Councils can sue developers for unpaid business ratesby
As more Covid-hit High Street businesses shutter, the Supreme Court has ruled that local authorities can sue for unpaid business rates due on empty properties.
Many landlords of commercial property are suffering because their tenants have left or gone into liquidation.
If the building is empty and unused no business rates are due for the first three months it is vacant, but most businesses must start to pay the business rates again after three months. An extension of this three month relief period can be claimed for certain types of building (industrial, listed, or very small rateable value), or where the owner is a charity or community amateur sports club.
There is also an exception to the requirement to pay business rates where the owner is a company in liquidation and doesn’t occupy the property, or the owner is a company in administration. However, these exceptions have been used within business rates avoidance schemes by certain property developers. They form special purpose vehicle (SPV) companies to hold the empty properties, and then put those SPVs into liquidation, avoiding the business rates.
The test case
The Supreme Court appeal centred on a test case involving two local authorities that claimed to have reasonable grounds for claiming unpaid business rates from the owners of various unoccupied commercial properties.
The result of the Supreme Court’s ruling could have widespread implications for other local authorities looking to pursue claims, with empty shops now littered across the battered High Street.
The two councils, Rossendale Borough Council and Wigan Council, are representative of 55 similar cases, where the value of the claims for unpaid business rates vary from a few thousand to millions of pounds.
Rates avoidance scheme
Hurstwood Group and Property Alliance Group, the two companies at the centre of this case, granted a short lease of the unoccupied property to a special purpose vehicle (SPV). This rates avoidance scheme then becomes the ‘owner’ of the property for the purpose of the liability for business rates. But the SPV is put into members’ voluntary liquidation or is dissolved. This scheme artificially prolongs the existence of the SPV and therefore escapes liability.
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