Whilst commercial premises are let, a landlord is assured that its tenant will be paying the business rates, since it is usual for a tenant to be obligated under a lease to pay all outgoings, including rates.
In the case of Schroeder Exempt Property Unit Trust and another -v- Birmingham City Council, the position was:-
(a) the lease had been disclaimed by the liquidator, following the tenant's insolvency; and
(b) the tenant’s guarantor was paying the rent to the landlord; and
(c) the premises were unoccupied, since the landlord had chosen not to take physical occupation, in order to maintain its entitlement for the rent against the guarantor; and
(d) the Local Authority looked to the landlord to pay the business rates, triggering a dispute which turned on the identity of the "owner” of the premises.
Resultantly, the question for the Court was, "is the landlord the "owner" within the meaning of sections 45(1)(b) and 65(1) of the Local Government Finance Act 1988?” (Question). Under these sections, “the ratepayer is the owner of the whole of the hereditament”, and “the “owner” is the person entitled to immediate possession”.
The landlord submitted that it was not entitled to immediate possession such that “[the landlord] is only entitled to immediate possession as and when it exercises its right to physical possession”. In summary, the landlord argued that it was not entitled to possession as the lease may have ended in respect of the liabilities of the insolvent tenant but the effect of the disclaimer was not to end the lease for all purposes.
The Court was not persuaded by the landlord’s arguments having regard to the case of Hindcastle Limited -v- Barbara Attenborough Limited, which confirms that a disclaimer operates to terminate a lease but introduces a statutory deeming provision, whereby a guarantor is not released from its contractual liabilities to make good the defaults of a former tenant.
The Court was therefore able to separate the property rights from the contractual rights and consequently, the fact that the landlord chose not to physically recover of the premises, so as to preserve the obligations of the guarantor to pay the rent, made no difference to the effect of the disclaimer which had given the landlord the right to immediate possession as the owner.
This case confirms that the answer to the Question is “Yes” because the landlord, once it had the right to immediate possession of the premises (whether or not it went into occupation) became the "owner" within the meaning of Sections 45(1)(b) and 65(1) Local Government Finance Act 1988 and is therefore liable for the business rates.
The case has highlighted not only the importance of Authorised Guarantee Agreements and the possibility that the landlord may in turn recover the business rates from a former tenant's guarantor but the need for landlords to factor in a liability for business rates when faced with an insolvent tenant.