In R (Emeraldshaw Ltd) v Sheffield Magistrates’ Court, the Court of Appeal followed the substance-over-form approach set down by the Supreme Court in Rossendale Borough Council v Hurstwood Properties (A) Limited, making it clear that a purported tenancy will not shift business rates liability to the tenant unless it provides a real, practical entitlement to occupy and control the premises.
Facts and decision
The premises comprised a warehouse and office premises, split into two hereditaments for rates purposes. The freeholder had plans to redevelop them into four units. Pending the redevelopment, the freeholder had granted Space to Help (Yorkshire) (STHY) tenancies at will (TAW) at nominal rents with strict prohibitions on assignment, subletting or sharing possession effectively preventing STHY from bringing the property back into use.
The Council did not accept that STHY was the “owner” for rating purposes and obtained liability orders against the freeholder. The Magistrates’ Court held the TAWs did not create valid tenancies and, even if they did, that they did not give STHY a real and practical entitlement to occupy under the Local Government Finance Act 1988 (1988 Act). The Court of Appeal upheld refusal of permission to judicially review that decision.
The touchstone was whether the putative occupier had the practical ability to determine what happens at the property, such that they could be regarded as “the owner” under the 1988 Act, and therefore the party upon whom the liability for business rates fell.
The freeholder failed to persuade the Court that this case should be distinguished from Rossendale (where the tenants were SPVs set up for the purpose of rates mitigation and were wound up before any rates payment was made). For the council however, the outcome was the same, as STHY’s charitable status meant it was not liable for rates and no payment would be due in respect of the premises.
The wider context was of course relevant, particularly the freeholder’s redevelopment plans which led the Magistrates’ Court to conclude that, given the terminable nature of the TAWs and the restrictions imposed on STHY, there was insufficient genuine occupation and control of the premises to justify reallocating rates liability.
Practical takeaways
This decision is yet another example of local authorities’ crackdown on rate mitigation schemes. However it does not mean that every TAW will be treated in the same way leaving the landlord liable for rates.
The context of the occupier being a charity and short-term redevelopment plans clearly weighed heavily in the balance. This should be contrasted with the common scenario where a former tenant is allowed to remain in occupation under a TAW pending agreement for a new lease on ordinary commercial terms, with genuine day-to-day control and use of the premises.
However landlords should be cautious of TAWs being granted at nominal rent with heavy restrictions, as they may not pass the “reality of occupation” test.
