Broxfield Ltd v Sheffield City Council – A Look At Sham Leases
The Judgment in Broxfield Ltd v Sheffield City Council  EWHC 1946 (Admin) provides some clarity in relation to the standard of proof required to conclude that a lease agreement is a ‘sham’.
Summary of the case
Sheffield City Council (“The Council”) issued three demands for Non-Domestic Rates (“NDR”) to Broxfield, Broxfield totalling £62,514.01. As the demands were not paid, the Council sought liability orders. Broxfield disputed the Liability Orders on the basis that the Property was occupied by a third party (“B”) by way of Lease Agreement and therefore the liability should be passed to B.
The District Judge in the Magistrates Court concluded that the Lease Agreement between Broxfield and B was a ‘sham’ lease. It was found that the lease document purported to be made, and signed, in December 2015 was created in February 2016; the first copy provided did not contain a term of the lease, and when queried the second version did; the lease was granted to a dormant company with no assets, revenue or expenditure which did not paid any rent to Broxfield. For those reasons, there was no valid lease between Broxfield and B or any other contractual arrangement passing the liability of the NDR to any other third party.
Broxfield appealed the decision of the Magistrates Court on the basis that finding the lease agreement to be a ‘sham’ was a finding of serious dishonesty, and for that reason the Court should require very cogent evidence to make a finding of this kind.
The Appeal was dismissed.
The Appeal Court upheld the definition of a ‘sham lease’ provided in Snook v London and West Riding Investments Ltd  2 QB 786; as Lord Wilberforce said a ‘sham lease’ is a document “whilst professing to be one thing, it is in fact something else.”
The Appeal Court also held that the standard of proof must remain the simple balance of probabilities. The fact an allegation is serious is not a reason to elevate the standard of proof, nor is it a reason to suggest the quality of the evidence required has to be any stronger. Instead, the Court simply had to consider whether, on the admissible evidence, the point was more likely or not made out.
Practical implications for Councils
The normal rule in Magistrates Court proceedings is that the burden of proof swings to the respondent as long as the council has shown that the property concerned was in the list, the rates properly demanded and they remain unpaid.
To assert a sham will however require the council to meet the test in Snook, on the balance of probabilities.
In the event that the lease had been signed, the conduct of the parties is crucial to determine whether the lease is a ‘sham’. Examples of considerations include:
- Has the “lease” been properly executed?
- Is it worth checking the meta data on the documents provided?
- Was there any pre-contract correspondence between the parties?
- Who actually paid the utilities during the period purportedly covered by the lease?
- If the tenant is from a different region would they practically ever take occupation?
- Did they ever actually take occupation? (Generally leases will have run for a period or even conclude before a case gets to Court, though this is only evidence as the question is of the intention at the time of contracting).
- Were rental obligations ever enforced or able to be met?
- Did either party act in contravention of their obligations under the lease and was issue taken by the aggrieved party? (eg. Landlord conducts building works to the exclusion of the tenant).