Expert Insights

Expert Insights

Q&A: Rating rates mitigation schemes

Timothy Morshead QC and Joseph Green consider the likely success of two different rates mitigation schemes


I have an empty building, and I have been discussing the possibility of letting it to a special purpose vehicle with a view to avoiding paying empty business rates. Will this rates mitigation scheme work?


The Supreme Court has recently clarified that the burden of paying empty rates should fall on the person who has the practical ability to bring unoccupied property back into use. Therefore, it is arguable that this type of rates mitigation scheme will not have the desired effect.


In Rossendale Borough Council and another v Hurstwood Properties (A) Ltd and others [2021] UKSC 16; [2021] EGLR 28, it was unanimously held that the entitlement to possession remained with the landowners as they had the practical ability to decide whether to leave the property unoccupied.

The business rates mitigation scheme in this case involved the grant of short leases of unoccupied properties to SPVs with the intention that they became the “owner” of the properties and liable for business rates. The SPVs were then either wound up or struck off from the register of companies and thus avoided paying any business rates.

Both the High Court and the Court of Appeal found in favour of the landowners that the SPVs were liable.

The Supreme Court disagreed with the lower courts, signalling an intention to apply the policy behind the legislation, which it said was to encourage owners to bring empty properties back into use for the benefit of the community. They found that the SPVs’ legal right to possession was designed to have no real or practical application and was conferred for no purpose other than the avoidance of rates liability.

This decision changes the principle that a tenant under a valid lease is the person entitled to possession, such that a tenant’s entitlement to possession depends (or may depend) on its practical ability to exercise the right.

The case has been returned to the High Court for a decision at trial and, while we must await that decision, you will need to seriously consider whether this type of scheme will have the desired effect.

You might think instead of using a professional occupier-type mitigation scheme. This was considered by the High Court very recently and its validity was upheld in R (on the application of Secretary of State for Health and Social Care (on behalf of Public Health England)) v Harlow District Council [2021] EWHC 909 (Admin); [2021] PLSCS 73. This kind of scheme preceded Hurstwood and, although less directly in its line of fire, is nevertheless likely to come under renewed scrutiny. In addition, this decision was per incuriam to the decision of the Supreme Court (in the field of landlord and tenant), which was of possible relevance to its reasoning. Therefore, the resilience of professional occupier-type mitigation schemes is now also open to question.


I have an empty building which I propose to develop once my planning application has been approved. While I wait for planning permission to be granted, I would like to grant a number of licences to individuals to reside in the property that are terminable at will so that I can avoid paying empty business rates. Will this rates mitigation scheme work?


It will depend on the precise terms of the licences granted as the Court of Appeal recently confirmed that, in circumstances where the landlord has retained factual control of the property, it will remain the party in rateable occupation of the property and therefore liable for business rates.


The type of scheme you have described is known as a guardianship scheme, which allows the building owner to argue that, as the property is being used for residential use, it ought to be removed from the rating list or that the presence of the guardians ought to reduce the value of the property and result in a lower valuation for rating purposes.

Last year, the Court of Appeal closely examined the guardianship arrangement in Southwark London Borough Council v Ludgate House Ltd and another [2020] EWCA Civ 1637; [2020] EGLR 3. This matter concerned a large, multi-storey office property on the South Bank in London. The property had been vacated in anticipation of being demolished, but was occupied by a number of property guardians who lived in the property as their home.

The agreement between the building owner and the operator of the scheme provided for the grant of licences to the individual guardians, under which the guardians would have no right to exclusive possession or occupation of any part of the building but would be assigned former office space to occupy for residential purposes, subject to being moved around within the building. Their rooms were capable of being locked.

The court found that, as the landlord retained factual control of the property, it was in rateable occupation of it.

As part of their appeal Southwark argued that, where the guardianship scheme uses premises in such a way that they should be licensed as a house in multiple occupation, and no licence is, in fact, obtained, the court should, on grounds of public policy, decline to allow the building owner to rely on that scheme as it amounts to a criminal offence breaching section 72(1) of the Housing Act 2004. The court was not required to determine this issue but it applies to a significant number of guardianship schemes and has the potential to apply to the scheme you have proposed.

Therefore, you will need to look very closely at the terms of your proposed arrangement to make sure that you don’t fall foul of this decision.

An original version of this article was published in Estates Gazette on 9 August 2021. For more information on the above please contact Joseph Green or your usual Charles Russell Speechlys contact.

Our thinking

Share this Page