The consideration and treatment of leases, particularly on empty property, is an important part of establishing who is the correct liable party for NDR.

The recent case of Stockport MBC v Punj Lloyd Limited [2018] EWHC 3776 reviewed the law in relation to the specific circumstances of that case. Some very useful principles for councils were set out and this article will look at not only the Stockport case but other empty property scenarios and considerations on liability.

Background and Chronology of the Stockport Case

April 2000 – underlease granted by Simon Group plc to SCL for 21 years (“the lease”).

2005 – Padwick acquire the reversion to the lease, effectively becoming the landlord in the scenario.

2006 – Padwick enter into a guarantee with Punj Lloyd Limited (PLL) in respect of SCL’s obligations under the lease including a provision that if the lease is disclaimed, Padwick may demand that PLL enter into a new lease for an equivalent term.

2011 – SCL go into administration and vacate the property – the administrators return the keys to Padwick in November 2011.

2013 – SCL go into liquidation and the lease is disclaimed on 14.8.13.

On 19.12.13 Padwick’s solicitors give notice requiring PLL to enter into a new lease.

2014 – Padwick issue proceedings against PLL for an order for specific performance and in March obtain judgment against PLL. A new lease is executed by the court between Padwick and PLL and dated 21.4.16. The new lease runs from 14.8.13 to 11.4.21.

Scenario for the Council

The council in this case were therefore considering liability on an empty property and the question to be answered in February 2017 was who is liable for the empty rates between 14.8.13 and 31.3.17. The total sum in question was £792,000. Was it the landlord on the basis that the lease had been disclaimed or PLL on the basis that by that time the court had imposed a new lease in PLL’s favour retrospectively to 14.8.13?

Magistrates’ Decision

The matter came before District Judge Goozee, a very experienced judge in rating matters. He decided that PLL’s liability only started from 21.4.16 when the new lease was executed by the court. Liability did not start from the date of the disclaimer on 14.8.13.

DJ Goozee’s reasoning was upheld by the High Court on appeal by way of case stated, and provides a useful guide for councils when considering liability on an empty property when there is a lease (or similar) in place.

The starting point is that in accordance with sections 45 and 65 LGFA 1988 the “owner” is liable, being the person entitled to possession. It was agreed in the appeal that the words “entitled to possession” in section 65 bear the meaning stated in Brown v City of London Corporation [1996] 1 WLR 1070.

Determining this issue “requires one to identify the person who has the immediate legal right to actual physical possession, albeit such person ex hypothesi will not be in actual physical possession of the property.”

“It is not relevant to enquire who, if they exercised a particular right or power, would have such entitlement, in circumstances where they have not yet done so”.

“As there cannot in general at least be two persons in different capacities in possession at the same time it must follow that a person is entitled to possession for the purposes of section 65 only if 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”.

Stockport’s Argument

Counsel for Stockport argued that the effect of the disclaimer was to terminate the lease, in accordance with Schroder Exempt Property Unit Trust v Birmingham City Council [2014] EWHC 2207 (Admin). Following disclaimer the lessee was no longer entitled to possession. Equally the guarantor was not released from their obligations under the lease. When the landlord served notice on PLL on 19.12.13 requiring it to take the lease, the enforceable obligation gave rise to an equitable lease in accordance with the principle in Walsh v Lonsdale (1882) 21 CHD 9, and as such PLL’s right to possession crystallised at that point.

Judgment

There was no question of PLL’s liability for the period 14.8.13 to 18.12.13. They were not the owner “on the day”, and this was acknowledged by the council. Looking at liability after that point, and referring to Brown, there cannot be more than one “owner” entitled to possession. Therefore it would have to be shown that from 19.12.13 Padwick ceased to have any immediate right to possession. Although Padwick changed the locks it limited its activities to that of a landlord out of possession, and not an owner in possession.

PLL had an obligation to take a new lease, which it did not perform. Not having done so, PLL would have been unable to oust Padwick from the property if Padwick had gone into possession. PLL would not have been able to assert an equitable lease in those circumstances, because it was in breach of its duty to execute the new lease. District Judge Goozee’s rejection of any retrospective right to immediate possession was therefore correct. It was confirmed that PLL were not liable for the period 19.12.13 to 21.4.16 (when the new lease was executed by the court) and the council was not entitled to a liability order for this period.

Other Scenarios

There are other common scenarios for which returning to the principles in Brown should assist in deciding on the liable party.

What if the lease has not been properly executed?

Or where a lease for seven years or longer has been granted but not registered at the Land Registry in accordance with sections 4 and 27 of the Land Registration Act.

To our knowledge, there is no published case law which expressly deals with how a “non-legal” lease is considered in light of section 65 LGFA 1988. However Brown makes it clear that section 65 requires an immediate entitlement to possession and it is not enough that a person has a right which, if exercised, would result in his having possession. Therefore in these scenarios there is an argument to say that the tenant may possess a contract with the landlord to grant a lease (sometimes referred to as an equitable lease) but it would require a claim for specific performance against the landlord to enforce, and therefore entitlement to possess is not strictly immediate.

The question often arises whether a licence confers ownership on the licensee in accordance with section 65. Again the key question is can the licensee exclude the landlord from the premises under the terms of licence? It is relatively common for the landlord to retain a right to enter the property in a licence, and so it is doubtful therefore whether a licence in those circumstances would protect a landlord from empty rates.

If you are facing a billing question on an empty property, please get in touch, and we can assist. Contact richard.kerr@greenhalghkerr.com.