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Ludgate House Ltd v Ricketts (VO) and London Borough of Southwark (2019) UKUT 0278 (LC)

This briefing note is of relevance to property owners, developers and ratepayers looking to mitigate empty rate liability on commercial property by installing property guardians and follows the decision by the Upper Tribunal (Lands Chamber).

Background

The case concerned a large, multi-storey office building constructed in the 1980s, known as Ludgate House, which was situated on the South Bank, close to Blackfriars Bridge. The property became vacant in 2015, pending redevelopment. Prior to demolition, the property owner Ludgate House Limited entered into an arrangement with a property guardians company in order to provide security against squatters and to mitigate the empty rate liability. On the material date of the appeal the property was occupied by four guardians, each of whom occupied their own specific lockable bedroom, but also had use of the other space in the property for living purposes.

Prior to the Upper Tribunal hearing, the Valuation Tribunal for England (VTE) had found in favour of the Valuation Office Agency and the London Borough of Southwark by concluding that the occupation by the property guardians did not make the property domestic and liable for council tax. The VTE held that the guardians’ occupation should be regarded as providing security on behalf of the property owner, Ludgate House Limited, and was not being used wholly, or in part, for the purposes of living accommodation. The property was therefore liable for non-domestic rates and not council tax.

The building owner appealed to the Upper Tribunal against the decision of the VTE.

Upper Tribunal Decision

The building owner contended that the four guardians who were in occupation of the property at the material day of the appeal constituted domestic occupation and consequently each occupation should be assessed as a separate domestic hereditament. The respondents, the Valuation Officer and the London Borough of Southwark, submitted that the building owner was in paramount control of the whole building and therefore the guardians’ use of the property did not constitute rateable occupation and should thus remain as a single non-domestic hereditament.

The building owner contended that the four guardians who were in occupation of the property at the material day of the appeal constituted domestic occupation and consequently each occupation should be assessed as a separate domestic hereditament. The respondents, the Valuation Officer and the London Borough of Southwark, submitted that the building owner was in paramount control of the whole building and therefore the guardians’ use of the property did not constitute rateable occupation and should thus remain as a single non-domestic hereditament.

The Tribunal went on to find that each of the four guardians and their respective bedrooms satisfied the four ingredients of rateable occupation:

  • Beneficial
  • Actual
  • Exclusive
  • Not too transient occupation

The guardians were clearly in actual occupation on the material date of the appeal and there was no contractual arrangement or other relevant relationship to contradict this. Likewise, it was clear the guardians were deriving a benefit from occupying the premises, which was to provide themselves with somewhere to live. Although it could be said the owners themselves were deriving a benefit by both mitigating the empty rate liability and securing the property from squatters, this was deemed to be a ‘consequence’ of the guardian’s occupation but ‘not a purpose of it’. These consequential benefits could not therefore be deemed as a form of beneficial occupation. The Tribunal held that, in terms of exclusivity, each guardian had exclusive control of his/her lockable bedroom, from which the other licensee guardians were excluded. Although the owners and guardian company held some control over the building, it was insufficient to give rise to paramount occupation on the part of the owner. Neither could the licence agreements be considered too transient as each guardian had been in occupation for a 22-month period.

On that basis, the guardians were deemed to be in rateable occupation, not the owners, and the Tribunal ordered the singe rating list entry for Ludgate House (Rateable Value: £3,390,000) be deleted.

Wider Implications

The Upper Tribunal decision is a welcome outcome for property developers and owners who have sought to mitigate their empty rate liability through the use of property guardians and will be especially welcome for those who have had their appeals put on hold by the VOA pending the outcome of this case.

Although the decision provides clarity on the identification of a hereditament under guardian occupation, the valuation of such hereditaments is a matter which will need to be pursued in other cases. In this case, the Tribunal had to consider whether the rating list entry should be deleted from the rating list or not. The limited scope of the appeal and the fact the 2010 rating list had closed meant the Tribunal did not have to consider the valuation of the remaining vacant office space at Ludgate House. In light of this, property owners considering using property guardians to mitigate their empty rate liability should be wary of leaving large vacant areas untouched and unused by property guardians, as these parts could remain liable for non-domestic empty rate liability.

Daniel Watney – Business Rates Services

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