In the recent decision of Queen Street Properties Ltd & Another v Cardiff City and County Council [2022] EWHC 39 (Admin) the High Court upheld a District Judge’s decision that two business rates avoidance schemes were shams and, as such, the business rates were payable by the landlord.
The decision is consistent with the Courts’ recent approach of scrutinising rates mitigation schemes, many of which have been held to be ineffective as a result.
Queen Street Properties provides helpful clarification on what it means to be in “actual occupation” for the purposes of determining the relevant ratepayer. This judgment should be heeded by both landlords and tenants as a sign to proceed cautiously when implementing business rate avoidance schemes.
What was the case about?
Queen Street Properties Limited (“QSPL”) was the tenant of a property operating as a fish and chip shop in Cardiff. Cardiff City Council sought liability orders against QSPL in respect of unpaid business rates. However, QSPL asserted it was not the ratepayer for the period in question. It argued that the party that was in rateable occupation was Parc Lane Restaurants Ltd, a company which QSPL had entered into a Management Agreement and Licence with and had the same sole owner and director as QSPL. Parc Lane Restaurants Ltd had been dissolved through a compulsory striking off in September 2019.
Similarly, 18 Churchill Way Limited (“CWL”) argued that the rateable occupier of the premises in its case was CW18 Trading Ltd. As with QSPL, CWL had entered into a Management Agreement and Licence with CW18 Trading Ltd, which had the same single shareholder and director, and had been dissolved in November 2020.
The District Judge found that QSPL and CWL were both the rateable occupiers of their respective properties, and the licences each had entered into were shams so they were both liable for the business rates.
What did the High Court decide?
The main issue in dispute was whether the District Judge had wrongly conflated ownership of the premises with being the rateable occupier for the purposes of business rates liability. The High Court acknowledged that actual occupation was different from ownership, or even lawful occupation, and so there was no legal presumption that QSPL or CWL were the rateable occupiers simply because they were the legal owners. Nevertheless, given the facts of the case, the District Judge had been entitled to infer that the owners were in actual occupation. CWL in particular had based its case on CW18 Trading Ltd being the business in actual occupation. Having undergone a thorough factual analysis of what it meant to be in actual occupation, the District Judge concluded that CW18 Trading Ltd had not been in actual occupation. At that point, the District Judge was entitled to infer from the facts that CWL was in actual occupation.
What are the effects of the judgment?
The are several key messages resulting from this judgment.
It helpfully restates the key principles to establishing the identity of the rateable occupier, along with upon whom the burden of proof sits and when this switches. Whilst the High Court acknowledged it was possible that the relevant principles might have been correctly identified but incorrectly applied it showed a clear reluctance to interfere with the District Judge’s application or findings of fact. Provided the relevant principles are identified, determining the rateable occupier is very much a factual rather than a legal question.
The judgment also suggests an increasing willingness by the Courts to consider whether the rates avoidance scheme in question might be considered a “sham”. There now appear to be an increasing number of circumstances where mitigation schemes might fall foul of the “sham” test.
More generally, Queen Street Properties provides another example of a business rates mitigation scheme that has been successfully challenged by the local authority. This could well increase the appetite of local authorities to challenge other schemes on a similar basis. Parties implementing rates avoidance schemes would be well-advised to consider the arrangements they are putting in place very carefully in light of the change in approach by the Courts.
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