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.

Ludgate House Vs Ricketts (VO) and Southwark LBS

The initial ruling, which highlighted rates mitigation as an additional benefit of property guardianship of a commercial building, has now been overturned in the Court of Appeal.

The decision was based on the whether the commercial landlord having overall control of the property would interfere with the property guardians' occupation of the property. This decision was based on a licence being in place and not a tenancy agreement.

Exclusive residential occupation is the key; this is the wording from the Court of Appeal:

The agreement if VPS would "occupy the Property as a licensee"; that no relationship of landlord and tenant was created between it and LHL; that LHL "retains control, possession and management of the Property", and that VPS was not entitled to exclude LHL from the building.

The licence to the guardians stipulated "You will not get a right to exclusive occupation of any part of the living space. The space will be shared with other individuals who [VPS] permits to share the space. You will have to agree with those other individuals how the space is to be used. The size and extent of this space may vary from time to time, as directed by [VPS]."

Action local authorities can take

Local authorities should ensure they have an up-to-date list of any property being occupied by property guardians. They should also carry out the following tasks:

1. Check the wording, do the property guardians have exclusive occupation of the property or are there clauses as outlined above?

2. Conduct a property inspection to view the living arrangements and check if the guardians are benefiting from exclusive occupation

3. Ensure records are kept up to date as to whether council tax or business rates are applicable and that any documents are kept to ratify this decision.

This appeal ruling is good news for local authorities, as it means there is potential to recover and collect business rates where formerly council tax would have applied at a much lower rate when buildings are occupied by property guardians.

The ruling in full can be read here.