High Court Rules on Business Rates Liability After Disclaimer

Property Fund’s Appeal Unsuccessful

25.07.2014

The High Court has made an important decision in a business rates dispute between a commercial landlord, Schroder Exempt Property Unit Trust (SEPUT) and Birmingham City Council.

SEPUT’s tenant, which had taken an assignment of the lease, went into liquidation and the liquidator disclaimed the lease, which still had five years to run.

However, SEPUT was able to recover the rent that would have fallen due for the remaining 5 years of the lease from the original tenant, which had provided a guarantee.

As SEPUT didn’t take occupation of the premises and left them empty, they claimed that they should not pay business rates.

The Court decided that, despite being able to recover on-going rent from the guarantor, SEPUT was entitled to immediate possession following the disclaimer, which triggered an immediate liability for business rates even if they didn’t take possession.

Expert Opinion
The decision is bad news for landlords seeking to avoid liability for business rates following the insolvency of their tenant, particularly where the premises may be difficult to re-let.

"The natural instinct of a landlord recovering on-going rent from a guarantor would be to think that they cannot possibly also be held responsible for the rates.

"However, the very specific rules which apply where a lease has been disclaimed by a liquidator mean that a landlord can be responsible for the rates in any event, regardless of the continuing payments of rent by the guarantor."
Danny Revitt, Partner