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Dispute over empty properties and £10m+ in business rates to go to Supreme Court

The Supreme Court has agreed to hear a dispute over empty commercial properties and whether councils are owed more than £10m in business rates arrears.

A panel comprising Lord Kerr, Lord Carnwath and Lord Briggs last month gave Rossendale Borough Council permission to appeal the Court of Appeal’s ruling in Rossendale Borough Council v Hurstwood Properties (A) Ltd & Ors [2019] EWCA Civ 364.

The case arose over property owners who lease unoccupied premises to another company which then becomes liable for business rates [national non-domestic rates]. The second company is then either voluntarily liquidated or struck off without liability for rates returning to the first company.

In the Court of Appeal David Richards LJ said the case concerned “two schemes designed to avoid the payment” of business rates.

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Both involved leases given to special purpose vehicle (SPV) companies that lacked assets or liabilities.

He said Hurstwood maintained that by virtue of the leases, the SPVs were the owners of the properties and Rossendale accepted this “unless the leases or the SPVs can as a matter of law be disregarded”.

The case concerned whether it was arguable that the doctrine of ‘piercing the corporate veil’ was applicable to the SPVs, and whether the leases fell to be disregarded by the application of the principles established by the decisions in WT Ramsay Ltd v Inland Revenue Commissioners [1982] AC 300.

In the High Court HHJ Hodge decided in favour of ‘piercing the veil’ but against the ‘Ramsay’ point. Hurstwood appealed on the first ruling and Rossendale on the second.

David Richards LJ said: “The judge records that these proceedings are but two of some 55 similar proceedings pending in the Liverpool District Registry of the Chancery Division.

“The two present cases have in effect been chosen as test cases. The total amount of [business rates] claimed in all these cases is some £10m but it may well be that the amount not paid as a result of schemes such as these is greater.”

He said the council’s case was that the SPVs existed “for the purpose and only for the purpose of avoiding an existing or imminent charge to [business rates]” and so their use was “an act of impropriety with a view to avoiding a potential or immediate legal obligation or liability; evading the law or frustrating the enforcement of the relevant legal obligation".

But the judge decided it could not be said that the SPVs were used “as engines of fraud or to take an unconscionable advantage.

“Views may differ as to whether the purpose for which the SPVs were used was socially reprehensible but, assuming it was, there is no suggestion in Prest or in any of the other cases that such disapproval can found the application of the radical doctrine of disregarding the separate legal personality of a registered company.”

Henderson LJ considered the Ramsay point and said the correct interpretation was that whoever possessed a property on any given day was liable to pay rates and the valid lease meant that was the SPV was liable, not the original company.

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