[2025] EWHC 2336 (Ch)

At [49], the Court went on to state,

“In our view, Parliament cannot sensibly be taken to have intended that “the person entitled to possession” of an unoccupied property on whom the liability for rates is imposed should encompass a company which has no real or practical ability to exercise its legal right to possession and on which that legal right has been conferred for no purpose other than the avoidance of liability for rates. Still less can Parliament rationally be taken to have intended that an entitlement created with the aim of acting unlawfully and abusing procedures provided by company and insolvency law should fall within the statutory description.”

It is apparent from that passage that the key issue is whether the SPVs had a real or practical ability to exercise their legal right to possession, rather than a legal right to possession granted merely for the avoidance of NDR. As it is expressed, it appears that acting unlawfully and abusing legal procedures are not necessary to failing the test, but, if present, are aggravating features, and emphatic markers of such failure. I do not accept, therefore, the defendant’s submission that unlawfulness and abuse were critical factors in the decision of the Supreme Court in the sense that their presence is necessary for the test to be failed. No such distinction arose, in any event, in the decision of the Supreme Court, because those factors were intrinsic to the schemes under consideration on the agreed and assumed facts.

The court continued ([50-51],

“50 In these circumstances we have no difficulty in concluding that, on the agreed and assumed facts, the SPVs to which leases were granted as part of either of the schemes we have described did not thereby become “entitled to possession” of the demised property for the purposes of the 1988 Act. Rather, throughout the term of the lease that person remained the defendant landlord. This does not involve ignoring the leases, in the way that an intermediate element in a circular transaction might be ignored under the Ramsay doctrine. Rather it involves their close examination in their context, and a conclusion that they did not transfer to the SPVs the entitlement to possession required by the Act as the badge of ownership. If the defendants did not thereby transfer their entitlement to possession it necessarily remained, for the purposes of the Act, with them. The Act requires someone to be identified as the owner. That will be the person who, in any tenurial chain, starting with the freeholder and working downwards, has not disposed of the entitlement to possession of the property in question.

51 We emphasise that this conclusion is not founded on the fact that the defendant’s only motive in granting the lease was to avoid paying business rates, although that was undoubtedly so. If the leases entered into by the defendants had the effect that they were not liable for business rates, their motive for granting the leases is irrelevant. Nor does it illuminate the legal issues to use words such as “artificial” or “contrived” to describe the leases, when it is now accepted that they created genuine legal rights and obligations and were not shams. Our conclusion is based squarely and solely on a purposive interpretation of the relevant statutory provisions and an analysis of the facts in the light of the provisions so construed.”

I therefore accept the defendant’s submission that it is legally irrelevant whether PAG was motivated by a desire to avoid NDR.

At [59] the Court stated,

“In a similar way in the present case we consider that the words “entitled to possession” in section 65(1) of the 1988 Act as the badge of ownership triggering liability for business rates are properly construed as being concerned with a real and practical entitlement which carries with it in particular the ability either to occupy the property in question, or to confer a right to its occupation on someone else, and thereby to decide whether or not to bring it back into occupation. The fact that the property is by definition unoccupied means, as Henderson LJ said, that there is no scope for identifying as the owner anyone in actual occupation. But it does not preclude asking the question whether a lease granted as part of a scheme for tax avoidance having the characteristics set out in para 46 above confers an entitlement to possession in the relevant real and practical sense, so as to identify the lessee as the owner for the purposes of the liability for business rates. If it does not do so, in particular because, under the scheme, there is no question of the SPV being able to exercise any of the attributes of a person with an entitlement to possession, and in particular to bring the premises back into occupation by itself or by anyone else, then the lessee under that lease will not be the owner. The landlord, as grantor of the lease, will be the owner, because the landlord will not by the grant of the lease have transferred to the lessee a real entitlement to possession.”

Finally, for present purposes, the Court said [61-62],

“61 It may be that other factual situations may demonstrate that this test needs some further adjustment. For example the letting of unoccupied business property by a parent company to a wholly owned and controlled subsidiary would not of itself cause the subsidiary to fail to satisfy the ownership test merely because the management of the affairs of the subsidiary (including whether to bring the premises back into occupation) rested with the parent’s board. We would, however, reject the criticism that the test is insufficiently certain. In any ordinary case the test will easily be satisfied by identifying the person who is entitled to possession as matter of the law of real property. The fact that the law of real property may not prove a reliable guide in an unusual case of the present kind is not in our view an objection to our preferred interpretation. The value of legal certainty does not extend to construing legislation in a way which will guarantee the effectiveness of transactions undertaken solely to avoid the liability which the legislation seeks to impose.

Conclusion on statutory interpretation

62 On what we conceive to be the proper interpretation of the definition of “owner” in section 65(1) of the 1988Act, none of the SPVs granted rights by the leases under review in these proceedings answers to that description on the agreed and assumed facts. Rather, on those facts “the person entitled to possession” of the property remained at all material times the defendant landlord. Accordingly, there is a triable issue whether the defendants remained liable for business rates throughout the duration of the leases as claimed by the local authorities and those claims should not be struck out.”