Property guardianship and business rates

When a commercial property is vacant, it can cause all kinds of problems for the property owner.

These include:

  • A risk of squatters
  • Damage to the property and vandalism
  • A risk of trespassers
  • The financial issues around business rates
  • The solution found to this problem by Ludgate House Limited was the occupation of their property by property guardians.

Property guardians

Property guardians are individuals who occupy an empty commercial or residential premises under an agreement or licence with the guardian company. This agreement gives the property guardian the right to occupy the building. The agreement is very different from a standard shorthold tenancy agreement and the rent paid to occupy the property is usually well below the market rate for the area.

There are disadvantages to becoming a property guardian; there is little long-term security for individuals occupying the property, as they can be asked to vacate at short notice. Some agreements also place stringent terms on how many nights away a guardian can have from a property.

Once a property is occupied by property guardians, it can in some circumstances become liable for council tax which is significantly lower than the equivalent in business rates, this has been highlighted in the case of Ludgate House Vs Ricketts (VO) and Southwark LBS

Ludgate House Vs Ricketts (VO) and Southwark LBS

This case highlighted that rates mitigation was an additional benefit of property guardianship of a commercial building. The findings of the Upper Tribunal were that securing a building is not a beneficial occupation. The primary purpose of the building was to provide a home for the property guardians and, as such, the floors where guardians were living came under council tax and not business rates.

This case is clearly disappointing for both the local authority involved and the Valuation Office Agency (VOA). The VOA had initially ruled that Ludgate House was liable for business rates at a rateable value of £3,390,000; the rates payable would have been a significant bolster to the council concerned.

What local authorities can do

If they have properties that are occupied by property guardians, then they should carry out regular property inspections to ensure the property is still occupied by guardians. The occupiers will still need to pay council tax so ensuing these payments are kept up to date should also be a priority.

They should carefully review the structure and layout of the property to check whether there are occupants living in the property, and if so which parts of the building they are occupying

The judgment in full can be read here and the appeal here.

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