January, 2021
Submission: January, 2021
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Property guardians are individuals who temporarily live in empty property at reduced rents, ostensibly to protect it from damage and squatters. Typically, they are students, key workers or young professionals looking for cheap living space. Their right to occupy is usually granted by way of a licence from a company engaged by the property owner to find guardians. The licence allows the company, at its discretion, to allocate, alter and inspect space within the property.
Guardianship schemes are promoted as a way of reducing liability for non-domestic or ‘business’ rates. Properties are exempt from business rates, but liable to council tax, if they are wholly or partly used for the purposes of living accommodation. Which tax applies depends on how the property is used.
We wrote an article last year (link) about the case of Ludgate House Ltd v Ricketts in which the Upper Tribunal (UT) found that a property occupied by ‘guardians’ was used wholly for the purposes of living accommodation and this meant council tax, not business rates, was payable. That decision has now been overturned.
VPS (UK) Ltd (VPS), was engaged by the owner, Ludgate House Ltd (LHL), to find individuals to act as property guardians for a large office building in London. These 40-50 individuals were granted separate licences to occupy the whole building as living space. Most of the guardians selected a specific room to occupy but a few occupied an open plan floor area. The local authority considered that the building was "essentially vacant" and sought to charge business rates on the whole building as a ‘composite hereditament’. In basic terms, a hereditament is a unit of property for rates calculation purposes and ‘composite’ means it was treated as a single hereditament despite some parts being used as domestic property and others as offices. LHL challenged that decision before the Valuation Tribunal.
The Valuation Tribunal found that the guardians occupied under licences, not tenancies, so did not have exclusive possession of any part of the property. LHL was still in possession of the whole building. As such business rates at an annual value of over £3m applied in full. LHL appealed.
The Upper Tribunal allowed LHL’s appeal and found that whether the guardians had tenancies or licences was irrelevant to the question of whether business rates were payable; what mattered was how the property was used. It found the property was used wholly for the purposes of living accommodation and this meant council tax, not business rates, was payable.
Key to the decision was the UT’s finding that the rooms were separate hereditaments, each being in the exclusive possession of the separate guardians. The occupation was not on behalf of LHL but was to the individuals’ benefit for the purpose of having somewhere to live.
Court of Appeal’s decision
The Court of Appeal overturned the UT’s decision, finding it had mis-appreciated the terms of the contract between VPS and the guardians.
The question is not one of tenancies or licences. The mere fact that someone lives in a unit of property around which a continuous red line can be drawn does not necessarily mean that they are in rateable occupation of it. Service occupiers who live in a house will not be in rateable occupation of it if either (a) it is essential to the performance of their duties that they should occupy the particular house; or (b) they are required by contract to occupy the house and by so doing they can better perform their duties to a material degree. Similarly, caretakers in occupation of property are not in rateable occupation. Likewise, lodgers may have their own room in a house that they can lock, but they are not in rateable occupation of their room. The occupation by the guardians had features of all of these examples.
LHL had engaged VPS for the specific purpose of providing property guardian services and the guardians were the means by which those services were provided. They could not have performed those services without living in the building. The terms on which they occupied did not give them exclusive occupation. The presence of the guardians on site was an essential component of the contract between LHL and VPS. The terms of that contract, and the licences between VPS and the guardians, were consistent with LHL retaining general control of the building as a whole. The building therefore remained a single hereditament.
The Court of Appeal’s decision makes it clear that where a building owner retains general control of a building which guardians occupy for the specific purpose of providing property guardian services, there is now less scope for such an arrangement being used to mitigate liability for business rates.
One other point not decided by the Court of Appeal was whether the presence of 42 guardians on the property triggered an obligation on LHL to comply with requirements for houses in multiple occupation and be licensed by the local authority. This issue was neatly sidestepped by the court saying the point did not need to be decided.
Link to article
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