ARE PROPERTY GUARDIANS AN EFFECTIVE AS WAY OF MITIGATING THE LIABILITY TO PAY BUSINESS RATES?
By Richard Clayton QC
On 4 December 2020 the Court of Appeal in Southwark LBC v Ludgate House  EWCA Civ 1637 for the first time considered whether property guardians were effective as way of mitigating the liability to pay business rates. The Court of Appeal decided that guardians did not provide a viable rates mitigation scheme, reversing the Upper Tribunal by holding that the guardians performed security functions on behalf of Ludgate House Ltd, making LUL liable for business rates.
Ludgate House was a very large office building, formerly the home of the Express Newspapers. Shortly before demolition in 2018, VPS contacted LHL to propose securing the building against trespassers- by arranging for occupation by property guardians under licences granted by VPS.
Property guardians are private individuals (who with others) occupy vacant premises under a temporary contractual licence, until the building owner requires the property for redevelopment. This arrangement gives the guardian accommodation at a low cost and provides the supplier with a fee for setting up the arrangements. The scheme is designed to provide the building owner with protection against squatters and to mitigate liability for business rates.
Guardian schemes have become particularly prevalent, both in London and elsewhere. The idea that a building owner can exempt itself from paying business rates and can also be paid a proportion of the guardians’ licence fees has obvious attractions.
However, the viability of property guardian schemes has been fundamentally undermined by Southwark LBC v Ludgate House.
The Upper Tribunal found that four guardians occupied their rooms as their home and concluded that the whole building was, therefore, exempt from business rates.
But the Court of Appeal reversed the Upper Tribunal. The Court of Appeal extensively reviewed all the relevant authorities and concluded that the question of which person were in rateable occupation required close consideration of the terms of the contractual arrangements. The Court took the view that property guardians were analogous to lodgers and service occupiers.
The Court of Appeal held at  that:
The purpose for which the Ludgate House was occupied (including the rooms used by the guardians) was a common purpose which was of direct benefit to LHL and/or VPS …. LHL and/or VPS retained at least contractual control over the building to realise that benefit, precisely because neither had parted with possession (or indeed occupation). The question is not, therefore, one of “paramount occupation;” but of “general control” which is the decisive factor in establishing who is in rateable occupation of the building.
It is difficult to see how property guardian schemes can survive the reasoning in Southwark v Ludgate House.
Richard Clayton QC and Faisel Sadiq represented Southwark LBC.
A copy of the judgment is here.