Rates Mitigation

The recent Court of Appeal decision of London Borough of Southwark v Ludgate House Ltd 2020 puts into doubt the effectiveness of guardianship schemes as a rates mitigation strategy.

A guardianship scheme is designed to help landowners manage empty properties by providing security (to prevent, amongst other things, adverse possession) and also to avoid rates liability.  It works by a third party contracting with a landowner to provide security.  The third party then grants to one or more guardians a licence to occupy the building in question for residential purposes.  The guardians in return agree to perform certain duties relating to security and pay a modest rent.

Until the above Court of Appeal decision, the avoidance of rates liability was thought to be achieved because as a consequence of the scheme the landowner was thought to be replaced by the guardian as the rateable occupier of the property.

Legal Background

The essential characteristics for rateable occupation, set out in a 1949 Court of Appeal decision (subsequently approved by the House of Lords), are as follows:

• there must be actual occupation or possession
• the occupation/possession must be exclusive, or at least paramount, for the particular purposes of the possessor
• the possession must be of some value or benefit to the possessor
• the possession must not be too transient—the occupation must be sufficiently permanent

The Decision

In the Ludgate House case, it was found that the second characteristic – the occupier needing to be in exclusive or paramount occupation – was not met.

Although the guardians, in this case, had keys to their respective rooms it was decided that the landowner retained too much control for the guardians to be deemed to be in rateable occupation.  Lord Justice Lewison said the arrangement was nearer to a lodging arrangement in a private residential house.  The guardian like the lodger was not in sufficient control of the property.

Practice note

It will be interesting to see whether these guardianship schemes will now be abandoned or, alternatively, modified to take this decision into account.  The difficulty for a landowner is that if greater control is given to a guardian (to ensure that the guardian becomes the rateable occupier) the greater chance that a residential tenancy will inadvertently be created (which will be undesirable for most landowners waiting to re-let or to re-develop).  The ideal would be to create a scheme where the guardian is in paramount occupation (to ensure the guardian is the rateable occupier) but not exclusive possession (to ensure the guardian does not become a tenant).   Lord Justice Lewison however does not appear to give too much hope for such an enterprise when he states in his judgement (40(i)):

“”Occupation” must include “actual possession”.  It would appear to follow that if a putative occupier does not have possession, he will not be in rateable occupation.”

We Can Help You

For further information regarding guardianship schemes as a rates mitigation strategy, please contact our specialist commercial property team on 0330 404 0749 or email enquiry@ashtonslegal.co.uk.