Supreme Court decision allows Councils to sue developers for unpaid business rates

Supreme Court decision allows Councils to sue developers for unpaid business rates

A recent decision (14th May 2021) by the UK Supreme Court has determined that two councils can sue property developers for their unpaid business rates. The case was brought by Rosendale and Wigan Borough Councils against Property Alliance Group Ltd and Hurstwood Properties regarding local levies that were owed on empty properties.

What are business rates?

Business rates or non-domestic rates are a tax on the occupation of non-domestic property. The occupier of a non-domestic property normally pays the business rates. Usually, this is the owner-occupier or leaseholder. If a property is empty, the owner or leaseholder can become liable.

Background to the case

The councils wished to charge non-domestic rates on empty properties from the respondent companies. However, the companies had entered schemes where special-purpose tax companies took short leases of the properties and became liable for tax. No taxes were paid because these corporate vehicles were then dissolved or put into liquidation, this is because there is an exception to business rates where the owner is a company in liquidation. The Supreme Court ruled to allow the matter to proceed to a full trial noting that there was an arguable case that the original owners remained liable for the rates

What does this mean?

This case has a wider significance due to the impact of the Coronavirus pandemic resulting in business closures and increasing empty shops. The Government approved business rates relief for some retail, hospitality, leisure, or nursery business. However, empty units do not qualify for a business rates holiday (after the initial 3 months grace period) despite the increased difficulties for commercial Landlords to find Tenants in these unusual times. This decision opens the gates for councils all over the UK to bring claims. The results of such claims may have further-reaching implications for commercial property law. Concerning this, the Treasury review on business rates promised by the Chancellor last year will not be published until this Autumn. Which could potentially ignite further arguments for change to the current business rates system.

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*This article is provided for general information purposes only and does not constitute legal advice or other professional advice.