Schroder Exempt Property Unit Trust V Birmingham City Council (Liability For Rates After Lease Disclaimer)

Facts

This case concerned liability to the Council for non-domestic rates in respect of a property which was unoccupied for the duration of the relevant period. The lease of the property had been disclaimed by the liquidator of the insolvent tenant company and the Council sought payment of the business rates from the landlord.

The lease required the tenant to pay all outgoings, including rates. Following an assignment of the lease, the outgoing tenant agreed to stand as guarantor to the new tenant's obligations to the landlord by way of an Authorised Guarantee Agreement.

When the new tenant company went into liquidation, the liquidator disclaimed all interest in the property. The landlord sought payment of sums due under the lease from the former tenant as guarantor, who made payments to cover the insolvent tenant's default on rent.

For the period after the disclaimer, non-domestic rate demands were made by the Council to the landlord (who had not exercised any right to go into possession of the property) and these rates went unpaid. The Council therefore sought a liability order on the basis of section 45(1) of the 1988 Local Government Finance Act.

Local rates are in general levied on an occupier. However, where there are no actual occupiers, the ratepayer is the person who meets the conditions of section 45(1). Section 45(1)(b) states that "the ratepayer is the owner of the whole of the hereditament". The issue between the parties was the identity of the "owner" following disclaimer of the lease given that "owner" is defined in section 65(1) of the 1988 Act as "the person entitled to possession". The landlord argued it was not entitled to possession as the lease had ended in respect of the liabilities of the insolvent tenant but the disclaimer did not end the lease for all purposes.

Decision on appeal

It was decided that, following the disclaimer of the lease, the landlord had the right to immediate possession. Therefore, the landlord was the "owner" within the meaning of the Local Government Finance Act 1988. As the owner, the landlord was liable for the non-domestic rates for the unoccupied property.

The Court drew a clear distinction between the existence of the lease and the liability of the guarantor. The case of Hindcastle Ltd v Barbara Attenborough Associated Ltd [1997] A.C. 70 confirmed that a disclaimer...