Landlord liable to pay empty rates - shock

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Summary: Following the liquidation and lease disclaimer of its tenant, a landlord is surprised to find itself liable to pay empty rates. Michael Metliss looks at the novel interpretation of authority in Schroder Exempt Property Unit Trust & Ors v Birmingham City Council.

In Schroder Exempt Property Unit Trust & Ors v Birmingham City Council last month, the administrative court in Birmingham, on appeal from the Birmingham Magistrates Court, decided that a landlord was liable to pay empty rates on the basis that it had a right to possession.

Whoever is the property owner, having the immediate right to possession, is liable to pay the rates. That is usually an occupational tenant, until such time as the lease ends, and there is no renewal or new letting. So, it is rare that a landlord is liable.

If the tenant is in liquidation or administration, there is an empty rates exemption, which is why landlords are content to allow leases held by insolvent tenants to subsist, until such time as they can re-let. It is important to them not to become liable to pay empty rates.

In that context, Schroder Exempt Property Unit Trust & Ors v Birmingham City Council is a bad case for landlords, because it concerned a lease held by an insolvent tenant, that was in liquidation.

On any reading, the lease subsisted, and there was an empty rates exemption.

Then, unsurprisingly, the liquidators disclaimed the lease. Unless they can be persuaded not to, that is what liquidators do. They shed liabilities where they can.

A disclaimer releases the company in liquidation from that liability, but does not necessarily extinguish the liability itself.

A lease disclaimer only ends the lease, and the rates liability reverts to the landlord, if the company in liquidation is the original tenant, and there are no other interests in the lease, such as an earlier tenant, a guarantor, or sub-tenant.

Or so we thought.

The judge in Schroder Exempt Property Unit Trust & Ors v Birmingham City Council said otherwise. In finding the landlord liable to pay empty rates, he decided that a disclaimer ends a lease in every case.

The judge applied a novel interpretation to House of Lords authority that a disclaimer does not end a lease that has been assigned.

That may not upset the law when it comes to disclaimer, but it does upset the law when it comes to landlords' liability for empty rates.

We do not believe that the decision is being appealed, but it seems inevitable that, if this decision is relied on in future by rating authorities, another landlord will feel strongly enough to take the point to the Court of Appeal.

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