It is increasingly common to find commercial property owned by a trust, pension or other type of investment vehicle.

The question often arises, particularly in relation to empty property, as to who is the proper liable party for business rates, and perhaps more importantly what are the prospects of enforcing a liability order in the event that that party does not pay.

These structures are often set up for tax planning purposes, by the individuals or corporations purchasing the property. They can be quite complex, but for the purposes of this article, we will look at some of the more straightforward examples.

Self-invested Personal Pension (SIPP)

SIPPs are a type of pension which allow individuals to make their own investment decisions from a range of investments approved by HMRC, including commercial property. Assets and cash are held inside the SIPP and access to them is restricted in accordance with pension laws.

The SIPP provider, usually a company specialising in pension products, acts as trustee or “legal owner” of any property, on behalf of the individual who owns the SIPP, who is the “beneficial owner”.

Control over the assets is normally exercised by the SIPP provider as trustee, but they owe a duty of care to act in the beneficiary’s best interests. If the property concerned happened to be rented out, the tenant would pay the rent directly to the SIPP trustee, who pays it into the associated SIPP bank account, which is also effectively held on trust for the SIPP beneficiary.

Property held by a Trust or Nominee Company

This is a similar structure to the SIPP, except the arrangement does not form part of or sit inside a pension. The property is legally owned by the trustees of the trust, who hold it for the beneficiaries of the trust (the beneficial owners). The duties of the trustee are normally set out in a document such as a deed of trust but similarly to a SIPP, there is a general duty to act in the best interests of the beneficiaries.

The deed of trust is not a public document and it may otherwise be difficult to identify who the beneficiaries are.

Who is Liable?

In most cases, when dealing with an empty property, the name of the party or parties listed in the proprietorship register will be the “owners” for the purposes of Section 65 of the Local Government Finance Act 1988.

It may be necessary in exceptional cases to consider further investigation. For example if the property is held on trust by a nominee company registered abroad or offshore, then it may be reasonable to ask who actually has control of the property whilst it is unoccupied. There may be an agent appointed who can be invited to advise who they take their instructions from. Alternatively, enquiries ought to be made of the nominee company as to who has actual control of the property.

A copy of the relevant deed of trust may indicate, as is sometimes the case, that the beneficiaries of the trust retain the right to control the property. Difficulties may obviously arise if the parties concerned refuse to disclose this documentation, and therefore it becomes difficult to either identify the beneficiaries, or establish whether they are in fact the “owners” of the premises for the purposes of S.65.

Enforcement

The SIPP company is primarily liable where the property is held in its name. In most instances this company will have the means to pay in its own right. In its contractual relationship with the SIPP owner, it retains an indemnity against the assets of the SIPP and so will be able to reimburse itself from cash held in the SIPP bank account. Ultimately the SIPP provider will retain the right to force a sale of the property, so that it can be reimbursed for any outlays such as business rates.

The position becomes more difficult when dealing with a nominee company which refuses to pay and which on paper (i.e. on accounts filed at Companies House) is purported to be worth a nominal £1.

In our experience, the use or indeed threat of winding-up proceedings against the nominee has been effective in ensuring recovery on two bases:

• There is a prospect that any liquidator will have a contractual claim against the beneficiaries for expenses/losses incurred in accordance with the terms of the deed of trust, and so the beneficiaries would ultimately be liable for the debt;

• There is a risk the directors of the nominee company become personally liable for breach of their fiduciary duties as trustees to the beneficiaries, by failing to pay liabilities of the trust (such as business rates), which resulted in it being wound up.