Council wins Court of Appeal battle over business rates and property guardians

A building is not split into individual hereditaments for rating purposes just because it has property guardians resident, the Court of Appeal has ruled.

Lord Justice Lewison overturned a decision by the Upper Tribunal (Lands Chamber) concerning Ludgate House, which formerly stood near to Blackfriars Bridge in the London Borough of Southwark.

He said the main issue was whether Ludgate House was a single hereditament for business rating purposes. The Upper Tribunal held that it was not and Southwark appealed.

In London Borough of Southwark v Ludgate House Ltd & Anor [2020] EWCA Civ 1637 Lewison J said the case turned on whether the tribunal had been right to decide that particular rooms in the building were in separate rateable occupation, a position it had taken contrary to an earlier decision by the Valuation Tribunal for England.

Ludgate House was demolished in 2018. Before that it had been a nine-storey office block of 173,633 square feet.

Its owner - also named Ludgate House - in 2013 gained planning permission for a comprehensive redevelopment of the building and tenants vacated it in March 2015.

Pending demolition, Ludgate House contracted with VPS (UK) to secure the building against trespassers by arranging for occupation by property guardians under licences granted by VPS.

VPS told potential occupants they did not get a right to exclusive occupation of any part of the living space and would have to agree this with other occupants. In all 46 guardians eventually moved in.

Lewison LJ said the tribunal had decided that an individual room occupied by a guardian was sufficiently identifiable as a unit of property to be capable of being a hereditament, but “the manner in which a putative hereditament is occupied may in some circumstances serve to control whether that red-lined area is to be regarded as, on the one hand, separate from or, on the other hand, part of a hereditament consisting of a larger area”.

He noted that in a Supreme Court case, Lord Carnwath had said: “The lodging house has always been treated as a single hereditament in the occupation of the landlord, even though his control of the premises does not interfere with, but rather supports, the enjoyment by the lodgers of their own rooms for their own purposes.”

It followed that the fact that the lodgers enjoyed their own rooms was “not enough to amount to rateable occupation”, Lewison J said.

He said the tribunal had been right to decide there was no contractual relationship between an individual guardian and Ludgate House but wrong to conclude that the guardians were not providing a service to the company.

Ludgate House had engaged VPS to recruit guardians and they could not provide guardianship without living in the building.

The tribunal had said each guardian had exclusive occupation of their particular room, “of which the clearest demonstration was the provision of a key”.

Lewison J said: “I do not consider that the tribunal were correct in regarding the provision of a key to an individual room as being of legal significance.

“A lodger is nonetheless a lodger even if they have a key to the individual room that they occupy or even to the front door of the lodging house as well. Even a hotel guest is given a key to their room.”

The effect of the contract between VPS and the guardians was a question of law and the tribunal had “misappreciated the effect of the contract” and so he allowed the appeal.

Mark Smulian