High Court examines test to be applied in business rates cases determining whether person is owner of hereditament

Mrs Justice O'Farrell heard the appeal brought by A&P68 against City of Bradford Metropolitan District Council after District Judge Alex Boyd decided in the magistrates courts to make a liability order against the company for unpaid business rates on a property in Keighley,

O’Farrell J said the central issue raised was the test to be applied to determine whether a person is the owner of a hereditament for the purposes of sections 45(1) and 65(1) of the Local Government Finance Act 1988.

She said the question arose of whether the principles established by the Supreme Court in Rossendale Borough Council v Hurstwood Properties gave rise to a single, composite test or raised two separate questions.

A&P68 was registered as proprietor of the freehold of the hereditament until it was sold in September 2023.

It instructed Verity Commercial Services to attempt to mitigate its liability for non-domestic rates.

Verity devised a scheme that set up two companies, Room for Faith incorporated in March 2022, and Local Faith in July 2022.

In October 2022 a lease was granted by A&P68 to the former which in turn granted a sub-lease to the latter.

The judge said: “The intention was that [Local Faith] would use the hereditament for the purpose of religious worship so as to engage the exemption from non-domestic rates in paragraph 11 of Schedule 5 to the 1988 Act."

It was common ground that the lease and sub-lease were valid, and that no certificate under section 2 of the Places of Worship Act 1855 was obtained in relation to the hereditament.

Bradford in 2023 issued a claim for unpaid business rates of £14,348.90. The district judge found Local Faith not in rateable occupation of the hereditament and that A&P68 was the owner of the hereditament for the purpose of section 45(1)(b) of the 1988 Act and made a liability order.

DJ Boyd found Local Faith had no real and practical ability to occupy the hereditament or put someone into occupation of it, powers that remained with A&P68 throughout the relevant period, meaning it therefore remained the owner.

O’Farrell J said: “Despite the valiant attempt by the appellant to distinguish the decision in Emeraldshaw on the facts, the applicable statutory test is set out clearly in the Court of Appeal judgment.”

A&P68 argued the lease and sub-lease created an immediate legal right to actual physical possession of the hereditament, and the purpose of Local Faith in taking the lease was to further its business activities and it was therefore the owner.

O’Farrell J said: “I reject the appellant’s arguments. There is no challenge to the judge’s finding that the property was unoccupied by [Local Faith].

“It was common ground that [Room for Faith and Local Faith] were incorporated by Verity, and the lease and sub-lease of the property were granted, with the sole purpose of avoiding business rates.

“On the facts of the case, as found by the judge and explained in his judgment, there was no evidence that [Local Faith] had any business activities that were connected with the sub-lease of the property.”

She concluded the judge had applied the correct test and had been entitled to conclude that Local Faith “did not have any real or practical entitlement to possession of the hereditament and therefore was not the owner of the same for the purpose of sections 45(1) and 65(1) of the 1988 Act".

He had also been entitled to find A&P68 remained the owner of the hereditament and the liability order against it was valid.

Mark Smulian