Schroder Exempt Property Unit Trust and Another v Birmingham City Council
| Jurisdiction | England & Wales |
| Judge | Mr Justice Hickinbottom |
| Judgment Date | 10 July 2014 |
| Neutral Citation | [2014] EWHC 2207 (Admin) |
| Court | Queen's Bench Division (Administrative Court) |
| Date | 10 July 2014 |
| Docket Number | Case No: CO/52/2014 |
[2014] EWHC 2207 (Admin)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT IN BIRMINGHAM
(ON APPEAL FROM THE BIRMINGHAM MAGISTRATES' COURT
BY WAY OF CASE STATED)
Birmingham Civil Justice Centre
Priory Courts, 33 Bull Street
Birmingham
Mr Justice Hickinbottom
Case No: CO/52/2014
Reuben Taylor QC (instructed by Wragge Lawrence Graham & Co LLP) for the Appellant
Judith Jackson QC (instructed by Birmingham City Council Legal & Democratic Services) for the Respondent
Hearing date: 2 July 2014
This is an appeal by way of case stated against a liability order made on 28 August 2013 against the First Appellant and in favour of the Respondent Council by District Judge Mottram in Birmingham Magistrates' Court, for non-domestic rates for the period 20 April 2011 to 31 March 2013 in respect of Unit 2, Zenith Deykin Avenue, Witton, Birmingham ("the Property"). The Council seeks to uphold the order, and has served a Respondent's Notice which relies upon additional grounds to those of the District Judge.
The First Appellant transferred its interest in the Property to the Second Appellants at some stage between April 2011 and March 2013, a point only very recently disclosed. However, the Second Appellants have agreed to be added as a party to this appeal and have undertaken to honour any liability for rates found under the liability order; and no point in respect of corporate personality is taken. In this judgment, I shall refer to the First Appellant and the Second Appellants collectively as simply "the Appellants".
The background facts can be shortly put. They are uncontroversial, and were the subject of an agreed statement before the District Judge, no witnesses being called.
The Appellants are the freehold owners of the Property. On 5 June 2006, they granted a 10 year lease of the Property to Woodward Foodservice Limited ("WFL"), the tenant's obligations being guaranteed by W F Group Holdings Limited. The lease required the tenant to pay all outgoings, including rent (clause 6.2) and rates (clause 6.3). Clause 10.1 of the lease gave the Appellants as landlords a right of re-entry in the event of default, defined to include a failure to pay rent (clause 10.2(a)) or entering administration or receivership (clause 10.2(d)).
On 23 July 2008, with the Appellants' consent, WFL assigned the lease to W F Group Limited, but it guaranteed the new tenant's obligations to the Appellants under the lease by way of an Authorised Guarantee Agreement, in these terms:
"1.1 [WFL] guarantees to the Landlord that [W F Group Limited] shall pay the rents reserved by the Lease… and observe and perform the tenant covenants of the Lease and that if [W F Group Limited] fails to pay any of those rents or to observe or perform any of those tenant covenants, [WFL] shall pay or observe and perform them.
1.2 [WFL] covenants with the Landlord as a separate and independent primary obligation to indemnify the Landlord against any failure to pay any of the rents reserved by the Lease or any failure to observe or perform any of the tenant covenants of the Lease."
The liability of WFL is expressly stated not to be affected by any disclaimer of the liability of W F Foods Limited under the Lease (paragraph 2.1.9).
W F Group Holdings Limited and W F Group Limited went into liquidation, and were wound up on 20 April 2011. The liquidator disclaimed all interest in the Property that day, under section 178 of the Insolvency Act 1986 ("the 1986 Act").
It was common ground that the Appellants had continued to call on WFL as guarantor under the terms of the Authorised Guarantee Agreement to make good the default of W F Group Limited in paying the rent, and that WFL had made payments of the sums demanded. The Appellants have not exercised any right to go into physical possession of the Property.
The Council made rate demands of the Appellants for the period after the disclaimer. These were not honoured; and therefore the Council sought a liability order, which resulted in the order in the sum of approximately £590,000 now challenged in this appeal.
Under section 178(4) of the 1986 Act:
"A disclaimer under this section –
(a) operates so as to determine, as from the date of the disclaimer, the rights, interests and liabilities of the company in or in respect of the property disclaimed; but
(b) does not, except so far as is necessary for the purpose of releasing the company from any liability, affect the rights or liabilities of any other person."
Thus, from the date of disclaimer, by virtue of section 178(4)(a), the tenant (i.e. W F Group Limited) ceased to have any right to occupy the Property, and indeed ceased to be in occupation. It is common ground that, for the whole of the relevant period, the Property had no actual occupier.
Historically, in general local rates were levied on an occupier for occupied premises. Occupiers are still liable for rates (section 43(1) of the Local Government Finance Act 1988 ("the 1988 Act")); but, where there are no actual occupiers, non-occupiers may also now be liable. Under section 45(1) of the 1988 Act:
"A person (the ratepayer) shall as regards a hereditament be subject to a non-domestic rate of a chargeable financial year if the following conditions are fulfilled in respect of any day in the year –
(a) on the day none of the hereditament is occupied,
(b) on the day the ratepayer is the owner of the whole of the hereditament,
(c) the hereditament is shown for the day in a local non-domestic rating list in force for the year, and
(d) on the day the hereditament falls within a class prescribed by the Secretary of State by regulations."
In this case, it is common ground that none of the Property was actually occupied during the relevant period; and that conditions (a), (c) and (d) were fulfilled. This appeal concerns condition (b).
For the purposes of the 1988 Act, "owner of a hereditament" is defined in section 65(1), as follows:
"The owner of a hereditament or land is the person entitled to possession of it."
Given those statutory provisions, it is common ground between the parties that whether the Appellants are liable for the rates during the relevant period turns on whether it was entitled to immediate possession of the whole Property during that period. The question posed for this court by the District Judge correctly identifies this determinative issue: "Was I correct to find that the [Appellant] was the owner within the meaning of sections 45(1)(b) and 65(1) of the Local Government Finance Act 1988?".
Mr Taylor for the Appellants submitted that the Appellants were not entitled to immediate possession. He submitted that the effect of section 178(4) is as follows.
i) A disclaimer has the effect of ending the liabilities of a tenant such as W F Group Limited, but not ending the lease for all purposes. It continues for certain purposes related to the third parties including guarantors such as WFL in this case.
ii) As section 178(4)(b) provides, the disclaimer does not affect the rights and obligations between a landlord and guarantor. WFL as guarantor therefore continues to be liable to pay the rent until the earlier of (a) expiry of the term of the lease, or (b) the Appellants physically re-entering the Property in accordance with clause 10.1 of the lease, there having been an "event of default" notably W F Group Limited's default on the rent and entry into administration/liquidation. Therefore, the Appellants have a right to possession of the Property prior to the expiry of the term, but only if and when they have exercised their right under clause 10.1 physically to re-enter the Property. They did not have – and still do not currently have – a right to immediate possession. In this regard, Mr Taylor relies on Brown v City of London Corporation (Re Solomon) [1996] 1 WLR 1070 at page 1082H-1083A per Arden J (as she then was), where she says:
"… [A] person is entitled to possession for the purposes of section 65(1) of the Act of 1988 only is he is immediately entitled to possession. It is not enough that a person has a right which if exercised would result in his having possession".
iii) The Appellants therefore have the choice to re-enter and forfeit the lease as against WFL thereby losing entitlement to rent from that company for the remainder of the term, or not to re-enter and continue receiving rent from that company; and it has, to date, chosen the latter course. The Appellants are only entitled to immediate possession as and when it exercises its right to physical possession.
iv) That submission, Mr Taylor says, receives support from section 17 of the Landlord and Tenant (Covenants) Act 1995 ("the 1995 Act"). Under that Act, if the requisite notices are served, a landlord in the position of the Appellants is entitled to rent from the guarantor. In this case, the Appellants served the relevant notices and WFL has paid the rent throughout. Rent can only be payable if and for so long as the landlord does not have a right to immediate possession. The fact that rent is being paid therefore confirms the proposition that the landlord is not entitled to immediate possession.
v) Mr Taylor also seeks support from section 19 of that same Act, which gives a guarantor who makes payments of amounts required to be paid under section 17 an entitlement to an "overriding lease", i.e. "a tenancy of the...
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Liability For Business Rates Following Disclaimer
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