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Case law: Legal challenge to landlords’ scheme to avoid business rates on empty commercial properties fails

Landlords with unlet unoccupied commercial properties will welcome a High Court ruling that a scheme allowing them to avoid paying business rates on them is not unlawful on grounds of public interest.

January 2020

This update was published in Legal Alert - January 2020

Legal Alert is a monthly checklist from Atom Content Marketing highlighting new and pending laws, regulations, codes of practice and rulings that could have an impact on your business.

Business rates on non-domestic property are payable by the individual or entity ‘entitled to possession’ of it. Where a landlord has let a property, this is usually the tenant. However, if the property is unoccupied and the landlord is entitled to possession, the landlord becomes liable for business rates.

There is an exception: tenants that are limited companies in liquidation are not liable to pay business rates; nor can the rating authorities recover those rates from the landlord because in those circumstances, the landlord is not entitled to possession.

Landlords with empty properties have therefore operated a scheme by which they set up limited companies with no assets and no track record – ‘special purpose vehicles’ (SPVs) - and let their empty properties to the SPVs at a nominal rent (or at a higher rent which they then waive). They then put the SPVs into voluntary liquidation and prolong the liquidation for the full term of the lease. They can then argue that neither they nor the SPV is liable for business rates during that term (the landlord is not liable because it is not entitled to possession, and the tenant being exempt by virtue of being in liquidation).

Legal claims by rating authorities that they should be allowed to ‘look through’ such SPVs and levy rates on the landlord have failed in the past, as have arguments that a general anti-avoidance rule (lawyers call it the ‘Ramsey principle’) should apply to such schemes.

However, in a recent case a rates avoidance scheme was challenged on different legal grounds. A business was providing an SPV service to landlords. It would set up SPVs that it owned and managed, and take leases of unoccupied properties from multiple, unconnected client landlords. Each lease was for a three-year term at a nominal rent. Importantly, each lease allowed the landlord to end the lease on payment of a ‘determination premium’ which increased over the term of the lease.

The fact that the later a landlord might end a lease, the higher the premium they had to pay, gave the liquidator a commercial incentive to prolong the liquidation.

The Secretary of State applied to wind up SPVs set up by the business on grounds the schemes they were part of were an abuse or subversion of insolvency law and, therefore, contrary to the public interest. If the claims had succeeded, the Secretary of State could then have been in a position to liquidate any such SPV faster, so the landlord became entitled to possession more quickly, and therefore liable to pay business rates again.

This approach failed: the High Court found that the aim of a voluntary liquidation was to collect in and realise a company’s assets, and distribute them to those entitled to them. Provided those putting a company into voluntary liquidation could objectively show their aim was such a collection, realisation and distribution, it was irrelevant what the underlying motive was – even if it was solely to avoid paying business rates.

Therefore, setting up (or acquiring) an SPV which took on a lease and was then put into a prolonged voluntary liquidation to suspend liability to pay business rates. was not against the public interest.

Operative date

  • Now


  • Landlords of an unoccupied commercial property should consider whether they can let their property to a special purpose vehicle (SPV) which is then put into liquidation to avoid liability to pay business rates; or use the services of a business which provides such vehicles for a fee, to avoid payment of business rates.

Case ref: Secretary of State for Business, Energy and Industrial Strategy v PAG Asset Preservation Ltd [2019] EWHC 2890

Disclaimer: This article from Atom Content Marketing is for general guidance only, for businesses in the United Kingdom governed by the laws of England. Atom Content Marketing, expert contributors and ICAEW (as distributor) disclaim all liability for any errors or omissions.

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