Landlord required to pay business rates

Schroeder Exempt Property Unit Trust and another v Birmingham City Council [2014] EWHC 2207

 A landlord granted a 10 year lease to Woodward Food Service Limited (WFS).   They assigned the lease to the Woodford Food Group Limited and entered into an authorised guarantee agreement, guaranteeing the Tenant’s obligations under the lease.

During the tenants lease WF Group Limited entered Liquidation, no longer occupied the property and the liquidator disclaimed the lease. After this, the Landlord demanded rent from the guarantor, this being WFS, which was paid. The local authority then went on to also demand payment of the business rates from the landlord from the date of the disclaimer. The Landlord failed to pay and the local authority obtained a liability order to which the Landlord then appealed.

The Landlord argued that as the tenant had not forfeited the lease, and the guarantor could therefore potentially claim an overriding lease, under the Landlord and Tenant act 1995, that it was not entitled to possession of the property.

The High Court then went on to state that once the lease was disclaimed, it had been determined and ceased to exist, so the landlord ultimately became entitled to immediate possession. The guarantor was liable to keep with the tenants defaults but the Landlord was liable to pay the business rates.

This case clarifies that the person ‘entitled to possession’ of the property is liable for business rates, after the disclaimer of the lease. Although the guarantor may be able to pay the tenants rent, they do not fall liable to pay for the business rates.

For more information, help or advice please contact the Restructuring & Insolvency team.