Hurstwood Properties (A) Ltd v Rossendale BC [2021] UKSC 16
By unanimous decision, the Supreme Court decided that companies behind special purpose vehicle companies (SPVs) are liable to pay non-domestic rates for periods when unoccupied properties have been leased to SPVs.
Who is liable to pay business rates?
Liability to pay business rates falls on the occupier of a property. Where a property is unoccupied, the liability will fall on the owner of a property, who is defined as the person entitled to possession (subject to certain exceptions).
What was the scheme?
To circumvent paying business rates, an avoidance scheme involved granting a short lease of an unoccupied property to a SPV. The SPV became the owner of that property for the purpose of rates liability instead of the company behind the SPV. No rent was paid by the SPV to the company behind it for the period of its occupation. The SPV would then be dissolved or put into liquidation to escape rates liability and the local authority would be unable to recover the outstanding arrears.
Supreme Court's decision
The Supreme Court took the view that Parliament could not have intended that the person entitled to possession of an unoccupied property on whom the liability for business rates is imposed should encompass a company which has no real or practical ability to exercise its legal right to possession and on which that legal right has been conferred for no purpose other than the avoidance of liability for rates.
The outcome of this decision is that the company behind the SPV remained liable for business rates and could be pursued by the local authority.
Our comment
The net continues to close around schemes designed to mitigate business rates liability. We previously reported on the decision that a property owner remains in rateable occupation of premises that were occupied by property guardians.
It is now clear that leasing a property to a SPV, followed by its dissolution or liquidation, will not avoid business rates liability.
Given the complexities surrounding this issue, we recommend that legal advice is sought if you are considering implementing any schemes designed to mitigate liability to pay business rates.
