Tuesday, 19 January 2021

Legend of the Guardians: End of Story for Business Rates Relief

 


A recent decision* by the Court of Appeal means installing property guardians in commercial property is no longer a way to mitigate an owner’s liability for business rates.

The Court decided that because of the degree of control over the guardians retained by the owner, although the guardians occupied the premises, the owner remained in rateable occupation.

At a point when more and more properties are likely to fall empty, this decision has removed one of the main drivers behind property guardianship.

Many property guardianship businesses have developed over the last several years.

The reason why property owners usually retain a large degree of control over property guardians is so they don’t inadvertently grant them exclusive possession and with it security of tenure.

In practice guardian licences usually provide that owners can force guardians to vacate on short notice, as well as move them around in large premises, and vary the size and extent of the living space available.

In the licences in question in this case, there were restrictions on having guests; prohibitions on having children at the premises; the guardians were obliged to report damage; were not allowed to be away from the premises for more than two nights in any seven; were obliged to occupy the premises as their main abode; and to politely but firmly challenge anyone who had unannounced access to the premises and contact the relevant authority if appropriate.

As that last point demonstrates, there is another benefit to using property guardians, and that is to provide some security and reduce the risk of trespassers, squatters, and criminal damage.

That advantage remains following this decision, but it will be interesting to see whether that alone is enough to keep guardian schemes going.

The cost of employing security is high, and with the expected large number of properties falling empty this year, there may well still be a place for property guardians.

For the guardians themselves, the arrangement gives them an opportunity often to live in areas they might not otherwise be able to afford.

However, the available properties are often not ideal places to live in and, for the reasons outlined, the terms of occupation are precarious.

And the government takes a dim view of the practice.

In its guidance to prospective guardians, it says:

“The government does not endorse or encourage the use of property guardianship schemes as a form of housing tenure, as guardians can be asked to live in conditions that do not meet the standards expected in residential properties, but people have the right to make their own informed decisions about their housing choices.”

At a recent hearing in Kingston, Kingston Council were unsuccessful in their attempt to evict guardians from a property during the pandemic – their case has been adjourned for a year.

There is also another disincentive to using guardians from the point of view of property owners.

If there are 5 or more occupiers, then arguably an HMO licence will be required (house in multiple occupation), along with adherence to other statutory obligations relating to HMOs, which may in turn also cause planning issues.

It was argued in the recent case that the absence of an HMO licence made the guardian scheme illegal. The Court decided this wasn’t a suitable case to determine that point and Lewison LJ said he preferred not to say anything about it.

Nevertheless, there’s a risk that this point will be taken by other local authorities and result in future litigation.

As many guardianship schemes involve more than 5 tenants, this hurdle together with the end of the business rates advantage, could spell the end of the road.

*London Borough ofSouthwark v Ludgate House Ltd [2020] EWCA Civ 1637 (4 December 2020)

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