Lawbite: Property Guardians of the Business Rates Galaxy No More?

• United Kingdom

• Litigation and dispute management
• Real estate
• Real estate litigation - LawBite

16-12-2020

London Borough of Southwark v (1) Ludgate House Limited and (2) Mr Andrew Ricketts (Valuation Officer) [2020] EWCA Civ 1637

In a decision which will be welcomed by rating authorities across the country, the Court of Appeal recently poured cold water over the use of property guardians as a rates mitigation scheme.

A property guardian is a private individual who, usually with others, occupies vacant premises under a temporary contractual licence until the building owner requires it for redevelopment. As the Court of Appeal noted, the arrangement provides:

1.    the guardian with accommodation at a lower cost than in the conventional residential letting market;

2.    the supplier (here VPS)  with a fee for making the arrangements; and

3.    the building owner (here Ludgate) with some protection against squatters and with the prospect of mitigating liability for non-domestic rates.

Once the arrangement is in place, the argument is made that the guardians, and not the owner, are in rateable occupation, and, as the guardians are occupying as a residence, the property concerned should be subject to council tax rather than non-domestic rates – thereby mitigating the owner’s liability for non-domestic rates. 

Ludgate House Limited (”Ludgate”) purchased Ludgate House, an 11 storey 175,000 square feet building close to Blackfriars Underground in central London, in 2010. Prior to redeveloping it, Ludgate contracted with VPS (UK) Ltd (“VPS”) to secure the building against trespassers by arranging for its occupation by property guardians.

In an earlier decision, the Upper Tribunal held that, under the arrangements put in place, the guardians were to be taken as being in occupation for the purpose of having somewhere to live and that they were therefore liable for council tax. Southwark London Borough Council appealed that decision to the Court of Appeal.

Allowing the appeal, the Court of Appeal, focusing on the terms of the contracts between Ludgate and VPS and between VPS and the guardians, held that:

• the Upper Tribunal had been wrong to conclude that the individual guardians were in rateable occupation
• whilst the guardians were in occupation for the purpose of having somewhere to live, they were also there for the purpose of securing Ludgate House against trespassers
• the decisive factor in establishing who is in rateable occupation of the building was that of "general control"
• the contractual arrangements made clear that Ludgate had not given up possession or control of the building – reserving to itself sufficient rights of control over Ludgate House; and
• the position of the guardians was similar to that of a lodger or caretaker (who are not normally regarded as being in rateable occupation of the premises they occupy) – meaning that Ludgate were in rateable occupation

Southwark London Borough Council also sought to argue that if the individual rooms were to be separately rateable, the arrangement should be ignored because the scheme under which they were permitted to occupy was an unlawful one – being an unlawful, unlicensed house in multiple occupation under the Housing Act 2004. The Court of Appeal declined to consider this argument.

Key points

• the decision reaffirms recent decisions, focusing attention on the question of who retains ‘general control’ when considering which entity is to be regarded as being in rateable occupation
• property owners who have implemented or are currently implementing property guardian schemes should review the terms of their arrangements to assess:
  • the extent and nature of the rights
  • granted to the supplier / guardians
  • rights reserved to them (as owner); and
  • who is to be regarded as being in ‘general control’ in the light of such rights (being mindful of this decision)
• whilst noting the additional benefits that property guardian schemes offer, a property owner wishing to mitigate their liability may be well advised to consider the alternative and court approved rates mitigation schemes available in the market