Property Guardianship and Business Rates

Property guardianship is often used by property owners to try to mitigate business rates liability with regard to vacant properties. By granting licences to property guardians, the owner may argue the property is in residential use and should therefore be removed from the non-domestic rating list. As a result, the property guardians would be liable for council tax instead of the owner paying business rates on the vacant property (with council tax likely to be significantly lower than the business rates payable). In any event, even if the property were not removed from the non-domestic rating list, the value of the property could be reduced for rating purposes due to the occupation of the property guardians.

This issue was considered in the case of Southwark LBC v Ludgate House Limited, with the latest decision in this case being handed down by the Court of Appeal in December of 2020.

Background

The property was an office building situated on London’s South Bank, earmarked for redevelopment and vacant. In order to afford the vacant property some level of protection, the owner engaged a company to provide property guardians by way of licence agreements.

The licences to the property guardians were provided as follows:

• Each guardian had a separate lockable room, as well as sharing other spaces in the property.
• The guardians had no right to exclusive occupation of any part of the licensed areas.
• The contract between the owner and company explicitly stated the owner retained control, possession and management of the property.

The Valuation Tribunal decision

The Valuation Tribunal held the property to be a single non-domestic hereditament in the occupation of the owner. One contributing factor was the size of the property in comparison to the proportion which was being occupied by the property guardians.

The Upper Tribunal decision

On appeal from the Valuation Tribunal, the Upper Tribunal found that the property guardians were in rateable occupation of their separate ‘bedrooms’ and, as such, must pay council tax as a result of their residential use of the property.

The reasoning provided was that the guardians were in occupation of singular rooms within the property as discrete geographical units, irrespective of their additional use of shared spaces. Furthermore, although the owner received a benefit of security by the guardians occupying the property, the Upper Tribunal found this was not a form of beneficial occupation and the guardians occupied their separate bedrooms for the exclusive purpose of having somewhere to live. As a result, the Upper Tribunal also stated that the single list entry for the property should be deleted.

Decision by the Court of Appeal

The Court of Appeal held that, despite the occupation by the property guardians, the property remained a single hereditament with regard to rating and the Upper Tribunal had been wrong to find otherwise. The property guardians were not liable to pay council tax and the owner remained liable to pay business rates on the ‘vacant’ property.

It was reasoned that the ‘general control’ of the building remained with the owner. As clearly stated in the contractual agreement between the owner and the company, possession and control of the property were retained. The guardians were simply the method by which the company (engaged by the owner) provided its services.

Note: a further argument was put forward that, if the separate rooms within the property were separately rateable and not a single hereditament, then the property would have to be deemed an unlawful and unlicensed house in multiple occupation. This was not considered by the Court of Appeal.

Future implication

Overall, the Court of Appeal’s decision may negatively impact property owners who will be required to pay business rates on vacant properties. Without the additional benefit of reduced business rates or the removal from the non-domestic rating list, the use of property guardianship schemes may decrease. Of course, property guardians will continue to assist property owners in providing added security for their empty buildings and payment of the licence fee. It remains to be seen whether property owners will see the benefit of such a scheme without the added savings with regard to their business rates.

Update 11 June 2024

Following the Court of Appeal decision, the matter was subsequently remitted back to the upper Tribunal in 2023. The Upper Tribunal determined the mode and category of occupation of the building should not be taken to restrict the use of the building for occupation by property guardians pursuant to a scheme of property guardianship. Therefore, as the physical state of the building was an office building, and the domestic part of the building was solely limited to the units occupied by the guardians, a future tenant should be assumed to be taking the building as an office building, subject to the temporary use of the building for a property guardianship scheme.