Property owners with vacant premises will be interested in the recent Court of Appeal decision in Rossendale Borough Council v Hurstwood Properties (A) Ltd and others  EWCA Civ 364 (7 March 2019) to strike out local authority claims against the owners of freehold and leasehold properties who entered in to schemes to avoid payment of Non-Domestic Rates (NDR) on unoccupied properties.
The freehold or leasehold proprietors granted short leases to special purpose vehicles (SPVs) without any assets or liabilities, which were then placed into voluntary liquidation. A company “which is being wound up voluntarily” is exempt from paying NDR under Regulation 4(k) of The Non-Domestic Rating (Unoccupied Property) (England) Regulations 2008.
The local authorities argued that the defendant property owners (not the tenants) remained liable for the payment of the NDR because the scheme was no more than a contrived arrangement solely for the purpose of tax avoidance, that the establishment and use of the limited company was an act of impropriety, that the SPVs created were a nullity as a matter of English Law, and that the leases entered into between the defendants and the SPVs were a sham.
The defendant property owners argued that by virtue of the leases, the SPVs were the “owners” of the properties for the purposes of liability to pay NDR during the period of the lease and that accordingly they had no liability for NDR.
The Court of Appeal struck out the local authority claims on the basis that:
- the SPVs were duly formed and registered as Companies under the Companies Act 2006 and it was not therefore for the court to treat the SPVs as nullities;
- that the court was unwilling to “pierce the corporate veil” of the SPVs and that the purpose and function of the SPVs is not relevant; and
- that the leases were validly executed and entered into between the defendants and the SPVs and therefore could not be deemed a sham.
There are many similar cases pending with the amount of unpaid NDR estimated to be to circa £10,000,000.00. This may be another decision (like those based upon arguments around “rateable occupation”) that prompt anti-avoidance legislation. This has been suggested for quite some time, but of course the government has been a little distracted of late!