[2025] EWHC 2336 (Ch)

As the head note to the report of Rossendale in the Appeal Cases report states

“(1)

… in order to ascertain whether a particular statutory provision imposed a charge, or granted an exemption from a charge, the court should (i) ascertain the class of facts intended to be affected by the charge or exemption, which was a process of interpretation of the statutory provision in the light of its purpose, and (ii) to discover whether the relevant facts, looked at in the round, fell within that class, which was a process of applying the statutory provision to the facts; that, having regard to the historical background and the statutory scheme as a whole, the main purpose of section 45 of the Local Government Act 1988 was to encourage owners to bring unoccupied property back into use for the benefit of the community; that, further, section 65(1) served that purpose by imposing liability for non-domestic rates on the person who had the ability, in the real world, to bring an unoccupied property back into use, namely the person entitled to possession of the property; that although in a normal case “the person entitled to possession” in section 65(1) was to be interpreted as the person who, as a matter of the law of real property, had the immediate legal right to actual possession of the property, Parliament could not have intended that those words should encompass a company which had no real or practical ability to exercise its legal right to possession and on which that legal right had been conferred for no purpose other than the avoidance of liability for rates; that, accordingly, on a purposive interpretation, the words “the person entitled to possession” in section 65(1) connoted a person who had a real and practical entitlement which carried 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; that, in the present cases, none of the SPVs answered to that description since they had no real or practical control over whether the relevant properties were occupied or not; that, rather, such control had remained at all times with the defendants, who therefore each had been “the person entitled to possession” within the meaning of section 65(1); that it followed that the defendants had been the “owners” of the hereditaments for the purposes of section 45(1)(b) of the 1988 Act and there was a triable issue as to whether they had remained liable for non-domestic rates throughout the duration of the leases; and that, accordingly, the order striking out the claims would be set aside.”

This was, of course, concerned with an application to strike out, and there had been no findings of fact. The court assumed disputed facts in favour of the claimants. It did, however, set out the way in which the relevant statutory provisions fell to be construed, using a purposive construction. At [30], the Court observed,

“In relation to the central purpose of providing an incentive to bring unoccupied property back into use, the intention is clear. It focuses the burden of the rate precisely on the person who has the ability, in the real world, to achieve that objective.”

The court drew the elements of the schemes together, and set out what might be said on the agreed or assumed facts of the cases before it ([46]).

“(i)

The leases were not shams and created genuine legal rights and obligations.

(ii)

The leases were entered into, and the rights under them granted, solely for the purpose of avoiding liability for business rates on the part of the defendant and for no other purpose.

(iii)

The leases were not granted with the intention of allowing the SPV to make any use of the property, or giving the SPV any role in its being brought back into use. To the contrary, it was an inherent part of the schemes that the SPV would have no ability to do so. The SPVs were constituted in such a way that they could do nothing with their rights under the lease, having neither the monetary nor human resources with which to do so, nor any business of which such an activity could form a part. Those rights were accordingly of no value or benefit to the SPV. Furthermore, the SPVs were intended either to go into immediate liquidation (under Scheme B) or to be dissolved after a period of inactivity which was to begin upon the grant of the lease (under Scheme A).

(iv)

By the same token, the schemes were designed so that the practical ability to decide whether to continue to leave the property unoccupied remained with the defendant landlord. If at any time the defendant found a tenant or acquired a use for the property, it could simply terminate the lease. In Lord Denning MR’s phrase (see para 29 above), it was the defendant who really had control of letting the property.

(v)

Although the leases were granted with the object of imposing the legal liability for business rates initially at least upon the SPV in exoneration of the defendant, it was not intended that any business rates would actually be paid by the SPV. Nor was there any possibility that the SPV would in fact pay those rates, once demanded. It had no assets from which to do so. Under Scheme A the plan was that the liability for business rates would just accumulate, unpaid, until the SPV was dissolved, following which the further accruing liability would be incurred by the Crown, until the Crown disclaimed the lease and the liability was extinguished. Under Scheme B the plan was for the SPV to be placed immediately in liquidation to claim the shelter of the regulation 4(k) exemption and stay there for as long as could be engineered. Both schemes were managed so as to prolong the period before the disclaimer of the leases, and therefore the hiatus in payment of rates, for as long as possible.

(vi)

Each scheme pursuant to which the leases were granted involved as an integral part the misuse of a legal process: namely, the dissolution of a company and the law governing dissolution in the case of Scheme A and the liquidation process and the insolvency legislation in the case of Scheme B. Furthermore, Scheme A (if effective) involved an inevitable breach of statutory and fiduciary duty by the directors of the SPVs in the very acceptance of the leases, and the section 1003 variant is likely to have involved the commission by those directors of criminal offences.”

At [47-48] the Court stated,

“47 There can be no doubt that the definition of the “owner” of a hereditament in section 65(1) of the 1988 Act as “the person entitled to possession of it” is to be interpreted as denoting in a normal case the person who as a matter of the law of real property has the immediate legal right to actual physical possession of the relevant property. Arden J so held in Brown v City of London Corpn [1996] 1 WLR 1070 as a reason for concluding that the right of a receiver under a debenture to exercise a power to displace the possession of the company which was the tenant of an unoccupied property did not make the receiver the “owner” of the property for the purposes of section 65(1) and thereby liable for business rates. It has not been suggested that that conclusion was wrong. Furthermore, such an interpretation generally accords with the legislative purpose of imposing the liability for business rates on the person who controls whether the property is left unoccupied and on whom the legislation is intended to place an incentive to bring the property back into use for the benefit of the community.

48 In the unusual circumstances of this case, however, identifying “the person entitled to possession” in section 65(1) of the 1988 Act as the person with the immediate legal right to possession of the property would defeat the purpose of the legislation. As we have explained, the schemes were designed in such a way as to ensure that the SPV to whom a lease was granted had no real or practical control over whether the property was occupied or not and that such control remained at all times with the landlord.”